Suspicions about illegal property flipping in north Minneapolis have led to a major bust and guilty plea. The owners of a Roseville, Minnesota, real estate company pleaded guilty earlier today in federal court to charges of real estate and mortgage fraud in connection with a scheme involving at least 162 properties, principally in north Minneapolis, and mortgage proceeds of approximately $35 million.

Concerns surrounding the scheme were originally aroused by sales that attracted the attention of a north Minneapolis neighborhood association. A Minneapolis City Council member brought the neighborhood association’s concerns to federal, state and county investigators, and soon, two more bad guys will be behind bars.

According to their plea agreements, Jonathan Helgason, 45, of Chisago, MN, a licensed REALTOR®, and Thomas Balko, 37, of Rogers, MN, a licensed appraiser, were the owners of numerous companies, including TJ Waconia, Total Title LLC, Complete Real Estate Services, Inc. and CityWide Management, LLC and Investor’s Warehouse LLC (the TJ Group). From 2005 to 2007, the pair executed a scheme to defraud and to obtain money by means of false and fraudulent pretenses. Using the TJ Group, Helgason and Balko purchased more than 160 properties throughout the Twin Cities metropolitan area,. They would then resell the property within a few weeks to an “investor” who would purchase the property, sight unseen, at a price set by Helgason and Balko without negotiation, oftentimes $20,000 to $60,000 more than that the TJ Group had paid.

Helgason and Balko said that the investors were simply lending their good credit to TJ Waconia, in exchange for which the investor would receive a kickback payment of about $2,500 and a promise of an additional payment after two years when the TJ Group was to repurchase the property from them. Through the scheme, Helgason and Balko perpetrated a fraud on the lenders who were led to believe that the “investors” were the actual owners of the properties, when, in fact, the ownership was in name only.

During the two-year period during which investors owned property, TJ Group was responsible for all payments and maintenance on the property. In some instances, Helgason and Balko also provided investors with funds to pay the buyer’s portion of the property purchase price and worked with others to provide lenders with false loan applications on behalf of the investors so that they would qualify for the loan, according to the plea agreements.

Helgason and Balko, on behalf of investors, obtained approximately $35 million in mortgage proceeds to purchase the properties from the TJ Group. Ultimately, the scheme collapsed, and the TJ Group did not repurchase the properties or continue making payments to the investors in order to pay their mortgages. The investors were left owning properties with mortgages that exceeded their property’s market value.

Another defendant has been sentenced to federal prison in a real estate flipping scheme that involved properties in Springfield and Decatur, Illinois. Frank Kelly Ciota, 47, of Riverton, Illinois, pled guilty last week to one count of bank fraud, one count of wire fraud, five counts of mail fraud, and one count of conspiracy to commit money laundering, and has been sentenced to a term of eight years and one month in federal prison.

Frank Ciota was involved in the real estate scheme with co-defendant Gary Knox, 61, of Decatur, who was sentenced the week before last week nearly 20 years in federal prison. A third defendant, Dennis Wiese, Jr., 39, of Belleville, Illinois, who performed real estate appraisals, is scheduled for sentencing on May 2, 2008.

The three defendants each pled guilty to their respective roles in the scheme which involved more than 150 fraudulent real estate sales and financing transactions of more than $8 million from 1999 to 2005 in Springfield and Decatur, Illinois. Gary Knox represented himself and his business, Central Illinois Management and Development Company, as being in the business of buying, selling and managing real estate; however, he was not a licensed real estate broker or salesperson. Knox and Ciota obtained more than $3 million for their personal use and to promote the ongoing scheme while Wiese received fees of $350 to $450 per appraisal.

The three men admitted engaging to illegally flipping homes, which involves making false representations–including fraudulently inflated real estate appraisals–which were used to entice owners to sell, buyers to purchase, and lenders to finance rental properties that were sold at substantially higher prices than their reasonable value.

Frank Ciota, who was not a licensed real estate broker or salesperson, admitted that his own relatives were among his victims whom he advised of investment opportunities in rental real estate. Ciota falsely represented to one couple that they qualified for financing to purchase 12 to 20 houses. As a result, the couple became unwitting buyers of 12 properties, including four that were purchased within a three-day period in November 2002 for a total of $229,500. Three of the properties–830 S. 12th Street; 1320 S. 13th Street, and 1305 South Grand Avenue East–were purchased by the couple, without their knowledge or approval, on November 5, 2002. The fourth property, at 821 S. 14th Street, was sold to the couple on November 8, 2002, also without their knowledge or approval.

A Denver, Colorado Grand Jury returned a 62-count indictment late last week against a man accused of scamming scores of investors who bought troubled properties and were later forced into foreclosure. Kenneth Germain, born December 12, 1943, is charged with one count of violating the Colorado Organized Crime Control Act, one count of theft, and 60 counts of securities fraud.

From Shawn Patrick at 9News.com:

Prosecutors say Germain scammed dozens of people into buying foreclosed properties from the U.S. Department of Housing and Urban Development and then kept the money for his own benefit. An arrest warrant has been issued for Germain and the Denver District Attorney’s Office says he has made arrangements to turn himself in to authorities in the next few days.

The indictment lists 60 victims with 167 properties involved in the alleged scam. Among the victims is Lisa Downing, owner of Vision Quest Entertainment, a local talent agency. Downing says her life savings and her son’s college savings are now gone, while her credit is ruined.

“I can’t get a loan. I may never be able to get a loan as long as I live,” said Downing. Downing figures she owes more than $2.5 million in loans for nine properties she bought across the metro area. Downing is not only experiencing financial heartache, but emotional stress since the investigation began 15 months ago.

“I was suicidal. My life was over,” said Downing.

Investigators say Germain acted as a property manager for a company he ran known as EQ Invest. The indictment alleges Germain promised investors he would fix up the foreclosed homes, and eventually rent them to suitable tenants, after investors put down 5 percent. Prosecutors say Germain also pledged to make the mortgage payments until selling the properties. Instead, investigators say Germain left his co-investors with the bills.

Downing claims the homes were overvalued in appraisals by anywhere between $40,000 and $90,000.

According to the indictment, Germain pocketed the money to pay for taxes, his personal mortgage payments and to spend at liquor stores.

Downing shakes her head in disgust when talking about Germain profiting from her life’s savings. “I worked so hard, raised my son as a single mom, built a savings to put him through college, and it was over. I don’t have the energy to rebuild it again,” said Downing. Still, Downing says she is lucky to be able to pay part of what she owes to try and save her credit, knowing other victims have lost their retirement savings and more. Many have defaulted with foreclosures on their records, and their credit, like Downing is now ruined.

“People have been divorced, they’ve become sick during this, it’s just unbelievable ruin,” said Downing.

Germain’s business affairs were run through other companies as well, including:

While promoting the real estate sales to the investors, he made the following material misrepresentations:

1. That he had never been sued: He had!
2. That he had never declared bankruptcy: He did!
3. That he had never taken money from the company: He did!
4. That he would repair the properties: He didn’t!
5. That he would make the mortgage payments, regardless of whether the properties were generating rent: He stopped making payments in August of 2006!
6. That he would enroll rental tenants in a program that would make them credit worthy so that they could buy the properties they were renting: This never happened!

Click here to read the entire indictment against Germain.

Has anyone ever heard of Armando Montelongo? For the uninitiated, along with his wife–Veronica Montelongo–and a few helpers, Armando Montelongo’s work as a real estate investor / flipper is featured on the A&E Television Network’s reality show, “Flip This House,” which can been seen on Saturday evenings at 9:00 p.m. Eastern/8:00 p.m. Central on A&E. According to the A&E website, “Flip This House” is an hour-long “docu-soap” that follows the sometimes painful efforts of three real estate developers in New Haven, CT; San Antonio, TX; and Atlanta,GA, where “…each boasts a team of characters that buys homes, renovates them, then flips them for a profit.”

The Montelongos head up the San Antonio contingent, and like other reality TV personalities, Armando Montelongo appears to be looking to leverage his new found fame via the Internet. Some Internet marketing “gurus” even refer to him as “Armando Montelongo, the Internet millionaire,” but you need to take such endorsements with a grain of salt. Internet endorsements are often indirectly paid for through “affiliate” marketing; that is, one business financially rewards another for delivering paying customers.

I recently received the following report from a Flipping Frenzy reader who claims that Armando Montelongo’s company is essentially ripping him off:

“I answered a radio ad for free dvd for flipping houses. It was Armando Montelongo’s Flip and Grow Rich. I gave them my credit card# for shipping. They sent a package of books and cds and dvds. All of which I had 30 days to return. I called and got a Return Authorization Number. I also got a receipt post card from the Post Office. Yet 3 months later I am seeing charges of $86.55 on my credit card statement. I have called them to no avail.“

It doesn’t take much looking around to find Armando Montelongo. Each of these sites…

• BuyFlipItNow.com
• ArmandoMontelongo.com
• Armando-Montelongo.com
• iBuyHousesFlorida.us
• MontelongoHouseBuyers.com

… eventually leads to the same pitch (captured below, sans video):

Opening shot: Montelongo drives a beautiful Mercedes Benz automobile toward the camera–presumably the car is his own, secured via all the money he makes flipping houses and teach others how to do the same. Notice that he’s driving through an industrial office park–again, presumably he has an office here, and you’ll be able to afford one here too if you follow his advice.

Scene continues: Armando Montelongo exits his car…

… and says the following, word-for-word:

“Hi, I’m Armando Montelongo from America’s #1 Hit real estate reality Show, Flip This House San Antonio. Right now I am filming my third season of Flip This House, and guess what, I’m looking for a new eager intern to teach my multi-million dollar real estate secrets to. So if you’re excited and you want to learn about real estate from the absolute best, for totally free, and get an amazing education at no expense to you, simply fill out the form below and I’ll be contacting you to see if you can qualify to be my new eager intern. Fill out the form below, and you could be my new real estate millionaire.”

Taking a look at each of Armando Montelongo’s sites, it’s easy to see why someone may choose to question his tactics:

• Nowhere on any of his sites is there a telephone number
• Many of his sites are packed with Google AdWords–a common tactic used by so-called Internet marketing gurus to generate additional revenue
• There is no mention anywhere of a money-back guarantee for any of his courses, products or services
• His video states he is looking for an intern but there’s no application, job description, or even a hint about who might qualify

On the surface, it would appear Armando Montelongo is preying on the get rich quick hopes of what low level Internet marketers call the “business opportunity” consumer. We’ve all seen “Biz Opp” advertisements, haven’t we? They can be found in the classified section of newspapers and on Craigslist, and they look an awful lot like these:

• Earn $5,000 a WeekWorking From Home!
• Get Real Results Fast! $250,000 1st Year! Not a Trick!
• $$ Make $2000+ per week… EVERY WEEK! $$
• Hottest Opportunity Ever (No Cold Calling)!!
• Get 100 Internet sites for $8,995. Retire Early! Call 1-800-XXX-XXXX.

To be fair, I sell my own real estate investment training via books, including Flipping Houses For Dummies (published by Wiley Publishing), Protect Yourself from Real Estate and Mortgage Fraud (published by Kaplan), Foreclosure Investing For Dummies(published by Wiley Publishing), and Mortgage Myths: 77 Secrets That Will Save You Thousands on Home Financing (published by John Wiley & Sons). The big difference may be that I present real estate investing in a more realistic light. I am always careful to warn prospective investors that investing in real estate requires hard work and carries real risks (and who knows, maybe Armando Montelongo does the exact same thing, but when he uses language like “…you could be my new real estate millionaire,” one seriously has to wonder). Some people–especially those looking to get rich quick–just don’t have the mindset, resources, and support network in place to be successful at flipping houses.

Like Mr. Montelongo, I too have had my fair share of real estate failures, and I’m not one to hide or run away from them either. I tip my hat to Armando for telling it like it is (this statement can be found online via another one of his promotional videos):

When you see me on television, you get to see my successes. What you don’t see is all of the failures that I have had before I started flipping houses. It’s very easy to share your success, but much harder to share your failures with the world. However, I believe in being dirt honest and by doing so, I believe that sharing my failures will actually help you be more successful.

To be clear, I am not saying that Armando Montelongo is a person of questionable character or a real estate guru. I don’t know him personally, nor have I purchased any of his products or thoroughly reviewed his system. Who knows–perhaps he received some poor advice on positioning himself online. Maybe he himself got taken in by an Internet marketing guru who told him that this is how it’s done online. I can only ask the question: Is Armando Montelongo a real estate guru? Is the experience of the Flipping Frenzy reader mentioned above a universal one or an isolated incident?

If you or someone you know has ordered or purchased products or services from Armando Montelongo, please leave a comment to let us know about your experience.

Alexander MacInnes of the Herald News interviewed me this week for a story about a Bergen County, NJ, Real Estate developer who for years exploited unsuspecting homebuyers while bribing city employees to direct tenants in the houses he managed. The developer, 63-year-old Michael Eliasof, pleaded guilty Wednesday to conspiracy to commit money laundering. He was charged with taking nearly $2.5 million in illegal proceeds from the sale of overvalued properties to buyers not qualified to purchase them. Eliasof, who will be sentenced in late-February of next year, is looking at 10 years in prison and up to $250,000 in fines (or twice the amount he gained from his criminal activity).

From the Herald News, courtesy of NorthJersey.com:

The circle of professionals Eliasof worked with included Garfield Municipal Judge William C. Colacino Jr., who was the closing attorney for dozens of deals Eliasof lined up with inexperienced buyers. Colacino was not in court Wednesday and has not been indicted. He declined to comment Wednesday.

Eliasof and 10 co-conspirators, including mortgage brokers, loan officers and appraisers, artificially inflated the values of properties throughout Paterson. They then falsified loan applications and income levels for those buyers whom Eliasof lured in with “no money-down” deals, according to the federal charges.

Eliasof, 63, admitted to controlling the profits and dispersing kickbacks to his lawyer and mortgage broker. In another example of his reach, Eliasof admitted in court Wednesday that he bribed Paterson Section 8 caseworkers to direct tenants in the houses he managed.

In March, 14 public employees from Paterson and Passaic County were arrested on charges of taking bribes from an unnamed property manager who was cooperating with federal investigators. U.S. Attorney Hope Olds, who is prosecuting those cases, said the witness started cooperating after being caught in a real estate scheme.

More from Alexander MacInnes and the Herald News:

National real estate experts said the description of the fraud that occurred in Paterson is a variation of either illegal house flipping or a deal called “cash back at closing” — a scheme in which money is transferred off the books between the parties involved.

Ralph Roberts, a Michigan Realtor and author of “Protect Yourself from Real Estate and Mortgage Fraud: Preserving the American Dream of Homeownership,” said there’s a reason this type of fraud exists.

“It’s extremely profitable,” Roberts said. “That’s why they do it. It’s easier than working.”

As lucrative as the deals are, they often falter and leave a distinct footprint on communities.

“They hurt the neighborhoods, they hurt the tax base, they the hurt schools,” Roberts said. “Imagine living across the street from the house that now sits vacant.”

Read MacInnes’ entire article: “Magnate guilty in housing scheme”

A leading online marketplace for foreclosure properties, yesterday released its August 2007 U.S. Foreclosure Market Report, which shows that a total of 243,947 foreclosure filings–default notices, auction sale notices and bank repossessions–were reported during the month, up 36 percent from the previous month and up 115 percent from August of last year. This is the highest number of foreclosure filings in a single month that RealtyTrac has reported since it began issuing the monthly report in January 2005.

The national foreclosure rate of one foreclosure filing for every 510 households for the month is also the highest figure ever issued in the report.

The jump in foreclosure filings may just be the beginning of the next wave of increased activity for house flippers, as a large number of subprime adjustable rate loans are now beginning to reset. A significant factor in the increased level of foreclosure activity is that the number of REO filings (bank repossessions) is increasing dramatically, which means that a greater percentage of homes entering foreclosure are going back to the banks.

Nevada, California, Florida post top state foreclosure rates

Nevada continued to register the nation’s highest state foreclosure rate, one foreclosure filing for every 165 households–more than three times the national average. The state reported 6,197 foreclosure filings during the month, a 21 percent increase from the previous month and more than triple the number reported in August 2006.

California’s foreclosure rate jumped to second highest among the states thanks to a 48 percent month-over-month spike in foreclosure activity. The state reported 57,875 foreclosure filings during the month, a foreclosure rate of one foreclosure filing for every 224 households–more than twice the national average.

Florida foreclosure activity jumped 77 percent from the previous month, boosting the state’s foreclosure rate from seventh highest to third highest among the states. The state reported 33,932 foreclosure filings, a foreclosure rate of one foreclosure filing for every 243 households.

Other states with foreclosure rates ranking among the nation’s 10 highest were Georgia, Ohio, Michigan, Arizona, Colorado, Texas and Indiana.

Sun Belt, Rust Belt states dominate top foreclosure totals

Seven of the top 10 states in terms of total foreclosure filings in August were located in the Sun Belt, and three of the top 10 states were in the Rust Belt. After California and Florida, Ohio registered the third highest state total, with 17,793 foreclosure filings during the month. The state documented a foreclosure rate of one foreclosure filing for every 281 households, fifth highest in the nation.

Texas, Michigan and Georgia all reported more than 10,000 foreclosure filings for the month, documenting the fourth, fifth and sixth highest state foreclosure totals respectively, followed by Arizona, Colorado, Illinois and Nevada.

Top Metro foreclosure rates in California, Michigan, Florida, Nevada and Ohio

California cities once again accounted for six of the top 10 metro foreclosure rates in August, with the top three spots all taken by California cities. Modesto documented the nation’s highest metro foreclosure rate, one foreclosure filing for every 79 households, followed by Stockton and Merced. Other California cities in the top 10 included Vallejo-Fairfield at No. 5, Riverside-San Bernardino at No. 6 and Sacramento at No. 7.

Detroit posted a foreclosure rate of one foreclosure filing for every 87 households, the nation’s fourth highest metro foreclosure rate and more than five times the national average. Fort Lauderdale, Las Vegas and Cleveland, ranked Nos. 8, 9 and 10.

On the surface, it looks likes one of those too-good-to-be-true businesses, plucked straight from a late-night television infomercial. You buy foreclosed homes and turn them around in a short time for a big profit. “It’s the American dream,” notes Scott Smith, a Staff Writer who covers the courts, crime and high seas rafters for Stockton, California’s The Record.

And in the case of Stockton’s own Iftikhar Ahmad — who was arrested by federal agents earlier this month and arraigned on seven charges of identity theft, mail fraud and illegally sending money out of the country, only to be freed on a $1 million property bond — Smith tells us how federal agents suspect it’s all too good to be true.

From this past weekend’s online edition of The Record:

FBI details housing fraud case
Stockton man awaits a court hearing Thursday

By Scott Smith
Record Staff Writer

Ahmad is accused of spearheading a ring using his company I&R Investment Properties to illegally “flip” more than 100 homes, allowing him to reap millions of dollars along the way. Flipping property, or buying a home to fix it up and sell it at a profit, is not a crime, but authorities say Ahmad broke the law the way he did it.

So far, Ahmad, 36, and two others have been arrested and charged in a Sacramento federal court based on a 140-page FBI affidavit that implicates a dozen others, including Ahmad’s three brothers and those who appraised, notarized and serviced the escrows for the properties.

The one common thread in all the deals was Ahmad who bought up Stockton homes in foreclosure - often paying cash - and sold them at inflated prices to “straw buyers,” or fake buyers, created with the help of stolen identities or fake documents, the affidavit said.

Ahmad supposedly sold the homes to some of those named in the affidavit who obtained subprime loans using the false identities. That allowed them to put little or nothing down to start. Most of the homes went into foreclosure within months when nobody made the loan payments, the affidavit says.

Ahmad amassed $8.6 million in the past decade, and sent $484,000 to his native Pakistan without reporting it, according to federal agents, who were tipped off when a Sacramento-area woman reported she was a victim of identity theft.

“I still want to know, ‘How did I get involved?’” said Rebecca Wood, a senior legislative assistant for state Assemblyman Greg Aghazarian of Stockton.

Wood said she never bought property in Stockton and does not recall ever meeting Ahmad. But one day nearly four years ago, stern creditors started calling to tell her she was not making her house payments. Wood called police.

“I had visions of me in a jail cell,” she said, describing the panic she felt at first. “Seriously.”

The FBI and Internal Revenue Service turned their attention to Ahmad, digging papers from his curbside trash, going undercover to inquire about the sale of the El Camino Motel on Mariposa Road owned by one of Ahmad’s brothers, and pouring through 100 mortgage deals.

For more on this developing story, including a list of illegal house flipping red flags to be on the lookout for, read “FBI details housing fraud case.”

Michael Garcia, the U.S. Attorney for the Southern District of New York, announced the indictment of Wilson James Baston, Jr., also known as Will James, by a Federal Grand Jury in Manhattan last week. The Indictment alleges that, over the past five years, Baston defrauded victims out of millions of dollars through Will James Equity Partners, Inc., which claimed to be a real estate investment program which purchased distressed properties in the New York City area as investment vehicles for long and short-term investors.

According to the indictment, from 2002 until earlier this year, Baston recruited over 70 investors through false promises of guaranteed short-term, high rates of return on investments in distressed properties, with additional guarantees on the principal investment. Baston recruited investors in Will James Equity Partners, through a variety of means including word-of-mouth referrals, classified advertisements in the New York Times, and promotional literature. According to one promotional brochure, Will James Equity Partners, purchased so-called “pre-foreclosure” property using funds from “a variety of equity partners,” with terms determined on an individualized, venture-by-venture basis. The brochure stated that, “…equity partners are securitized by first mortgages on the property; paid interest at above market rates; and receive their full equity loan in a balloon payment together with an agreed upon bonus at the sale of the renovated property.”

Baston documented the terms of these investments in promissory notes, in which he promised to pay interest rates, often as high as 20 or 30 percent, to investors along with a guaranteed return on their principal balance within short periods of time, often 30 days or less.

On many occasions, Baston initially repaid both the invested principal and interest as promised, which served to entice his investors to continue investing in Will James Equity Partners, and in most cases, to invest additional, larger sums of money. To make these initial payments to new victims, Baston used monies from other investors, rather than from purchasing, renovating, and flipping preforeclosure properties as he had described to investors. Because his victims believed these initial investments to be successful, many agreed to roll-over their invested funds into new investments, or often invested additional, larger sums of money in the scheme.

Once his targets invested a significant amount of money in Will James Equity Partners, Baston stopped paying them the promised interest and did not return their principal. Eventually, when the victims began to complain to Baston that he had deceived them, Baston employed a variety of lulling tactics and avoided responding to their calls and inquiries. Baston specifically instructed his remaining staff members to deflect inquiries from victims in order to avoid them. When he was unable to avoid some of his investors, he gave false explanations as to why they had not been paid. Despite his claims to victims that Will James Equity Partners, had financial difficulties and was unable to pay back its current investors, Baston continued to recruit new investors by falsely representing the enterprise’s success. In some instances, Baston paid the most vocal victims with the funds he received from these newer investors.

The Indictment alleges that Baston obtained over $10 million from his victims pursuant to this scheme, and charges him with 11 counts of mail fraud and six counts of wire fraud. If convicted on all counts charged in the Indictment, Baston faces a maximum of 85 years’ imprisonment.

Last November, when my book Flipping Houses For Dummies came out, I billed it as a book about “Flipping Houses the Right Way.” In the book, I provide readers with a realistic approach to flipping houses that does not guarantee easy, risk-free, hassle-free riches through investing in real estate. I show people how to estimate expenses and profits realistically and build in enough of a buffer to be fairly certain of earning a 20-percent return on their investments before they even buy a property. I am careful to say, however, that no form of real estate investing is entirely 100% risk-free.

I was disturbed to see in a recent article, “‘Flip This House’ Star Accused of Fraud,” that the star of the A&E television show Flip This House, Atlanta businessman Sam Leccima, wasn’t exactly following my lead and flipping houses the right way. If the allegations are true, Leccima didn’t even own the properties he was supposedly buying, rehabbing, and selling. The entire “reality” show was one big farce, giving a whole new meaning to the concept of “staging” a home.

For their part, A&E recently issued the following statement:

We are dismayed about the allegations concerning Mr. Leccima, which only recently came to light. A&E Television Networks is not a party to any of the transactions shown in Flip This House, and we believed that the programs accurately depicted the featured properties and sales. As soon as we learned of these allegations, A&E took all episodes featuring Mr. Leccima off the air, and they will remain off the air pending further investigation. A&E no longer works with Mr. Leccima. After the second season of Flip This House, we decided to change direction and focus on different cast members, as we did after the first season.

This breaking story reveals something that honest real estate professionals have been aware of for a long time—not everyone who claims to be an expert in real estate investing is the real thing. Real estate investment gurus abound, promising that their system for investing in real estate offers a no-risk, no-hassle way to big overnight profits. The fact is that you can earn excellent profits by investing in real estate, but that it requires hard work, know-how, and stictoitism. You have to know what you’re doing and work hard to make it happen. In the flipping arena, you have to flip houses the right way, preserve your integrity, and earn the trust of your community in order to achieve long-term success and profits.

Remember that the homes you are flipping are real. The money you invest is real. The families who end up living in the homes you flip are very real. So don’t follow someone who dangles a get-rich-quick carrot in front of your nose or broadcasts an unrealistic version of a supposed reality show. If it sounds too good to be true, it probably is.

Launched in the fall of 2005, this site–FlippingFrenzy.com–has become one of the leading resources for following the crusade to spot, stop, and report real estate fraud. Using this site, homeowners and real estate industry professionals alike can learn about the latest efforts in the fight against the type of “flipping” that involves scammers and fraudsters committing, in many cases, mortgage fraud, and how to report it. However, what if you want to learn how to flip houses the right way, for an honest profit? Check out my new site, GetFlipping.com.

GetFlipping.com is devoted exclusively to the practice of flipping houses–buying fixer-uppers below market value, repairing and renovating them, and then selling them at or near full market price. GetFlipping.com will become a comprehensive house flipping Web site available. Right now, visitors can read a sample chapter from my new book, Flipping Houses For Dummies, check out the Flippers Tip of The Day, read an account of a sample property I flipped, check out before and after photos, and sign up for a free 31-day house flipping course.

Although the title of the Web site encourages visitors to “get flipping,” the site actually offers a more realistic view of flipping houses, pointing out some of the risks and pitfalls that investors face whenever they choose to invest in real estate. GetFlipping.com and Flipping Houses For Dummies both advise novice investors to build a strong investment team, including a licensed Realtor®, mortgage broker, and real estate attorney.

My goal in creating GetFlipping.com and writing Flipping Houses For Dummies is to help real estate investors, particularly novice investors, minimize their risks and maximize their profits. Investors must remember that you make your profit when you buy, so you have to be sure you are buying a property that you can sell for twenty percent more than your total investment in it.

Flipping Houses For Dummies includes instructions and a form for estimating the potential profit, and within the next week or so we will add an automated Purchase Price Estimator to GetFlipping.com that can help investors estimate their maximum purchase price in order to be fairly certain of earning a 20% profit.

GetFlipping.com also includes a blog, where I post additional information on house flipping and real estate investing in general, and where visitors can post their own comments, questions, and house flipping stories. Ultimately, I want to create a dynamic community of house flippers who can share information, tips, and strategies, and celebrate one another’s success.

Buy a $2 million dollar house for $1.5 million? That’s what some con artists would have you believe in a fairly common illegal house flipping scheme that targets novice real estate investors.

Here’s how it works. A sham company advertises a FREE real estate investment seminar in your area. All you have to do is register with your name, address, phone number, and social security number. The company uses this information to pull the credit reports of registrants and identifies registrants who have top-notch credit scores–people who are likely to be approved for big loans. These lucky winners become the targets of the scam.

At about the same time, the company does a little research to find expensive homes that have been on the market for a year or more–homes that the sellers are probably pretty eager to unload. They approach the sellers with a deal. Say the sellers have had the home listed for $1 million for the past year. One of the company’s representatives approaches the sellers and says, “We’ll buy your home and pay full price under one condition–you take it off the market for three months and then re-list it at $2 million.”

If the seller agrees, the company hires an appraiser willing to value the home at $2 million. At the FREE seminar, the speaker or one of his accomplices approaches an attendee who’s been identified as someone able to qualify for a big loan. He tells the would-be investor, “We have an excellent opportunity for you–a $2 million home you can buy for $1.5 million.” Assuming the investor is on board, all of the pieces are in place to execute the scam.

The company helps the investor obtain a loan for $1.5 million payable to the company, pays the sellers $1 million for the property, and pockets the remaining $500,000. The investor ends up owing $1.5 million on a house that’s probably not even worth the seller’s original asking price of $1 million. In an attempt to score a quick $500,000, the investor loses at least $500,000!

To avoid falling victim to such a scam, take the necessary precautions:

1. Don’t provide sensitive information, especially your social security number, to any company you don’t have reason to trust.
2. Avoid registering for FREE investment seminars online or off. They’re usually in the business of selling you their investment program or identifying potential marks.
3. Question the logic of the deal. If someone knows of a $2 million property they can buy for $1.5 million, why are they telling you about it? Wouldn’t they want that sweet deal for themselves?
4. Research the property yourself. By looking at MLS listings for comparable properties for sale in the same neighborhood, you can quickly determine whether the price is inflated.
5. Remember that if it sounds too good to be true, it probably is.

You can make money investing in real estate, but you have to do your homework. If someone approaches you with a great deal, it may be a great deal, but you can’t be sure until you’ve done some of your own research. Never buy a house you haven’t seen with your own two eyes. Have your own, independent Realtor® or appraiser provide a second opinion.

Robert “Bob” Bruss–a California Real Estate attorney/broker and the former director of the National Association of Real Estate Editors, but best known as a respected and widely syndicated writer and consumer advocate for all things Real Estate–just reviewed my latest book, Flipping Houses For Dummies. From Bruss’ weekend column:

Realty Broker Reveals How to Profit From Flippers
By Robert Bruss
Sunday, December 17, 2006

In good markets or bad, real estate broker Ralph R. Roberts reveals in “Flipping Houses for Dummies” how he acquires run-down houses, fixes them up, and then either “flips” (sells) them for a profit or holds for long-term investment. Roberts, a highly respected real estate author, trainer and broker, shares his techniques along with advice on how to minimize the tax bite on profits.

Every serious real estate investor who wants to earn large profits needs to understand the methods Roberts uses because he has perfected flipping houses almost to a science. He thoroughly understands and explains all the critical aspects, including locating the properties to determining if they are suitable, negotiating a successful purchase, supervising the fix-up work, and making a profitable resale.

As a longtime real estate broker, Roberts knows all aspects of the home brokerage business and he doesn’t hesitate to share his insider secrets. For example, he says, “Nothing on the MLS (multiple listing service) is the gospel truth. Sellers and real estate agents alike often estimate room sizes or make mistakes when entering details. Approach all prospects with a discerning eye.”

Even if you are not interested in “quick flip” real estate profits, this is a great book to study because the author shares so much of his real estate knowledge which he gained, starting at age 19, over more than 30 years in the real estate business.

Maybe Roberts is getting a little “salty” in his old age, but he exposes secrets most Realtors would never share with their clients. Examples include how to obtain a “listing history” of a property, how to determine what the seller paid, how long the property has been on the market even with more than one listing, and if the property is difficult to “unload.”

This is a “fun read” book in the usual dummies style, which includes features such as tips, warnings and even several sanity checks. Along the way, Roberts shares many personal examples to illustrate the topics, making the book extremely valuable so the readers don’t make the same mistakes he made.

Throughout the book there is heavy emphasis on what to look for in a potential flipper house, how to locate them, how to acquire them, and how to finance them. Roberts provides valuable insights about the importance of borrowing funds. “As a real estate investor, good debt gives you leverage,” he advises, meaning you control the property with little of your own cash.

Along the way, there are several excellent checklists such as the “profit projector” and the “home inspection checklist” so no important aspect is overlooked when evaluating a possible flipper candidate.

Especially valuable is the chapter on “The Art of Haggling: Negotiating a Price and Terms.” Having sold thousands of homes at his real estate brokerage, Roberts is a “pro” when it comes to negotiation and putting sales together. His negotiation strategies are priceless. I especially enjoyed the part about “digging up pertinent information about the seller.” If you are a serious real estate investor, this chapter is a “must read.”

Foreclosures receive extra attention because they offer special flipper profit opportunities. Acquiring these properties can be tricky, but Roberts simplifies the process as much as possible without getting bogged down in details. Of course, it helps that he has a full-time associate who specializes in acquiring these distress properties.

This book is designed for realty investors who want to profit from buying below market, making cosmetic improvements to add value, and then quickly reselling. But real estate agents and home buyers should also study it because of the valuable insights offered by a longtime, very successful real estate broker. On my scale of one to 10, this superb book rates an off-the-chart 12.

Flipping Houses for Dummies, by yours truly and Joe Kraynak is available in stock at bookstores across the country or from Amazon.com.

In August of 2005, a federal grand jury returned a twenty-one-count indictment against four people for participating in an extensive land-flipping scheme involving residential properties in Manatee and Sarasota Counties, Florida. Named in each of the twenty-one counts were Kelly Abercrombie and her husband, Todd Kerber. The indictment alleged that Abercrombie and Kerber, along with Todd Kolbe, Kirk McVey, Aaron Kolbe, and Amy Samelson, participated in a scheme to defraud Home Star Mortgage, LLC, a New Jersey based mortgage lender which made, bought, and sold residential loans/mortgages, by illegally flipping some thirty residential properties located in Bradenton, Osprey and Sarasota, Florida.

The indictment alleged that companies owned and controlled by Kolbe and Abercrombie purchased residential properties at or near their fair market value and immediately flipped or resold them to straw buyers who received mortgage loans in amounts substantially higher than the value of the properties.

The reason I mention this now–a full year-and-a-half later–is because this morning’s online edition of the Herald-Tribune reports that some of these fraudsters have finally been sentenced and are now heading federal prison in South Dakota. For an extensive account of one family’s involvement in real estate fraud, read Family, friends in on real estate plot, by Herald-Tribune business reporter and columnist Michael Braga.