Just when you thought there couldn’t be another scam preying on sellers trying to work with their lender to sell their property in a short sale, a new one pops up.

“Flopping” is the term assigned to this new scam fueled by unscrupulous loan brokers, real estate agents, and lawyers.  Per Lew Sichelman from the Los Angeles Times, often the same “unethical professionals are the same mortgage brokers, realty agents, appraisers, lawyers and title agents who helped their now desperate clients buy their currently undervalued homes in the first place.”

Flopping is the opposite of flipping, another scam that was popular when housing prices were on the upswing. Agents and their lenders would over-value the property so the lender would loan more on it and then the overage was split between with the parties involved often including the seller. With flopping, the property is vastly under-valued so the bank takes less then the actual fair market value in agreeing to the short sale. The property is then later sold for it’s true value again with involved parties splitting the profits.

Make no mistake about it, both were – and are - lender fraud. The seller in the flopping scam may be more willing to participate since they are losing their home and any equity they might have at one time had in the property plus the cost of any improvements. They may feel this is a way to get something back over something they’ve had no control over: a declining market and a recession.   Sellers should be aware of any possible tax liability or the lender trying to recoup the loss directly from the seller and any assets they may have.

So, what’s the recourse for a home seller? Have a trusted real estate professional help you through your short sale process (as always) and be sure to check out the credentials of all participants involved when you’re considering a short sale in the sale of your home.