Unethical mortgage lenders are not the only ones the market needs to be aware of. Many homeowners, stuck with an upside down mortgage, are attempting to defraud lenders with a strategy Wall Street has aptly named “buy and bail.”

The tactic works like this - homeowners, who have a super-mortgage that they want to get out from under, even though they can afford the monthly mortgage payment, wish to dispose of the property because it is a poor investment to them. They realize that the home is worth considerably less than what they owe on it, so they want to bail out from under without going through foreclosure that would ruin their credit. These unscrupulous homeowners then approach a lender, telling them that they wish to buy a new home, and will be renting out the old home to tenants. Because they have kept up with mortgage payments, and qualify for the loan, the unsuspecting lender gives them a loan, thinking that here is a sure bet. Not so. The homeowners then quit making payment on the old mortgage, and let it go back to the lender through foreclosure. They might take a hit in the credit department, but are in a home now that they don’t owe less on than it is worth, and have gotten out from under a loan that was under water.

Fannie Mae, to their credit, is doing something about this type of fraud. They have set up new guidelines that state an owner must have 30% equity in the home before they can close a deal on another property. This will deter those who have a good sized chunk of money in the property from trying this fraud tactic. Freddie Mac and the FHA are expected to follow suit very quickly.

Another thing being seen in the marketplace that is a scam by homeowners is the “short sale” tactic. A relative or a “straw buyer” makes an offer for a short sale on a home that is in difficulty, and the lender generally takes this short sale because they think the price is the best they can get. The home owner, now with a mortgage payment they can afford, doesn’t leave the home. The lending institution never gets a disclosure from the home owner that the person making the buy is a friend or relative. This is essential, because the lending institutions know that they can probably get a much higher price from a disinterested party. This tactic may ruin the credit of the original home owner, but credit can be rebuilt in a short number of years.

Regardless of a home owner’s situation, fraud of any sort should be prosecuted to the full extent of the law. There are laws covering these situations on the books, but they are not tightly enforced, because law enforcement agencies do not see this as a high priority situation.

Real estate experts blame this new tactic on the fact that so many homes were bought with no money down, thus leaving a person with no equity to begin with, and setting themselves up for failure in an already troubled economy. Seeing these things happening reminds us that we are a long way from resolving any crisis that is troubling the market today. At the rate things are happening, and with each new fraud uncovered, it appears to me that it will be several years before we see any stability in the market.