It’s probably not a terribly unusual case. Local and regional banks get caught up real estate speculation frenzies along with the rest of the country. My brother was a mortgage broker with a good track record originating jumbos (probably including some for the same bank that financed the property) and clearly knew the high end real estate market in the area quite well. He worked from home, so was in a good position to keep an eye on contractors doing work on the house. The property was in a very upscale area and included a lot of extra riverfront acreage. The bank figured they couldn’t lose, even if they did have to foreclose, and they were confident they wouldn’t have to.
I’m sure there were a lot of similar stories in the same area and other upscale areas. Even many homes that had been purchased with 20% down ended up underwater, and the sort of people who normally buy multi-million dollar homes often have very volatile incomes (think investment bankers — $5 million bonus one year, unemployed the next. And when the whole economy tanks, the very high end homes are the first ones to become unsellable. Every other price category has people moving down into it, but there’s nobody above the very top to move down into the very top homes. The banks couldn’t sell them, so very few people who defaulted on mortgages on homes in that price range were actually forced by the mortgage holder to vacate the property until the real estate market had recovered. Same thing will happen in this round.
Ever find out how the IRS viewed that sort of arrangement?