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.