Hi Tyson --
OK, here's how real estate sales go:
A Seller advertises a house for sale (lets say $320000),
A Buyer (you) agrees to buy the house at a set price (lets say $300,000) and goes to a mortgage company to lend you the money (lets say 100% mortgage, so the bank loans you $300,000)
At closing, the bank gives the $300,000 to the Seller and gives you a note for $300,000 and you start making payments.
Two years down the road, the market has gone down and your home is worth $200,000,
You decide to let your home go into foreclosure. The bank has $300,000 in this house (the money the original Seller walked away with) and gets back a house that has a "today value" of $200,000. By the way, the bank also spent $75,000 in going through the court filings, appraisals, servicing costs, has probably paid off the property tax liens, etc., and now has $375,000 on your house. When it finally goes on the market they sell it for $190,000 or a total net loss of around $185,000.
So--where is the mortgage fraud in your scheme? If you are the one who, through a friend or family member buys it back for $190,000, you (and btw your family member or friend) have just perpetrated a fraud on the bank by passing off that loss of $185,000 (real money) to their balance sheet. (Not to mention that there were a bunch of falsehoods you would have to tell to get to that point which gets you into moral issues, as well as legal issues). Your question about "how will they find out" and "are they even looking for things like this" is a question a lot of criminals probably weigh while they're plotting an activity. Don't get caught up in this type of thought process.
I don't think you're overtly trying to figure out how to perpetrate a theft. I think you're just trying to make a good financial plan. I feel your pain as you look at your mortgage statement and realize you're paying on an obligation that is higher than the value of the house IN TODAY'S MARKET. (Sorry, I can't put this in italics the way I'd like to--don't mean to shout). Since you don't have to move, you are able to make your payments, and don't actually have to take the loss, you can feel reasonably confident that the values will come back up to where they were when you bought (though it make take years). Real estate always appreciates over time--it's just the timeframe that is at question here (if you can wait long enough, you won't lose money). We'll come out of this eventually and if you made a good choice of location/condition and continue to keep the property maintained, you should fare OK.
On the other hand, if more people take the attitude that they're going to bail out and cut their losses, the market will take longer to recover, more people will be hurt, and heaven knows the government will feel the need to step in and confuse the situation even more.
Here's what I suggest. Stop thinking about it and don't do something foolish. :-) This is advice I give myself as I file away my retirement statements without opening them (since I have no intention of selling my stocks at the moment). As Scarlett O'Hara says "I'll think about that tomorrow."
Good luck! Have a great weekend.
Coldwell Banker Residential Real Estate