The WSJ had an interesting article that talked about a scam people were using to keep a house when they couldn’t make payments on their current home. Lets say Nancy lives in a neighborhood where she paid $400,000 for a house. The value of her house has dropped to about $200,000. Her adjustable rate mortgage is about to jump up a notch and she will no longer be able to afford the payments. Nancy still has a job, but she can’t afford to pay an extra $1000 per month (or more) after the rates go up.
Many other homes in Nancy’s neighborhood are going up for sale as well. Some of the homes are even identical to hers and are going for half of what she owes.
Before her credit is ruined, Nancy goes out and buys another house–maybe even one just like the one she owns. Then she simply stops making payments on the first house. Eventually the bank forecloses on the first home and Nancy keeps the second house down the street.
This is what people are trying to do. Right now there are some people getting away with it, but it looks like it will normally be considered fraud. It is too early to tell exactly what the courts will decide, but people in serious trouble will take drastic measures–sometimes without regard for the consequences.
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