Liability Issues in Flipping Homes

Flipping a home can come with as many liability issues as rewards.

House flipping is the process of rehabilitating a home in a short period to resell the home for a profit. This is common in short sale and foreclosure properties.

Disclosure Problems

When selling a home, the seller must disclose any major issues with the property. The individual or partnership flipping the house is responsible and liable for complete disclosure. Since most house flippers focus on cosmetic work alone to resell quickly, major deficiencies with a property may not be discovered until it's too late.

Tax Liability

Income tax laws and property sale laws do not look upon house flipping kindly; house flipping comes with a multitude of fees to the investor, including capital gains tax and assignment fees, as well as property taxes that he must pay at closing.

Liens

When an investor purchases a property to flip that is in short sale or foreclosure status, there can be additional liens on a property that must be cleared for it to be resold. Once the investor puts his name on a contract, the liability for those liens is transferred to him.

References

• Bankrate: Tax Consequences of Flipping Real Estate
• Advantage: Flipping and Taxes