Flipping fraudsters are finally paying the price. 

Real estate agents and investors who game the HUD Homes market are finally facing accountability.

They are being arrested and charged.

Two Charged with Defrauding HUD Program

Two Southwestern PA Men Charged with Defrauding HUD Program

I've been waiting for this moment for more than 20 years. 

The United States Department of Housing and Urban Development’s (HUD) Single Family Property Disposition Program allows individuals to purchase a home from HUD after a Federal Housing Administration loan forecloses. The program is designed to encourage ownership by families who intend to reside in the homes as owner/occupants by allowing those families to bid on the foreclosed properties before the process is opened up to real estate investors who merely intend to profit, short-term, by “flipping” the houses. 

The HUD Homes program has been rife with fraud for years.

Investors disguise themselves as owner occupants in their documents, win the bids, and then they flip the properties. 

"This unlawful abuse of the Single Family Property Disposition program has two effects that frustrate the program’s purpose: first, it can allow real estate investors to potentially outbid families who otherwise would purchase the home and reside in the community and, second, it allows real estate investors to jump the line and bid on foreclosed homes before other investors are eligible," according to the Department of Justice.

There was likely a 30% instance of fraud across the system for years, according to HUD's own estimates.

I sold many HUD Homes over the years. Frequently, I would show HUD properties to investors who wanted to place bids as owner occupants. I declined each and every time. "If we write an offer on a HUD home, you must disclose yourself as an investor," I told them.

"Everybody does it," they told me.

"I don't," I told them.

Occasionally, those investors would choose to work with another agent who would do their bidding. Sometimes they would win those houses and I'd see them come back on the market several months later as a "flip."

Sometimes real estate agents were the purchasers of HUD Homes, investors disguising themselves as owner occupants. Fraud in plain view.

When I saw that happen I documented the cases - HUD reports, MLS sheets, tax records - and sent them to HUD.

Crickets.

At one point circa 2003 I compiled a report of more than 50 clear cut cases of fraud in the Lehigh Valley, PA (where I was working at the time). Names, addresses, timelines. I sent the report to HUD and waited.

Again, crickets.

I contacted HUD and asked why they did not hold agents and investors accountable when they were clearly engaging in fraudulent real estate practices.

HUD was straightforward with me. They told me they did not have the resources to investigate "small fish." They were investigating big fish playing in the mortgage fraud game. They were stretched to the limit.

It appears HUD has decided to hold agents and investors accountable.

That's great and I applaud them!

There will likely be many more new HUD Homes on the market in the coming months. Owner occupants now have a full month of priority in that bidding process. I look forward to selling lots of HUD Homes this year.

I'm happy to work with investors also, when they are eligible to purchase.

And if I see shenanigans - watch out! I will report those to HUD in a New York minute.