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People say that given the non-recourse nature of mortgages in states like California, homeowners don't normally buy their houses so much as buy a call option to buy the house at the purchase price, along with a put option to put it to the bank at the face value of the mortgage. So if that's the de facto situation, why not make it de jure?

In a move that speaks volumes about the glut in the condominium market, Lehman Brothers Holdings Inc. (LEH) is promising some luxury-condo buyers their money back after three years of ownership.

The offer applies to some 200 condo units, priced between $480,000 and $2 million, in West Bay Club, a Lehman-owned resort community in Estero, Fla., near Naples on the Gulf of Mexico.

In an effort to jump-start sales in a skittish market, Lehman says that for every buyer until June 1, it will guarantee that the resort will either sell or buy back the residence at the "full cost of the purchase price three years after closing."

The gamble is that prices will recover during that time, and buyers will hold on to their condos.

I would love to know how this gets accounted for chez Lehman.

Source: Condos With Embedded Puts