It's Called...the "Buy and Bail" Scam

If you read The Wall Street Journal, you may have noticed an article in last week's edition on Jume 11th, page A3 titled "Some Buy a New Home to Bail on the Old."

Essentially, an owner who is having trouble making mortgage payments contacts a mortgage lender to begin the process of obtaining a loan to purchase another home. The lender is told the first home will become a rental property (and the income can be used in the loan qualification process). The owner qualifies for a loan, buys a second home and lo-and-behold, walks away from the first home.

In my opinion, the legal term for this is FRAUD. The owner knows that they have no intention to continue making mortgage payments on the original home. The purchase contract is a legally binding contract. And guess who ends up picking up the tab when the property is foreclosed upon by the lender?

The article identifies a real estate agent named Linda Caoili who works in a RE/MAX office in Sacramento who is assisting a buyer named Michele Augustine walk away from her home. According to Linda, "It's just a business decision." And further on in the article Linda states "If you're upside-down $250,000, why would you keep it? It just doesn't make sense."

Apparently Linda has been hosting coffee klatches in a Sacramento Barnes & Noble store where she has been, and continues to, advise homeowners how to succeed in this scam.

I'll say this again, it's FRAUD. Don't do it! Nor would I knowingly ever be a party to this.

Kitsap County Market Statistics for June 1, 2008

The absorption rate for Silverdale dropped almost half to 25.8 weeks of homes for sale while the absorption rate for Kitsap County remained relatively unchanged at 52.9 weeks.

There were six properties in Silverdale that changed to a "pending sale" status which means that any findings identified by a general building inspection were either acceptable to the buyers or not, in which case the sellers agreed to correct the situation.

I did some extra research on these six properties and found that the price had been reduced at least 8.3% from the original list price and the average time on market was 203 days (median was 151 days).

The final sale price will not be available until these sales "close" and I'm betting the discount will be more than 10%.

A Taxing Decision

Whether you're planning for your own retirement or helping family members or other retired folks plan a move to another state, taxes may play a key factor to consider when choosing a location.

This link takes you to The Retirement Living Information Center's 2008 Taxes by State guide which summarizes the tax requirements for each state, including income taxes, exemptions for seniors and how retirement income and real property (i.e., real estate) are taxed.

The center advises retirees to look beyond state taxes and review local property, sales and income taxes as well. You might find that your chosen state isn't the welcome tax haven you thought it was. For example, California is one of six states that is particularly tough on retirees because it has a relatively high top tax bracket and fully taxes most retirement income.

I'm specially trained on matters concerning residential real estate investments so contact me if I can be of assistance.