Five men in Des Moines have been charged with federal bank fraud. They are accused of "flipping" homes, using short sales to generate a quick profit. This type of transaction is prohibited by the laws governing the banking industry.
The alleged fraud involved 18 home transactions between March 2009 and March 2011. The indictment claims they used one company to negotiate the short sale. Short sales became common after the mortgage crisis left many borrowers underwater, owing more on their home than they were worth.
Short sales allow a bank to sell a distressed property without a foreclosure, and they accept less than the value of the outstanding loan. The indictment indicated they would used a company to purchase the home and resell it at a profit
They made $400,000 from the operation, which was less than $80,000 for each of the men. However, given the outcry that resulted from the near collapse many large banks and the billion dollar bailouts that were needed to save the industry, the Justice Department can be unforgiving when prosecuting these types of charges.
Many white-collar crimes, like bank fraud, can carry significant fines and jail terms that can destroy the career and lives of those charged. In many cases, federal prosecutors will overcharge an indictment by stacking numerous charges.
This may create great pressure on some defendants to accept a plea agreement, as the risk of a long sentence is great.
A defendant facing this scenario needs to discuss carefully these issues with their attorney, as a conviction would carry with it the potential for a long sentence in the federal prison system, where there is no parole.
The Des Moines Register, "Five charged in house 'flipping' scheme," Grant Rodgers, August 12, 2014