When the real estate bubble burst, many home builders and house flippers were left holding a large number of properties. As the credit crunch got worse, inventory of unsold homes grew and prices started to decrease.
Builders and flippers were scrambling to dump these properties. Some, advertised crazy incentives to get rid of these homes.
Here is one strategy they've used:
Builder or investor would locate someone with good credit who could use some cash.
They would offer them as much as much as $50,000 in cash (in some cases more) plus no mortgage payments for twelve months. They would get to live in a new home or in a rehabed home in exchange for them allowing the builder/investor to use their credit.
The seller/builder/investor would set aside six monthly payments into an escrow account. The new lender would receive payments on the mortgage for the first six months. Once the payments would cease to come, the lender would start foreclosure proceedings. In some states, it takes up to nine months to evict the homeowner. The first six payments allowed to get passed the fraud detection policies put in place by lenders for protection.
The end result"
Builder/investor sold the home.
Buyer's credit got ruined but they received a lump sum of cash plus lived in the home for over a year.
The lender ended up with a foreclosed home.
Many people blame mortgage lenders for the current housing meltdown...portion of it is deserved...but there are other players who have coasted under the radar for the last couple of years. The FBI has stepped up their efforts to combat such fraudulent practices.
