Legislature Must Address Real Estate “Flipping” to Fight Foreclosures

By now just about everyone is familiar with Michigan’s dismal foreclosure statistics. We have the fourth-highest foreclosure filings in the country, and the Detroit area has the fifth-highest foreclosure filings among major metropolitan cities.

Foreclosures, abandonments and auctions are depressing property values throughout Southeast Michigan, and home ownership is becoming less and less attainable for Wayne County residents. To reverse this trend, the Senate recently passed bipartisan legislation intended to protect consumers from fraudulent or unscrupulous lenders.

While I am pleased that the Legislature is finally taking action to fight mortgage fraud, we must now shift our attention to another challenging issue that is feeding our state’s foreclosure crisis. The practice of real estate flipping — where a property is purchased and resold quickly for exorbitant profits — has existed for decades, but it exploded in popularity during the real estate expansion that occurred earlier this decade.

Most often, illegal property flipping involves three players: a real estate appraiser, a mortgage originator and a closing agent. A home is purchased for a low value by a buyer who has no intention of paying their mortgage, and then a new inflated appraisal is obtained. The house is then sold for the inflated value to an unsuspecting homebuyer, who winds up with a mortgage that is significantly higher than the true value of the home.

There have already been numerous cases of house flipping in Wayne County where property values were inflated by fraudulent appraisals. That’s why I introduced Senate Bill 927 last month to help fight this practice and reduce foreclosures.

Currently, in many cities like Detroit, register of deeds offices are experiencing a severe backlog of documents for recording. This only exacerbates the problem of real estate flipping since some properties across the region have already been flipped multiple times. As a result, these fraudulent mortgages have gone unrecorded, and in many cases unreported.

As inflated property values get compounded over time, innocent consumers may get stuck with a mortgage payment that does not accurately reflect the true value of their home. This in turn increases their risk of filing for foreclosure.

My legislation would help solve the problem of illegal real estate flipping by revising the current register of deeds law to reflect modern filing procedures that are available to help expedite their work. Specifically, the bill would specify how electronic records should be processed and kept, and delete provisions related to paper recording forms and procedures.

As a result, mortgages could be promptly recorded on the day they are filed, which would help the register of deeds identify irregular real estate practices and hopefully stem the tide of illegal home flipping.

Our economic future depends on solving this foreclosure crisis, which is why the Legislature must do everything in its power to fight these fraudulent real estate practices and help keep consumers in their homes.