Hardly a week passes without more revelations of illegal flipping. Typical of what you see has been the recent situation in Cincinnati where more than three dozen people have been convicted in a $50 million illegal flipping scam.

Timothy Husvar, according to the Cincinnati Enquirer, was involved in illegal flipping worth $2.3 million over a three-year period. The paper says he has "admitted in court papers to serving as a mortgage broker and property seller in a scheme involving low-priced homes, stooge or puppet buyers, bogus appraisals, falsified loan applications and, ultimately, loans well in excess of the value of the properties. Among his victims: Washington Mutual Bank, Midas Mortgage Corp. and Trust Corp. Mortgage Co." (See: "More 'flippers' are sentenced," June 29, 2006)

How illegal flippers get away with their crimes is an unremitting source of amazement. Every time I apply for a mortgage I wind up with a 12,000-page application file and the need for more verifications than we require from North Korean nuclear plants. But somehow, magically, illegal flippers glide through the system with the ease of a champion ice skater.

"Flipping" -- the idea of quickly buying and selling real estate -- is entirely legal. The parallel is this: You buy a stock on Monday for $10 a share and sell on Tuesday for $20. There is no crime here, nothing wrong or immoral.

Illegal flipping is another story. From one end to the other these are deals that routinely involve valuations from appraisers who get money under the table, falsified loan applications, mortgage fraud, bait-and-switch financing, predatory loans with unconscionable terms and repairs which are not up to code and thus result in a house which may be neither safe nor habitable.

Illegal flipping occurs in large measure because we see it as an acceptable white-collar crime. Many of those involved in the Cincinnati scheme received two years in jail for their assorted crimes. If you think that's tough, consider how much damage was done and how many people were harmed -- and then imagine the sentence if someone robs a convenience store of $20.

Those who engage in serial illegal flipping should face far tougher sanctions than we now demand.

The Cincinatti convictions relate to activities that stopped in 2003. According to Walt Molony of the National Association of Realtors, the typical Cincinatti home sold for $138,900 that year. If it's true that the scams were valued at $50 million, then we might reasonably expect that some 360 properties were involved. Even this estimate may be too small given that illegal flippers usually concentrate on less expensive homes.

Imagine the impact on the local marketplace when hundreds of homes are illegally flipped. If the houses were concentrated in one area or a small number of neighborhoods, we might see a huge number of foreclosures.

What happens to home values when there are many foreclosures in a given area? Do prices rise or fall?

In other words, illegal flipping surely harms innocent buyers, sellers and lenders, but it also harms communities in general. If you're on the same block with a few homes that have been foreclosed, the value of your house will fall.

Have people who live next to illegally flipped homes done anything to justify the reduced value of their properties? Or are the neighbors just like you and me -- people who pay their mortgage, pay their taxes and probably hope to clean out the basement next week? Isn't the damage from less equity and lower selling prices real?

Given that the social and financial damage from illegal flipping is so great, we need to treat such activities as if they were a real crime, a crime that requires more serious sentences. If someone burned down a few houses in a neighborhood we wouldn't fool around with light sentences, and the result should be the same for someone who flips multiple homes, causes multiple foreclosures and ruins multiple lives.

In addition, all lenders should adopt the HUD anti-flipping measures that were first established in 2003.

In basic terms, HUD will not provide FHA loan guarantees to finance any private home that has been sold within 90 days except for estate sales and sales within presidentially-declared disaster areas. A second appraisal is required when a home is resold between 91 and 180 days after the last sale and additional paperwork and verifications are needed for homes being re-sold within a year. No property will be financed unless the seller is also the owner -- a requirement to make life tough for settlement agents who fail to properly record property transfers or pay the taxes that are due.

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