Bail and Buy is a financial technique performed by a mortgage holder. In this event, one buys an additional house with the intention of defaulting on the old mortgaged house. This is considered a form of financial (mortgage) fraud.

It is a crime, similar in some respects to Wall Street financial transactions, that are not considered fraud. Extenuating circumstances do not give a mortgagee (the homeowner,) the option to commit mortgage fraud. Yet, over the years, the US Congress has determined that corporate socialism is legal, as the Wall Street payoff to various members of Congress is quite significant.

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Buy and Bail Basic

At times, a mortgagee (the putative homeowner,) may feel deceived and defrauded by the mortgagor (bank or broker) after the purchase of their house. Many of these criminal acts, done by the mortgagor during the house purchase, are either hidden in the details of the mortgage contracts or glossed-over by the mortgage granting organization.

Commonly, some of these deceits practiced in the last several years are these:

1. The mortgage banker or loan officer did not explain, or outright lied, about the financial obligations of the mortgage loan: inadequately explaining or purposely misinforming the loan applicant about adjustable rates, interest-only payment options, interest rate adjustments, equity, etc. The bank or broker that originated the mortgage had no incentive to be truthful, or care that the mortgage would really work, as mortgages often were sold off to investors, and not held by the originator.

Some charge that the dishonesty is systemic: oftentimes, the mortgage holder cannot identify the actual paperwork that validates the legal terms and conditions of the loan, much less identify who is, the actual owner of the mortgage loan.

2. The real estate agent, in fact the national Realtor organization has purposely misled the public for years, that house values will never decline.

It is now projected that nationally, most house values will decline at least 50% by the year 2010; in some parts of the US, the decline will be 70% or more.

The late Sir John Templeton, said in an interview just a few years prior to his recent death, that house values may well decline to 10% of their former highest value, before the bottom in the real estate market is reached.

3. The mortgage originator promises the house buyer a loan refinance is always available but, the lending guidelines change, making refinancing the loan, impossible.

In short, stated house values are grossly over-valued, financing is misleading and has little or no option for relief, and the market for houses, townhouses, and condominiums is greatly overbuilt.

How would you deal with this problem? Would you buy and bail, should you have the chance?