Real Estate Insights

It seems that there is an increasing new scam happening in California due to the recent housing bust called a “Buy and Bail”. But buyers beware; this act is being regarded by the Federal government as fraudulent activity.

More homeowners who are having trouble making their mortgage payments and who owe more than what their properties may be presently worth are engaging in a new scheme that is being recognized as a "Buy and Bail." A “Buy and Bail” happens when a homeowner decides to purchase a similar property to their own in his or her neighborhood at a lower price (due to the current down turn in the real estate market) using their good credit and then stop making payments on their old property and forcing their old lender to foreclose.

These scammers often deceive the lender into believing that they will rent out the first residence, but Fannie Mae (a National source for mortgage) plans to adopt new guidelines in the next week that require buyers to provide executed lease agreements or other evidence documenting that they are serious about renting out the home as well as provide proof of their ability to make mortgage, tax, and insurance payments on both properties.

The new strategy is popping up in California and Arizona, where state law makes it difficult for lenders to file suit against borrowers unless a personal line of credit was used to buy or refinance the home. Many lenders and real estate agents call the practice fraud, and there are concerns that borrowers are being helped by agents and brokers.