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What are some common legal issues house flippers face?

On Behalf of | May 7, 2024 | Real Estate Transactions |

Several television shows have popularized house flipping. These shows may make the process seem more glamorous than it actually is, but with a combination of ability, work and luck, an Arizona resident can indeed make a decent living by buying, re-furbishing and then marketing residential real estate.

Like any other business, flipping carries risk. To turn a profit on an investment home, the flipper must be able to sell it for more than the sum of the purchase price and the cost of remodeling the home.

House flippers also face several legal risks.

  • If the Federal Housing Administration is insuring a mortgage, there are restrictions on how often one can purchase and sell a home.
  • A flipper who plans to do significant remodeling will need to be aware of building codes, zoning rules and the like. They may have to advocate for themselves before a government body in order to pursue a project. They will also need to understand at least the basics of construction contracts and transactions.
  • A flipper may want to handle the real estate transaction itself both at the time they purchase the property and at sale. The process will include making sure both the purchase contract and other important documents protect them and ensure that closings can go forward without the risk of future difficulties.
  • On a related point, a flipper who is relying on mortgages and financing must be careful to follow any applicable laws.
  • Although one hopes never to run into a title problem with an investment property, flippers may have to work with their title insurance company or even litigate themselves to resolve title issues than can affect the value of their properties.
  • State and federal fair housing laws are broad. Even those with no intention of unlawfully discriminating against others can run afoul of them because they do not fully understand their obligations.
  • As a house flipper gets established, they will likely have to organize their business, hire employees and take other steps that will require some knowledge of general business law.

House flippers can account for their legal risks with careful planning

A legal problem can mean the difference between a profitable flip of a house and what could in the worst case be a financial disaster. Those in the Phoenix area who wish to flip houses should make sure they understand their legal obligations, options and alternatives.

A good legal strategy can do a lot to prevent problems. If a legal issue does arise, planning and attention to detail can also mean a successful outcome.