WDYT of this: Letting a house foreclose and having relative buy it?

[pitter_patter]

The house behind mine is for sale, our area has been swamped with foreclosures and I have been wondering if the house is a foreclosure or straight sale. Today DH needed to get a ball back that our kids had tossed over the fence. When he went over, he asked the resident (turns out he's the homeowner) what the story is with selling. The owner said he paid $375k for his house in 2004, the one next to him (bigger than his) just sold for $160,000, and he knew we bought ours (same floorplan as his) for $150k. His mortgage is over $2400 a month and he has decided to let the house foreclose and then have his mother buy it from the bank and he'll pay the note on it. I'm shocked that he admitted this to DH, it seems like fraud to me.

I was just curious as to how others view it.

[1growingsprout]

Honestly, it happens quite frequently in our area... I don't necessarily agree with the practice but I would rather have that option then a property sitting vacant on my street for months on end.

[Denvergirlie]

Originally Posted by pitter_patter

His mortgage is over $2400 a month and he has decided to let the house foreclose and then have his mother buy it from the bank and he'll pay the note on it. I'm shocked that he admitted this to DH, it seems like fraud to me.

I was just curious as to how others view it.

Yep, this would be fraud, plus it sounds like he can make the payments, just doesn't want to honor his word any longer as he made a gamble on housing prices and it didn't pay off.

[laohaire]

Fraud. And they might catch him.

[Caneel]

I am shocked that someone would admit planning such a thing too. But then again, there seems to be no ended to what people will do these days.

There was just something in the WSJ about a similar thing happening in Las Vegas. There is a realtor who is actually marketing the idea, which goes something like "let me find you a less expense house, you buy it and then default on your existing mortgage"

Strangely enough, I don't think there are laws in place (yet) to prevent these types of scenarios from happening.

The neighbor is running a risk though, there is no guaranty that his mother will be able to buy it back from the bank especially if the price drops low enough, there may be other interested buyers.

[Marisol]

A variation of this was done in the 1930s with farms. When a bank foreclosed and put a family's farm up for auction, neighbors would keep outsiders away from the auction and would bid only $1 for the land. After getting the deed in hand, they would then sign it back over to the original owner.

[phatchristy]

Originally Posted by Caneel

The neighbor is running a risk though, there is no guaranty that his mother will be able to buy it back from the bank especially if the price drops low enough, there may be other interested buyers.

Yes--exactly this. I don't believe that there is anything particularly illegal thouh interestingly enough.

Depending on the state, the process is different. Here, you would have to go down to the steps of the courthouse and bid.

I can say around here over half of the homeowners are "underwater" or whatever the term is.

We know a really hard working couple who put a lot of money into a house down the street...both of them working, and at the time it was the most they could afford for their family. And, now, they're at least 100K in the hole and are stuck here basically.

We just the propsed tax bill the other day, and home values on there dropped like $70,000--so much that they sent an additional general notice about property values going down in our area.

We've lived here a long time, and because of it escaped the crazy housing market. But, we've watched the craziness.

[cschick]

Originally Posted by Caneel

The neighbor is running a risk though, there is no guaranty that his mother will be able to buy it back from the bank especially if the price drops low enough, there may be other interested buyers.

Right, around here the house would generally go to auction. AND it might not even go to auction . . . we've had some foreclosed houses be sold by the bank to some real estate clearing house, the owners be evicted, and the clearing house put the house back on the market.

[annethcz]

Originally Posted by Marisol

A variation of this was done in the 1930s with farms. When a bank foreclosed and put a family's farm up for auction, neighbors would keep outsiders away from the auction and would bid only $1 for the land. After getting the deed in hand, they would then sign it back over to the original owner.

I also thought of this.

Back then it was different because people truly couldn't afford their mortgage payments. These days, I know several people who have chosen to walk away from their houses not because they couldn't afford the house, but because they are underwater and can find better housing elsewhere for less money. Of course, there are also many people who are being forclosed on because they can't afford their mortgage. But it doesn't sound like this is what is going on in the OP.

[pitter_patter]

It sounds like he can afford the mortgage, he is just mad that his house is worth so much less than he paid for it, and that similar properties are going for 200k less than he paid. I don't understand that mindset at all. I bought my house to live in for a very long time. I'm comfortable with the price I paid, and the monthly mortgage amount. Even if values decline further and my house is "worth" 100k less than I paid, I don't care. In fact, the value has already gone down about $15,000.

[mnnice]

IMO it a terrible idea. If your neighbor ever had a falling out with his mother he's in big trouble. Frankly, paying the mortgage on a house that I was underwater one sounds way better than paying the mortgage on a house I don't own. Which could easily happen if with the arrangement as the OP decribed it.

[seeing_stars]

We are currently buying a foreclosure and somewhere in the paperwork it asks if the property was ever owned by a relative.