You're stuck in a house you bought for $300,000 in 2006. Its value has sunk to $200,000 in the lousy market. The payments are breaking your back.
Then, like the goddess Venus rising seductively from the sea foam, a house just like yours pops onto the market down the street for $199,000.
What would you do? A small number of people are snapping up the bargain down the street — and letting the old house drift into foreclosure. The Wall Street Journal dubbed the tactic "buy and bail."
The switcheroo exploits a lending loophole that lets people take out two mortgages. But let's call it what it is: borderline mortgage fraud.
The government agrees. New rules will require future buy-and-bail suspects to show real income to cover payments on both homes. Foreclosures also sting more than they used to. Defaulters can't apply for a mortgage for five years. It used to be four.
But tricksters are one step ahead of the game. And short sales are providing the playing field. Short sales are when the bank acknowledges your financial distress and lets you sell for less than the mortgage balance.
A ploy that's emerged in the Tampa Bay area is for a homeowner to short sell his home to a friend or relative. Then he "rents" the house back. Voila! A $2,000 mortgage payment becomes a $1,200 rental payment.
In each case the bank's getting a high colonic. Were lenders greedy and reckless during the housing boom? Some were. But last I checked, a mortgage is a binding contract.
The Journal managed to find an honest soul in the buy-and-bail story, an Arizonan named John Ristuccia. Despite losing hundreds of thousands on his home's value, he disavowed the flimflam noted in the story. "It feels wrong," he told the newspaper.
You can say that again.
James Thorner can be reached at [email protected]