We know where the money went...

As Wall Street and the financial markets continue to suffer there is one segment that is actually doing quite well, and getting better as the housing market continues to contract. To which market segment am I referring? Forensic Accounting.

Forensic accounting is the practice of utilizing accounting, auditing, and investigative skills to assist in legal matters. It encompasses 2 main areas – litigation support, investigation, and dispute resolution. Litigation support represents the factual presentation of economic issues related to existing or pending litigation. In this capacity, the forensic accounting professional quantifies damages sustained by parties involved in legal disputes and can assist in resolving disputes, even before they reach the courtroom. If a dispute reaches the courtroom, the forensic accountant may testify as an expert witness.

Investigation is the act of determining whether criminal matters such as employee theft, securities fraud (including falsification of financial statements), identity theft, and insurance fraud have occurred. As part of the forensic accountant’s work, he or she may recommend actions that can be taken to minimize future risk of loss. Investigation may also occur in civil matters. For example, the forensic accountant may search for hidden assets in divorce cases.

During the Great Housing Boom, many americans were leveraging the equity in their homes for home improvement, buying cars, taking vacations, and in some cases making down payments on investment properties. Here's where it gets interesting, some banks have already begun to use forensic accounting firms to investigate where the money was used for some of the home foreclosures that are hitting the market.

So, for those who used the money to buy tangible items such as cars and homes, listen closely. If you decide to walk away from your home allowing it to go into foreclosure, the bank may be able to make a case that the equity within those tangible items belong to them!

Consider the following scenario:

A homeowner bought their home for $200,000 before the Great Housing Boom. During the boom, they acquire a Home Equity Line Of Credit (HELOC) for an additional $200,000!!! Now, the homeowner uses the money to buy a new BMW for $40,000, and applies the rest toward the down payment of a second home, and moves into it. What this all means is, if the homeowner walks away from there first home, the bank may make a case that the equity in the new home belongs to them!

Currently there is no legal precedence for doing so; however, with banks taking huge losses as a result of the staggering number of foreclosures, it's inevitable that the laws will be massaged to allow them to recover some of that money.