What a great way to make money! Buy an old house, fix it up, and then resell it for a tidy profit. Let the good times roll! Of course, the A&E reality show “Flip This House” well documents how painful the process can be.
Sure, there are professional house flippers who are good at what they do and who can count on making a handsome living from their dealings.
But given the speculative nature of the real estate market, it still comes as something of a surprise that a California jury would award $600,000 in lost profits to an experienced house flipper who was snubbed in his efforts to purchase a decrepit San Francisco home.
Tom Tarrant is an ex-San Diegan who is flipping houses in San Antonio. Here is a youtube of a 1923 Craftsman-style house that he painted with seven colors! Click here for more details.
Fortuno, a company that bills itself as the “Costco of real estate,” has been sued by investors in Los Angeles Superior Court for allegedly duping them into buying what were essentially worthless REO properties.
The unrelated plaintiffs claim they were mislead into investing in an REO property flipping scheme that left them with virtually worthless properties, while Lodi, Calif.-based Fortuno made money off the deals, according to the suit, filed by the Law Offices of Andrew M. Wyatt of Los Angeles.
The suit claims Fortuno and four executives — CEO William Yotty, CFO Harry Martin, Senior Vice President of Operations Barbara Thomas and President of Customer Service and Sales Bruce Grogg — misrepresented to plaintiffs that it would sell the investors homes at low-price mark-ups and that it could then help them re-sell the houses to third parties at substantially higher prices. The 24 plaintiffs in the suit bought a combined 41 REO properties in Ohio and Michigan for prices ranging from $25,000 to $31,995 each.
“Through the use of other independent real estate marketing sources, the Fortuno Enterprise sells dilapidated condemnable homes for $10,000 to $20,000 more than they paid for and were not ‘fixer uppers,’ ” the suit claims. “After relying on these representations, Plaintiffs purchased the homes to find that they were not inhabitable and required extensive repairs.”
“The Fortuno Enterprise also promised to find a buyer for the properties at a substantial profit to plaintiffs. The so-called buyers were unqualified and often failed to make payments thereby creating a hold-over tenant requiring eviction,” the allegations continue. “For other plaintiffs, no purchasers could be found and the houses were unmarketable in their current conditions.”
The plaintiffs claim they were told Fortuno would “do everything for them” to facilitate the sale, and once the investor took ownership, the company could help the investor either make repairs necessary to sell it as a nondistressed home or ready it as a rental property, at substantial profit to the investor.
Instead, the suit claims Fortuno sold the plaintiffs homes in poor, unmarketable condition with high-price mark-ups, while also failing to find qualified buyers. After the purchase, the plaintiffs allegedly unforeseeably encountered significant “fix-up” costs; threats of condemnation by local government officials for safety violations; an inability to sell the houses due to their dilapidated condition and lack of qualified buyers; negative cash-flow; high property taxes; and eviction legal costs when the buyers defaulted on payments.
We’ve seen and heard about flippers paying more and more (too much!) in the competitive trustee-sale environment at the court house steps. With the backlog of occupants not vacating the foreclosed properties, there is bound to be some overlap.
The 3,278sf house in this video went back-to-bene in December, but only recently vacated. A few doors up, a flipper paid $810,000 on April 28th for a slightly bigger model on the same side of the street, but there you have to look through the trees to see the golf course.
Lo and behold, both hit the MLS within three days of each other, both priced at $899,000 – and the race to get out first, was on! This one was marked pending today:
I don’t want to beat a dead horse – we know that realtors are committing fraud and deceit. Here’s an example of one guy, the previous listing agent of this house, who has been inputting short-sale listings onto the MLS for the last 1+ years, with the vast majority (over 75% of them) marked pending or contingent immediately.
If your clients are getting what they want, then maybe you can sleep at night. But when just as many of a broker’s listings are being foreclosed on, as are selling, there’s a problem:
This is the second half of the ‘luz tour, covering the western side.
At the end of the video there is mention of a flipper who just paid $1,430,500 at the trustee sale on January 13th, and then closed escrow with the new buyer on February 26th for $2,175,000 cash. If you’d like to see photos of it, click here:
What a great way to make money! Buy an old house, fix it up, and then resell it for a tidy profit. Let the good times roll! Of course, the A&E reality show “Flip This House” well documents how painful the process can be.
