Normally sellers try to stage their home to get the best sale price possible, but a new trend emerged during the housing bubble burst that takes the opposite approach: reverse staging.

What is reverse staging? Reverse staging is purposely damaging a house to force a lower sale price. Why would someone want to do that? Mortgage fraud.

Savvy fraudsters have been damaging and vandalizing their homes on the brink of foreclosure. The bank does not know that the homeowner has found a buyer to take over the home, and the owner causes superficial damage to walls, carpeting, and fixtures to push the value of the home as low as possible.

Once the house goes into foreclosure, the owner’s accomplice, an investor, picks up the the house at a very low price, fixes it up, and sells at regular market rates. The profits are split between the old owner and the new owner.

While the legal implications of this may be hazy, it is clearly a form of mortgage fraud. The original owner ends up in a better situation than they would have had the home gone through a regular foreclosure, the investor makes a big profit with little risk, and the bank gets screwed.

While this seems like a victim-less crime, we are all victims from this form of fraud. The government bailed out the banks with tax dollars. Those dollars subsidized these losses. We paid the bill for this crime.

Read more including an interview on the topic at the Speaking of Real Estate Blog.