|
|
| Byron W. Brown City of Buffalo Mayor Timothy Wanamaker Kathleen Lynch, Esq. Senator William Stachowski Assemblymember Sam Hoyt
|
WHAT IS FRAUDULENT PROPERTY FLIPPING? Unethical flipping is the quick and/or repeated resale of property at inflated value for profit. The seller buys property at a low cost and claims to make improvements but in reality makes no improvements at all or only minor cosmetic changes. Because the seller uses fraudulent statements or hides the actual poor condition of the property the resale price does not reflect the actual condition of the property. Unbelievably, many of these homes are vacant, have housing code violations and may even be slated for demolition. Properties may be sold for cash or financed with a mortgage. The mortgage may involve one or a number of problems: a fraudulent appraisal indicating that the property is worth more than it is in reality, and/or predatory loans targeting an unsuspecting purchaser with high interest rates and unnecessary fees. As a result of these problems, the practice of flipping properties can lead to foreclosure and abandonment of properties and eventually neighborhood decline. WHY DOES FRAUDULENT FLIPPING HAPPEN IN BUFFALO? Typically, in a city with a shrinking population such as Buffalo there are too many homes and not enough people to live in them. At its peak Buffalo had a population of nearly 600,000 residents who needed housing and supported businesses and services. Currently Buffalo has half the population, less than 300,000 residents, so there are too many houses and too many commercial properties. It is a simple case of supply and demand. In some areas of the City the supply of property is greater than the demand for property. This oversupply results in low property values in these parts of the city. Inexpensive housing combined with the possibility of high assessed value relative to the actual value, results in flippers seeking to purchase properties for quick resale or to use them as a tax shelter. As the practice of flipping has increasingly taken place, the City of Buffalo has become known as a place to buy cheap property. WHY IS FRAUDULENT FLIPPING A PROBLEM? Unethical property flippers and their partners earn money quickly from sales of homes that are in poor condition, overvalued and often worthless. The destructive impact on the purchaser and the neighborhood, however, is more permanent. The impact that these destructive real estate sales practices have on neighborhoods is no different than the devastating effects of illegal drug activity and other crimes. Purchasers or investors of these properties are from all over the country and world. They frequently use Internet auction sites and the City of Buffalo's annual In Rem Auction to accomplish their trade. Once a year, at the public In Rem auction, the City sells foreclosed properties for the price of the tax liens. These sales are typically for very low prices. In auction sales from 2002 - 2005, 84% of the properties sold for under $10,000 and 50% sold for under $4,000. Property is also advertised and sold on Internet auction sites with inaccurate information about the condition. Sometimes homes are listed on the internet that are already demolished or that the seller does not even own. The cost of these conditions is high. Those who reside outside the state and country often do not respond to housing court summonses about property in unsafe conditions. Houses are often left abandoned and contribute to community blight. The City must spend money and use resources to respond to arson, hazardous environments, illegal activity and demolitions. Over time, illegal flipping contributes to an escalating pattern of property value decline. WHAT IS AN EXAMPLE OF A FLIPPED PROPERTY? A typical scam of unethical property flipping involves: A property valued at $15,000 is purchased for $10,000 by a person who claims to be an investor. Within six months the property is sold without any improvements for $20,000 to another person who claims to be an investor, and within another six months the property is sold without any improvements to an unsuspecting homeowner for an inflated value of $55,000. The seller works with an appraiser to fraudulently inflate the value of the property so that a mortgage can be obtained for $55,000 even though the property is still only worth $15,000. Within a few years the overpriced loan takes its toll on the homeowner, she has trouble paying the bills because she needed to invest in major repairs and her mortgage payments are not affordable because of a high or variable interest rate and hidden fees. An example of a known flipped property in the City of Buffalo is 41 Loepere. The short history of ownership of this property:
41 Loepere is vacant, has been cited 14 housing code violations and is
now for slated for demolition. The current owner has never appeared in court
to face housing code violations. |
Western New York Law Center 237 Main Street, Suite 1030 Buffalo, NY 14203 Phone: 716-855-0203 Fax: 716-270-4005
|
