For many, house flipping is a way to make a lot of money, quickly. As with any "get rich quick" scheme, there are many people in the business looking to take advantage of someone. Even perfectly legal house flipping can run afoul of the law unintentionally, especially since government and law enforcement agencies are now keeping a closer eye on the practice.
For those wanting to get involved in the house flipping business, they should be aware that there are shady characters in the business. This has led the Federal Housing Administration (FHA) to tighten regulations on quick reselling of houses. There are also many regulations governing real estate and many of the functions of buying or selling a house require a state license.
Probably the most closely watched legal issue with regard to house flipping is mortgage fraud. Under these schemes, a house is bought and appraised at a greatly inflated price. It is then sold to an unsuspecting buyer for much more than it is worth. As a result, the buyer is more likely to default on the mortgage, and the issuer of the mortgage loses money.
As a result of this the FHA in 2003 placed restrictions on houses that are resold within 180 days and completely stopped issuing mortgages on property sold more than once in a 90-day period. Since many houses that are flipped are in lower income areas, FHA is one of the primary lenders able to have an effect on legitimate house flippers.
There also are many people out there who are more than eager to take advantage of someone who wants to buy or sell a house with the intention of flipping it. For the seller, this is particularly cruel since most likely they are selling because of a financial problem. Their problems become compounded by someone who takes advantage of them by offering to help, then skimming off what little money the seller has left.
In such cases, the unscrupulous "agent" will read through public records to see who has filed bankruptcy or whose house is in foreclosure. They will approach the person with the offer of help, either from an expert who will negotiate with the mortgage company, or a "buyer" who is willing to purchase the property. They will get the seller to sign a contract at which point it just so happens that the expert is either unable to help as expected, or else the buyer backs out, and the shady agent keeps his commission. The person looking to sell is left in even deeper financial woes.