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This has probably been asked before but I missed it.
What's to stop a savvy homeowner (who has no scruples, obviously) who is underwater to just default, let the house go to foreclosure, and then at the auction bid on it at a little higher price than the highest bid and get his house back at a greatly reduced price?
Are there laws in place to prevent homeowners from using this strategy?
This has probably been asked before but I missed it.
What's to stop a savvy homeowner (who has no scruples, obviously) who is underwater to just default, let the house go to foreclosure, and then at the auction bid on it at a little higher price than the highest bid and get his house back at a greatly reduced price?
Are there laws in place to prevent homeowners from using this strategy?
Yes, there are laws in place to prevent it. The foreclosure auction has to be an arms length transaction.
If the bank gives him a letter releasing him from all obligations related to the home, then sure he could theoretically. But what bank would give him a loan to buy another house? Loan defaults show up on your credit report.
Have you ever walked into a small store notice that the name changed but its all the same employees? Walk in a year or so later and notice another name change but still all the same employees. One family member goes bankrupt and another family member re-starts the business under another name.
The same thing can be done with residential property. Theoretically.
As above, it's fraud. You're also assuming they have the cash to buy it back, since foreclosure auctions are all cash transactions, not to mention they couldn't get a loan anyway in this situation.
That's fraud and it is a felony. I would not recommend that anyone do this. If you have exhausted other options then you may have to just walk away from it and start over.
Do the erstwhile homeowners who defaulted just get a friend or relation to do the bidding for them if they're determined to get the house back?
I know someone who did this. The relative that bought it can kiss his money goodbye, but I don't see how this could be considered fraud. The bank took it back and anyone is allowed to buy it.
I was just wondering if a large, small or practically 0 percentage of foreclosed homeowners are trying it. Sure it's unethical, but who these days has any ethics? The foreclosed are feeling that they got shafted by the banks; they know the banks are run by unethical people, so they likely feel no remorse for doing it. And don't forget the looming gargantuan crisis of mortgage fraud precipitated by the Massachusetts Supreme Court ruling in the Ibanez case in which the banks that foreclosed on a huge number of them are probably not the real mortgagor. I don't condone anyone doing this, not because of the ethical question (I don't blame the honest foreclosed for feeling cheated) but because if everyone followed this course of action it could cause a massive earthquake in the RE market.
Quote:
The "paperwork" -- figuring out who owns the note - is not just a little messed up, it is a disaster area....a mess not just for the housing market but for the entire economy, as the numbers on all this are staggering, and the housing market really does have the potential to just completely freeze up, which would be an economic nightmare.
[quote=thrillobyte;17424022] (I don't blame the honest foreclosed for feeling cheated)[
/quote]
What are the "honest foreclosed", and how did they get cheated? They borrowed money, and agrees to pay it back in a certain time on a certain schedule. When they didn't pay, they lost the collateral they put up for that loan. Regardless of how many investors bought into that loan, or who now holds that document, and whether it can even be physically located, how was the non paying borrower cheated?
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