Can't afford a home? Buy another

When you can’t afford the payments on the house you already own, buying a second home hardly seems like a good solution. According to ABC News, however, this is a strategy of homeowners facing foreclosure.

Due to the rapid drop in property values over the course of the past year, many recent borrowers are confronting debts much greater than the current value of their homes. In addition, many homeowners with adjustable rate mortgages have seen their payments skyrocket recently.

Some believe that it could be less costly to allow the first, often more expensive home to go into foreclosure or sell for a large loss. It is important for the homeowner to secure a second home before the foreclosure, however, because foreclosures seriously damage credit scores.

This practice of abandoning a first home after buying a second has been subject to criticism because some in the industry consider it deceptive and it is far from an ideal way of rectifying debt problems.

In addition, the homeowners often must be able to pay a deposit on the second home and secure a loan to finance the purchase price. ABC News suggests that in order to obtain another mortgage, potential buyers sometimes tell the bank that they plan to rent the house out or put the loan in another name.

The mortgage industry as a whole has come under serious scrutiny for the lack of farsightedness of many of its actions, so perhaps it should not be surprising that some borrowers are following suit.

Click here to read the article.

--Bridget O'Sullivan

Buy a Detroit home for a buck

You may think $1 won't get you very far but it just may buy you a house.

A home in Detroit was recently sold for $1 and it still took 19 days to find a buyer. In November 2006, the home sold for $65,000 and was the nicest house on the block. After the family moved due to a home foreclosure, the house was gutted by scrappers. These vandals took the lighting fixtures, copper plumbing, the furnace, and even the kitchen sink. Anything of value was gone.

At this point, the home was just a shell. The bank had to pay to find a buyer. $2,500 in sales commission, and another $1,000 bonus for closing the $1 sale. The bank will also have to pay $500 of the buyer's closing costs. "Dollar property sales are the financial hangover from the foreclosure crisis," said Anthony Viola of Realty Corp. of America in Cleveland. In the end it will cost the bank around $10,000 in order to sell the home for $1.

The buyer calls this purchase an investment. The buyer will have to pay $5,000 for a home demolition, and will owe $3,900 on 2009 property taxes unless the assessment is challenged. This shows how much trouble the real estate market is in, especially in one of America's poorest cities.

Check out the full article at Detroit News here.