The strategic foreclosure, or 'buy and bail'



Posted on September 29, 2009 at 10:19 AM

Updated Thursday, Nov 19 at 12:52 PM

Video: The 'strategic foreclosure'

The Patterson community of California has been hit as hard as anywhere by the housing crisis and recession. Here's one example of something called strategic foreclosure, or "buy and bail."

A Patterson couple bought a 2300-square-foot home in 2005, at the height of the market, for $496,000. Real estate website puts the current value at just $160,000. That's a $336,000 hole.

But records show in January of this year that very same couple bought an even larger home, barely a mile from the first, for $245,000.

Then just six months later, a notice of default was filed for the first home, the first step towards foreclosure.

Another homeowner, Ed Gonzalez, says it was desperation, not greed, that prompted him to do his own strategic foreclosure, which is a nicer term for "buy and bail."

Ed says that because he got an ill-advised loan, he was going to lose that first home no matter what. He says he tried negotiating with the lender for relief, with no success.

"I even spoke with the general manager of the lender and he told me the same thing as the associate told me. If you have to do a foreclosure then so be it. It's almost as if they were encouraging me to do it. It was frightening. I couldn't believe it," says Gonzalez.

The practice is not illegal, although some question whether or not it's ethical.

Market is still good

If you're interested in making a move in the housing market, Home Street Bank vice president David Hatlen says now is a good time.

Hatlen points out that the $8000 first time homebuyer tax credit is still in effect, although it is set to expire at the end of November. There is, though, the likelihood that congress will extend the credit.

Hatlen also says that an FHA loan is very attractive still. The current rate is 5% and a homebuyer simply needs to come up with a 3.5 percent down payment. And, a credit score of 620 - which is relatively low - will qualify you.