Real Estate "Flopping" The New Corporate Screw Job

[eridani]

http://www.dailykos.com/story/2013/11/14/1255423/-Real-Estate-Flopping-The-New-Corporate-Screw-Job

Flopping

In 'flopping,' a home is purchased by insiders at a steep discount, then immediately sold for a big profit.
" at a steep discount"

But the resale doesn't necessarily happen right away - they can and will buy the home and rent it out first and then boot the renters out when the market price of the house increases.
A realtor referred to this practice as

"It's just robbery," she says. "And I don't know how to stop the robbery."
This after clients of hers made an offer higher than the asking price and lost the purchase - BUT the house sold for WAY less to an investor - $40,000 less than her clients had offered.

When she asked the listing agent why, she was told to "leave it alone."

"leave it alone."
We can't afford to do that!

This is literally stealing - but they very seldom get caught or prosecuted.
Which is becoming the norm for big banks and Wall Street.

[dixiegrrrrl]

1. Been hearing a lot about that of late.

Gotta give the thieves credit for imagination;they are coming up with new and better ways to screw us.

[Laelth]

2. k&r for exposure. n/t

-Laelth

[Wilms]

3. ^

[snot]

4. I'm not sure people understand what's happening here.

The way I read it is:

The bank that foreclosed on the property, or whatever entity it sold the property to, appears to be taking a substantial and entirely avoidable loss. So is the broker.

Neither the bank nor the broker have any apparent incentive to do this, unless they are somehow benefitting indirectly.

For the seller, the only benefit I can imagine is that the selling institution has some kind of agreement or affiliation with the buying institution. (Granted, banks sometimes sell at a reduced price in order to offload a property quickly, but that doesn't seem to fit the situation here. First, we've been told that many lenders sat on foreclosed properties for a long time before trying to sell them -- the dreaded "backlog." Second, they're not totally stupid. If the market's now so hot that they could double their proceeds by waiting just 15 min. longer, they'd do it -- unless there's some kind of other, greater benefit in not doing so.)

Such an agreement could be legit, i.e., if the seller has an open agreement with the buyer that, as part of the consideration for selling at a below-market price, the seller gets a cut of the rent and/or eventual sale. In which case, the seller's shareholders should ultimately benefit.

Or it could be not so legit; e.g., if there's an agreement or affiliation that is not clearly disclosed to the seller's shareholders, pursuant to which the buyer or someone other than the seller is benefitting exorbitantly from the below-market sale.

The seller bank is entitled to do whatever it thinks best in order to maximize its profits from the property, so long as what happens to the proceeds is disclosed to the shareholders. But if a below-market sale is made in order to siphon value off for the benefit of others -- in order, in short, to loot value from the balance sheet of the bank, without accountability to the shareholders, and divert it to another entity or its owners -- that should be illegal.

For the broker, a possible benefit might be that even though their fee per house is cut in half, they make up for it in volume, because there's an understanding with the seller that the seller will funnel lots of properties their way, and they'll have to do little work to close the sales.

[bemildred]

5. "Payments outside of escrow".

Payola, kickbacks, graft, it has many names.