Real estate investors have discovered a formula that transforms Tampa Bay's housing crash into quick and easy profits.
In Hillsborough County last year, 242 homes were bought and then resold within just one day. Another 113 sold the same way in Pinellas. To be clear, that's not a seller finding a buyer in one day and entering into a contract that closes weeks later. It is a property bought and sold in one day, start to finish.
The price markup on one-day flips averaged $9,728 in Hillsborough; $7,545 in Pinellas.
Darren Wilson got a hard lesson in this frenzied business in October when he offered $18,000 cash for a foreclosed house in Tampa's Seminole Heights neighborhood. Wilson says he refused the real estate agent's request to also represent both him and the seller, so she wouldn't have to split the commission.
The home later sold for $16,900. The same agent Wilson turned down wound up representing the seller and the buyer, West Florida Wholesale properties. West Florida sold the home again for $26,000, a 53 percent markup.
Wilson lost the deal despite making the higher bid, and the bank lost $1,100.
Said Wilson: "There is something strange going on here."
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Flipping isn't new. It was common during the real estate boom that peaked in 2006. People profited by buying and reselling homes in a rapidly appreciating market.
Today, in a depressed market, astonishing speed stands out.
In calendar year 2011, 587 homes sold twice in Hillsborough County. The median time between the first sale and the close of the second: three days. Pinellas experienced a similar pattern.
A Tampa Bay Times investigation of property deals in Hillsborough and Pinellas counties found that four firms account for more than 30 percent of the flips that take a week or less.
One of them is West Florida Wholesale Properties, the firm that bought the house Wilson wanted. In 2011, West Florida bought and then resold 139 properties within just 60 days.
Most of West Florida's flips took place in much less time. The average was nine days; the median 5.5 days. On average, the final selling price was 33 percent higher than what West Florida originally paid.
Take as an example West Florida's flip of a three-bedroom, two-bath 1,864-square-foot house at 3909 Deleuil Ave. in Tampa.
Fannie Mae, the government sponsored mortgage holder, had foreclosed on the home in November 2010 and subsequently sold it two months later to California-based USA Rental Fund LLC for $19,000.
On March 14, West Florida bought the house for $39,500.
That same day, West Florida resold the house for $69,000.
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The Times asked how West Florida Wholesale Properties can flip so many homes so quickly.
Lee Kearney, a real estate agent and husband of company managing member Megan Zelinskas, said West Florida finds potential buyers while still negotiating with the bank to buy the property.
Kearney said many West Florida customers are investors from France, Spain and England. He said the firm promises to fix up the homes after the sale, so the investors can then rent them out. West Florida profits on the quick flip by convincing buyers that the home has future earning potential, Kearney said
He said the investors make more in rental profits than they could make in the stock market.
"We send before and after pictures" to the investors, he said. "It's a complete package."
Kearney has a connection to one of the other firms that dominate the bay area's quick flip market. Bay Area Trust, formed in 2008 by Gregory Vander Wel, received $478,400 more than it paid by flipping 59 houses in a week or less last year, according to public records. That's an average increase of more than 24 percent.
Kearney holds only a sales associate license. In 2011, he handled a few transactions under Vander Wel's broker's license, a common practice within the industry.
Vander Wel, through a spokesperson, declined to talk to the Times.
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Christopher Smith of Bay to Gulf Holdings laughed when asked about West Florida Wholesale Properties' practice of making improvements after selling homes.
That is not how Smith's company does business.
"You buy and fix, then sell," he said.
Smith's Tampa firm received $301,000 more than it originally paid by flipping 31 homes in a week or less in 2011, according to public records. Smith said the firm buys most of its properties from courthouse auctions in Hillsborough County.
One of his firm's flips was the 1,088-square-foot house at 1910 E Flora St. in Tampa.
On March 18, Bay to Gulf bought the home from Fannie Mae for $25,000.
That same day, Bay to Gulf flipped the home to FPNS Investments LLC for $30,000. A tidy increase, to be sure, but nothing compared to what FPNS got the next month when it sold the same house to Yves Sellier for $70,000.
Smith emphasized that he finds buyers while the paperwork for his bank deal is being finalized. Although the prices appear low on many deals, he said lenders prefer cash buyers instead of deals contingent upon appraisals, financing and repairs.
"Which offer would you take if you were the bank?" Smith asked. "There is no secret to this."
Mark Helmling of St. Petersburg-based Central Florida Holdings Group, said lenders are trying to get houses off their books. He, like Smith, said his firm makes renovations before reselling homes to investors.
His company received $234,000 more than what it paid by flipping 43 homes in a week or less, according to public records.
"We are aboveboard," Helmling said. "The banks are the ones creating their own problems" by not seeking higher prices.
Last year his firm flipped a 1,235-square-foot house at 7307 50th Ave. N, in St. Petersburg.
It purchased the home from the U.S. Department of Housing and Urban Development on Oct. 6 for $20,000 and sold it for $25,000 the next day to Hector Patino and Denise Baker-Winter. One day later, they sold the same house to Thomas and Janeadaire Durban for $35,000.
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Making improvements after selling homes isn't the only difference that sets West Florida apart from its rivals.
More than 85 percent of West Florida's quick flips included a single real estate agent representing both the bank and West Florida. Fifty-two of 60 to be precise. At the other three firms, the same agent represented both buyer and seller on less than 35 percent of the quick flips.
Darren Wilson says it cost him a deal. He's the part-time investor who offered to buy the home on N Cherokee Avenue in Tampa for $18,000 that West Florida secured for $16,900 and then quickly resold for $26,000.
Christina Griffin, a Realtor with Coldwell Banker in Tampa, represented Bank of America in the sale. According to Wilson, she demanded that she also represent him on the sale, a request he refused.
She wound up representing the bank and West Florida on the deal, which allowed her to avoid splitting the commission with another agent, according to My Florida Regional Multiple Listing Service data.
Bank of America spokeswoman Jumana Bauwens said the bank rejected Wilson's bid because a required form was missing. Wilson insists he signed the form.
Griffin and Coldwell Banker did not respond to multiple requests for comment.
"This is wrong," Wilson said. "Nobody is looking at this."
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Should someone in authority be concerned about the new quick flip phenomenon?
It may be nothing more than people trying to make a buck, just as they did with earlier, more conventional forms of flipping.
Further, state records contain no complaints against West Florida, Bay to Gulf, Bay Area Trust or Central Florida Holdings. And the Times could find no examples of federal authorities prosecuting anyone for similar quick flips.
That's not to say that regulators aren't curious about this new world of flipping.
The Times sent a sample sale from each of the four firms that do many of the quick flips in Hillsborough and Pinellas to the U.S. Department of Housing and Urban Development.
In response, HUD spokesman Lemar Wooley said the Federal Housing Administration "has received information about instances of investors who have 'flipped' FHA (foreclosed homes) acquisitions for a quick profit and is in the process of conducting an internal review of these instances. As such, HUD has no comment on the specific cases cited in Florida at this time.''
The combination of rapid-fire flips and a single agent representing both the buyer and seller on the original sale raises concerns that banks and the federal government and ultimately taxpayers are losing money on the sale of foreclosed homes.
Joni Herndon, vice chairwoman of the Florida Real Estate Appraisal Board, and other real estate observers are concerned about a potentially worrisome symbiotic relationship among a few investors and real estate agents.
"There's too much monkey business going on," said Herndon, a 27-year industry veteran who testifies in court on real estate fraud. "It's the little cliques that work all these deals."
The scenario she and others fear begins with a real estate firm trying to assure a steady supply of houses to flip in a highly competitive market for foreclosed properties. The firm joins with a Realtor who represents a bank or other lender needing to dispose of large numbers of foreclosed properties.
The Realtor representing the bank funnels homes to the real estate firm, assuring a steady supply. In return, the Realtor also gets to represent the real estate firm in the sales, avoiding having to split the commission.
In that arrangement, the Realtor has no incentive to present the bank with other potentially higher offers from parties the Realtor does not represent.
To real estate experts, the rapid resale suggests that the original seller did not get the best price for the property. And, since federal agencies owned some of the homes or insured the mortgages on them, rapid flips could mean that taxpayers may be shortchanged in the process.
"How the heck does a home's value go up by (thousands of dollars) in eight hours?" Herndon said. "Somebody dropped the ball at the bank. They're not doing their due diligence. The taxpayers are absorbing the losses."
Should real estate firms and Realtors transform this hypothetical scenario into actual practice, it might run afoul of the law, according to former prosecutors.
"Brokers and real estate agents acting on behalf of a seller of real property have a duty to present all offers to purchase, whether high or low, to their seller,'' said Brian Albritton, former U.S attorney for the Middle District of Florida and currently a partner at Phelps Dunbar in Tampa.
Todd Foster, a former supervisory assistant U.S. attorney and managing attorney at Todd Foster Law Group in Tampa, said activity in which an agent funneled homes to one buyer could be considered a ''scheme to defraud'' under federal law.
In this context, Foster said: ''This may include a buyer, seller, appraiser, Realtor or mortgage broker — the statute is broad enough to reach anyone who defrauds another. However, before being held criminally responsible, an individual must be shown to have specifically intended to defraud another. Merely being involved in a transaction where there has been a loss, regardless of the amount of the loss, does not mean there has been a crime committed."
Foster pointed specifically to the bank fraud and mail fraud sections of the U.S. Code. The former "proscribes the use of a scheme or artifice . . . to defraud a Federally chartered or insured financial institution.''
The latter basically makes it a crime to use the U.S. mails to accomplish the same thing.
Ann Fulmer, a former Georgia prosecutor who co-founded the Georgia Real Estate Fraud Prevention and Awareness Coalition, said a crime could be difficult to prove even if taxpayers are absorbing losses.
"The shorter time between sales, the more likely it is shenanigans," she said. "But it can be difficult to tell. You don't know what the (real estate agent) told the bank."
Mark Puente can be reached at [email protected] or (727) 893-8459. Follow his Twitter feed at twitter.com/markpuente.