1) It was actually Bill Clinton that started the ball rolling with his loosening of credit standards and encouragement of home ownership.
2) The Lender (Loan Officer and Underwriter) are generally responsible for the loan for a period of time that varies with each Lender. As a former Underwriter, we always had the "what if's" in the back of your mind when approving a loan.
3) "How many of you sold homes to people who got into 3 yr arm, interest only, no down payment, stated income, etc. loans. I would bet the farm that 99.99% of you were involved in transactions like these. Where were your ethics then? "
To be clear, the loan is a separate product and process from the actual sale of the home. You could pay for a home with bushels of corn and it wouldn't affect a Realtor if the Seller accepted it. Apples and oranges, my friend.
4) Your clear motive is to defraud someone. You don't buy another home just so you can get rid of another. That is not the idea behind Home Ownership.
5) "The client must buy within their pay scale, If you can only afford a $150,000.00 home,,, You don't purchase a $350,000.00 home.. Let's take a look at the builders ! They knew better than to build homes at $150.00 a square ft ! " They Knew " They could have built beautiful affordable houses in many different styles, instead of making the affordable houses look a grade above a trailer ! Everybody want a Cadillac, even though they can only afford a Volkswagon !!!!! "
Home Building is a business just like manufacturing designer shoes. If you can't afford Manolo Blahnik's, don't by them. If enough people DON'T buy them, the prices will come down, or that company will start producing shoes that are more affordable, or go out of business. Simple supply and demand. They didn' t take advantage of Buyers any more than Sellers who wanted top dollar for their houses.
6) In response to this statement:
" Can you honestly say that every one of those deals, when you made the most money in your life, was "ethical" as you have stated. Where was your guidance to your valued customers then? Why didn't you say, NO, I cant sell you this property because you'll likely not be able to afford it in 3 yrs. Please, who are you kidding with your ethics. "
Why didn't YOU just say NO to the home that you now want to bail on?? You could have, you know...
And finalIy I will leave you all with this thought...
The reason we are in this mess is because collectively - WE COULD.
Upsidedown11, as I've said before, if you really decide to take this route than go out and pay for a legal opinion it's really going to be worth it. Seek out all your options and then make a calculated decision. It's ultimately up to you.
ThomasHill, you seem to be a very educated consumer but I think you're wrong in attacking the agents that try to keep their noses clean and offer the best advice they can to thousands of consumers on this site.
Remember mistakes are made by everyone and some of us more than others. The market really blinded many and this includes banks, agents, and consumers. The best we can do is learn from the past and make our voices known to our lawmakers as to what we think is the best solution. In my opinion it's to allow the market to run its course.
I would never advise someone to commit fraud, and would not knowingly assist them in the process. However, I can tell you with absolute certainty that if someone is able to qualify and purchase a new home (while making payments on a current home), has adequate $$$ for down payment, etc., and later decides to no longer make payments on their original home, assuming they did not sign any formal documents as part of their loan package promising to rent or sell their current home (which would not be part of any package I am aware of), and did not submit any false rental agreements, etc., there would be no reasonable evidence that would even warrant or authorize a formal investigation - remember, the FBI can't just pull names out of a hat and start investigating people - the process is a little more involved than that - it helps protect our citizens. And even if such an investigation somehow did occur, this person could secure a lawyer, and the investigation would be thrown out before an agent would ever have the opportunity of asking the borrower a single question - it doesn't work like the movies. Again, I'm not advocating fraud, or even advocating the practice - I am just stating the facts.
Your option is do your best to suck it up, get another job, ask yourself what someone who had ethics would do, and do that.
Let's clarify a few more misguided points:
* Myth: If you move into a new house, this is no longer your primary residence, and you no longer qualify for the Mortgage Forgiveness Debt Relief Act of 2007.
Reality: California originally did not adopt this as a state guideline - you will need to validate that you are exempt from state tax in CA. As for Federal, the rule for "principal residence", as outlined under the Act, the same rule as defined under Internal Revenue Code 121 applies for defining principal residence - you basically need to have lived there for an aggregated 2 out of the last 5 years (from the date the debt is forgiven) for that to be considered forgiven debt. So, basically if you occupied your home at least two years, your in the clear...again, you will need to validate CA law - you could get hit with state income taxes...not sure if CA ever adopted that rule.
* Myth: Your loan may no longer be non-recourse, since your home is no longer your primary residence.
Reality: Consider the original purpose of why the debt was secured. It was for your primary residence. Again, reference the same internal revenue code in defining primary residence. The loan is non-recourse.
As a final note.... one thing you don't want to do - don't buy the new home as a second home - for two reasons. One, they will nail you on interest - second / investment homes come with a huge rate hike. Second, this could be considered fraud, since your intent is to occupy this home as your primary... you would be misrepresenting yourself to the lender, when your intent is to occupy the home as your primary residence. Lastly, when you move out of your current home and stop making payments, I would suggest keeping your homeowners policy active and changing to accommodate the fact your home is now vacant. The reason is that even under non-recourse rules, the bank can still hold you liable for damage to the home. For example, if the home is vandalized, the bank can come after you for that.... vacant homes are exposed to this risk. Just an FYI...Otherwise, your right on track and making good choices.
I'm not a lawyer, so I can't address the legal aspect--whether it's fraud.
The fact that others are doing it doesn't make it right. And the fact that some lenders screwed some buyers doesn't make it right.
Here it is in a nutshell. When you bought in 2007, you promised the lender you'd make the payments as required in the mortgage. You said you had not only the ability, but also the intent to make those payments. That was a promise. You signed your name. You committed to do so.
Now, two years later, you've decided that you no longer wish to live up to that obligation. You're still able to, financially. But you'd rather not. Sorry, but that's not your option morally or ethically. Again, legally, it may be a different matter.
P.S. One other point. To accomplish a short sale or deed in lieu, you need the lender's agreement. As a practical matter, the lender on your current home will require financial statements, tax returns, documentation, etc., from you showing your financial condition and justifying a short sale. Once they see that you have sufficient income, that you've just bought a new home, etc., it's . . . umm . . . unlikely that they'll approve either a short sale or deed in lieu. So, to get rid of the property, you might then be facing bankruptcy, which is not part of your plan. That's the real-world side of your plan.
Now let's talk about ethics and morality. Let's consider the "stick it out and do the right thing approach". The banks, who are trying to dictate what we do, are simultaneously taking OUR tax money.... bailouts.... and why do they need bailouts? Because THEY acted in a wrong and immoral manner - granting loans that never should have been written! If only we had access to TARP, perhaps we wouldn't need to consider options such as "buy and bail". Unfortunately, we don't have that luxury. What about Federal regulators? Where were their ethics and morals in regulating banks and keeping this from happening in the first place? How many bank executives or politicans are in jail for their behavior? Instead, the bank executives are taking home bonsues, while consumers are struggling just to put food on the table! So, don't preach to me about morals and ethics....the very banks and politicians that created this mess are the only ones coming out on top - and the rest of us are supposed to sit back and be ethical and moral??? Save it for your Sunday sermon. We have to use whatever means are available to us to secure out future...just lke the banks and politicans, who could care less about the people they hurt. As for the plans the government is putting in place.....it only targets the most irresponsible of the home owners - if you truly bought something you couldn't afford, you will be fortunate enough to qualify for a loan adjustment - so, because your neighbor overextended his finances, he gets an instant equity boost, while you get to tough it out, keep making your payments, and remain 50% in the hole on you LTV ratio...is that fair? moral? ethical? Again, save it for Sunday....
As for the legality - give me a break. Yes. back in the original days, when people would falsify rental agreements, yes, this is submitting false documents, and you as the borrower, along with the "fake renter" are committing fraud. This is easily proved - there is a fake document trail, and it is quite obvious that the renter never intended to rent the house (in most cases). However, this doesn't work anymore either way - to have rental income considered, you have to have at least 30% equity in your home...so, to make this work, you have to have enough for a down payment on the new home, and adequate income to cover the monthly mortgage of your current home and the new home you intend topurchage - along with adequate reserves. You can list your current house for sale - or for rent - for whatever price you want.....the fact it may not sell or rent, and you end up having to foreclose is irrelevant.... Let the FBI - or anyone for that matter - prove intent - there are no falsified documents, and proving intent would be impossible.... (unless of course you went to a reporter or blabbed to the world). This is simply a business decision. And in the case of non-recourse loans, the bank is powerless. In this case, you may even be able to negotiate a "short sale", and save your credit. Additionally, resources like Lexington law have proven effective in removing negative credit items through persistence and using the FCRA to your advantage - no guarantees, but I have personally seen success stories of them removing negative items - including public records such as bankruptcies..... Either way, you should plan on your credit being impacted. Of course, other than buying a home, a foreclosure becomes less and less meaningful to your credit scores as time passes - withing 3 -4 years, you can buy a car, get credit cards, etc... it's not the end of the word - but you need to consider all apsects of your actions.
I wish alternatives existed.... but the reality is that this has been a complete disaster and era of irresponsibility - starting with the banks, and an Administration (Bush) that literally ran his election on a standard of non-regulation...Our new Administration, through innapropirate tax payer bailouts, and consumer bailouts targeted only at the most irresponsible of homeowners continues to foster a reward system targeted to benefit irresponsibility.... so, you have two choices - listen to some of the posters here and be a wonderful person and be beaten by the system, and make a sound business decision.
So, if I'm understanding you correctly, you can afford to pay for your current home and are not behind in your mortgage. I applaud you for this. And, you can afford to purchase another home without selling your first? If that is the case, then as Hannah noted, the better, legal, most ethical and less repercussive manner to resolve your dilemna would be to rent your first home, and buy the second one.
Although, as you claim, many people are "buying and bailing" on their current homes, I think that this is a highly inflated statement. What is more likely happening is that many are "trying" to do this, and while they may be successful for a few months, if your new lender can find out about the short sale or foreclosure of the first home, you will have committed lender fraud, which may subject you to : 1) recall of the note; 2) acceleration of payments; 3) foreclosure of your new home.
At present, there are many homeowners who are "underwater" in the current market value of their home and their balance on the mortgage. While this is an uncomfortable situation, it is not permanent, and values will creep up again. Choosing to "cut and run" is likely to impact your finances and, if you are correct that many people are doing this, then the proliferation of problems is likely not to engender forgiveness, but, on the contrary, quite a sizeable backlash involving fines, prison and loss of homes.
You have a couple of options that you may wish to explore other than buying and then bailing on your current home. One of them would be rental of the first home, and the second would be to consider modifying your first home to add more space to the property. Either are legal and advisable to the atlernative you have planned.
Grace Morioka, SRES, e-Pro
Area Pro Realty
Good luck w/ the home and w/ the family,
Mario Villagran, MBA, Realtor
Thank you so much for the advice. I have talked to dozens of real estate agents, and as you stated, most don't seem to know much. They pull answers out of thin air.
Hey upsidedown, why don’t you and Thomas take it to email, or just get a room? Hopefully it will be a room in a jail, or hell, neither of you seem to have any morals.
Philosophically, I privately think as Thomas Hill but a licensed agent has to walk a think line. I disagree with Mr. Hill in that it is not ONLY the banks fault, as a matter of opinion the everyone is to blame. The politicians were messing around with the banking system for the campaign contribitions and to "help the poor." The banks were making big money on these loand bought WITH OUR TAX MONEY. We the people were buying homes without care or concern, so long as prices were going up if we got in trouble we just sell sell sell and count our profit. Mortgage brokers and Realtors were facilitating everyones hopes dreams and to some extent greed. I return to Mr. Hill believing that the Banks are the gate keepers and they were the ones ultimately funneling money to the politicians.
To return to your point, it is fraud. You should consult an attorney NOW to explain why it is fraud. Quietly I will cheer as people like yourself lie cheat and steal their way to an improved economic situation like the bankers and the polticians who game the system to further their own means. Play by their rules until someone listens. At some point the system will collapse (as it is in the process of doing) and the consequenses will fully play out and hurt everyone. Democracy in action, vote with your checkbooks! Power to the people!
Yes, I am kidding.
But lets say we are all wrong. Do you really believe that the banks will just allow you and everyone to walk away from 180k times millions? Do you think that they are not going to use their profits and not buy themselves more legislation? Do you think they are just going to let this happen? When this is all said and done there is going to be a pool of BILLIONS of collectable and TAXABLE dollars out there for someone to to go and try to collect. If i had a crystal ball I would suggest that the debt collection business will become a booming business for some entrepreneurial attorneys. Now the banks do not have the resources to go after the fraud and collectable recourse debt. This will change as the bank become profitable again.
Then what of these lowly politicians who are so flush with cash that they are willing to just let all these taxable dollars dissappear. They would never change the laws so they can collect that money into perpetuity. Governments work for the people. They are not going to help the banks collect these taxable dollars.
HA HA HA, your deluding yourself.
Let me tell you something about collections. You will be told that any debt is uncollectable from 3-5 years.
Let me share something about the fraud statues. Its prosecutable from 3 years of discovery (in California).
I wonder how the banks will get around the debt collection statues....hmmmmm
I'm glad you did all of your homework - nice to see an educated consumer out there. I'm sure the thought of bailing on an existing mortgage is never a pleasant consideration, and is not taken lightly. But difficult times require difficult choices. In an era of irresponsibility, led by our government and the very banks that now hold our notes, we have to make tough choices. Even now as the government reacts, the bailouts remain focused and geared towards helping the most irresponsible and least deserving - the banks that got us in this mess, and the irresponsible home owners who over extended their finances, leaving the hard working middle class folks to fend for themselves and, as these agents would suggest, continue to do "the right thing" and carry the everyone else through this mess. For us responsible hard working middle class folk paying our mortgages who are also victims, there is no out - we have to tough it out so the irresponsible scum bags that caused this mess can prosper...sorry, doesn't fly. Nelson Mandela, one of the most notable civil rights leaders of our times spent years in jail for standing up for what he believe in - and while in jail, he had to make tough choices to survive - sometimes, choices that crossed the line of ethics and morals that he fought for his whole life. Sometimes, survival depends on adaptability. In this case, when the banks, our government, the wealthy, and the irresponsible are taking the high road, you have few options... you can be the good little boy who makes his payment on time and does as the bank commands (while it graciously takes your tax dollars in return), and watch your wealth disappear, or you can take action before its too late. People like Sarah simply don't get it and never will...she doesn't understand how the banks are responsible for this mess - however, most financial experts would disagree with her. Clearly, the financial mess this country is in today started with the housing debacle, which was created by the banks originating loans that should have never been originated - and THEY NEW BETTER...and of course, complete lack of regulation on the part of our government. And why didn't the banks care? Because they took those loans, packaged them up, and sold them.... A complete break down in the system.
YOU were the one that did that. YOU are the one responsible. Don't blame the bank for your decision. Why let them take the hit?
"P.S. One other point. To accomplish a short sale or deed in lieu, you need the lender's agreement. As a practical matter, the lender on your current home will require financial statements, tax returns, documentation, etc., from you showing your financial condition and justifying a short sale. Once they see that you have sufficient income, that you've just bought a new home, etc., it's . . . umm . . . unlikely that they'll approve either a short sale or deed in lieu. So, to get rid of the property, you might then be facing bankruptcy, which is not part of your plan. That's the real-world side of your plan."
Yes, lenders do typically want to see financial documents before they will agree to a Deed in Lieu or a short sale - of course, you have to prove irresponsibility before you are entitled to such ammenities... However, bankruptcy is not necessary. It's called "Foreclosure". If your loan is non-recourse, and the lender won't agree to short sale or deed in lieu, then they simply foreclose. Once the payments go late and it's quite obvious you are not going to make payments, the lender would be foolish (in a non-rcourse deal) to at least not agreeing to a deed in lieu of foreclosure.... and in some cases, you can negotiate at that point in time a short sale, assuming your willing to add some skin back in the game. Of course their not going to negotiate if you just randomly call them with no finanical hardship, current on payments, and want a short sale - but fall several payments behind, prove intent, and then offer them something....perhaps continued payments, maintain the property until it's sold, etc... they may consider.. Selling the property with weeds overgrowing, a green pool, etc., is much more difficult after a long drawn out foreclosure process than a cooperative short sale partner. I've even seen short sales negotiated with a spotless credit report. Deed in lieu of is almost a no brainer.... why would the bank draw out a long and painful foreclosure process when they can end it with a few signatures - you just have to wait until a few payments are missed. Again, either way - worse case, it goes into foreclosure...you don't need bankruptcy....misinformed agents - probably the same ones that told us back in 2006 and 2007 that it was a great time to buy and there "is no housing bubble".
As for morals and ethics...as I have said... you can be he good guy and have tire marks on your back, or you can go into survival mode and take necessary steps for you and your family. The banks and politicans that failed to mandate regulations certainly haven't been held accountabie... and never will be. As for robbing a bank, I wouldn't suggest it - but it seems the reverse is working just fine - the banks have been robbing us (the tax payers) out of billions and succeeding.... These same banks are now dictating to us that we must pay back these mortgages and absorb the losses that they caused? Sorry, when they robbed me and caused this mess, and avoided accountability they lost that right.
"What is more likely happening is that many are "trying" to do this, and while they may be successful for a few months, if your new lender can find out about the short sale or foreclosure of the first home, you will have committed lender fraud, which may subject you to : 1) recall of the note; 2) acceleration of payments; 3) foreclosure of your new home. "
Of course, she is applauded by her fellow agents for these comments. It would be nice if she could elaborate as to what grounds the lender would have to execute either option 1, 2, or 3. Your original note is a non-recourse. You have purchased a new home. Your intent of the first home is a simple business decision - perhaps your intent was to rent or sell - it's not your fault the market can't accommodate a sales price - or rental price - that allows you to offset your current loan value or mortgage price (put it up for sale - or list it for rent - as skewed as the market is right now with short sales, etc., determining true market value is next to impossible). For this to be fraud, deliberate intent would have to be proven - this would be quite difficult to do - if not impossible - and even then would likely not be a crime, since generally misrepresentation has to be libel or written. For example, if you provided a falsified rental agreement that you never intended to execute (a "buddy" supposedly agreed to rent your home without ever intending to do so" and you providing falsified lease documents to the lender, or provided any other type of written agreements such as falsified wages or earnings statements - this is fraud, and would be rather easy to trace and prove). This certainly would not change the fact that the lender has no recourse on your original note, and the new mortgage was obtained completely legally - the new lender would have absolutely no grounds to do anything. This is also the whole intent as to the non-recourse laws - the banks share the risk...in this case, the banks, who are receiving TARP money and tax payer bailouts caused this mess - they certainly deserve to absorb their share of the loss.
The fixes in place simply do not go far enough to address the housing crisis. Irresponsibility continues to be rewarded. If you overextended yourself, you are rewarded with interest and principal reductions. Responsible homeowners are stuck absorbing the losses, and according to agents on this site, should sit back and eat it. Irresponsible banks get their bail outs - courtesy of the same tax payers that are eating the losses - the executives of these banks are taking home bonuses for their fine work. Everything feeds on itself - and yes, the more people that walk away, the worse things get....but being the nice guy only makes you a victim, while the wealthy banks and most irresponsible home owners get the benefit. Somehow, we need a more comprehensive plan that goes further - right now, people that can afford their mortgages are staying for one reason - their probably afraid to look at the market and face reality....or perhaps that glimmer of hope that the market will turn around, which simply isn't going to happen any time soon. Reality will sink in - and I can assure you that financially capable home owners will start walking, realizing that they are putting more good money after bad.... If I invest in a company and lose my shirt because of a bad decision, I'll happily eat it - but in this case, irresponsible banks, and lack of regulation caused this mess - it was out of my control....my tax dollars are bailing these dirt bags out, adding insult to injury - I intend to do what it takes to survive and look out for the financial future of my family. Save the moral and ethical speech for the Sunday sermon - this is reality.
Sounds like you already know what you have to do regardless of what ANYONE has to say or thinks about it. Looks like you wanted someone in the industry to tell you it's justified.
What is Best for You?
I appreciate your reply. I am aware that i may end up paying state taxes and maybe even federal taxes if i dont fall under the debt relief act. I am also aware that i will take a hit on my credit. However, these taxes are a fraction of what i would dump into the house otherwise.
You insist that its fraud and illegal, and it very well may be in many cases. But what i am looking to do cannot be considered fraud. I am legally buying a second home and using the same tools "short sale, deed in lieu" that are available to any other person to get rid of my first home. I am not lying to a bank or misrepresenting my situation. I appreciate all of your replies.
I've heard of many examples of people short selling to someone else and keeping the property. Believe it or not the Department of Real Estate and the FBI is cracking down on some of these examples of fraud. Let's not forget that even though some aren't paying federal tax on the phantom income the are getting a huge state tax bill because the state hasn't conformed to that law. You are not going to hear that from people that tell you it's okay to do it but believe me there are going to be some big surprises for those who have taken part of this kind of fraud. Take the high road and you'll be a better person because of it and you'll set a great example for your future children.
I'm not kidding. Thousands of people are doing it. My income qualifies me for a second home, i wouldn't be falsifying any documentation. I don't see anything illegal about it. A bit shady or unethical maybe, but not illegal. Or do you suggest i sit on the sidelines as the federal government and banks spend billions to bail out idiots who got into homes they couldn't afford. Where's is the help for people who are paying their mortgage on time, and are not allowed to refinance because their property values are in the dump because of people who got into homes they damn well knew they couldnt afford. I know what youre going to say, im just becoming one of them now. Do u think its right to help irresponsible people with loan mods and not allow responsible people to modify their loan or refi ?
Most of the negative responses are from agents. Why? One they feel some degree of obligation to put on a good face. Because reality is *they* probably told *you* what a great deal you were getting when you bought the home that is now $100,000 underwater. I want to hear ONE of them say "I cautioned my buyers that the market was at a peak and they could be looking at being $100,000 underwater in a couple of years."
It didn't happen.
Second, short sales and foreclosures put a glut of property on the market. This means prices drop. And when prices drop, commissions drop. As it stands the average commission is only about 60% of what it would have been on the exact same house 2-3 years ago.
There are plenty of us "in good company" who paid high prices, who have paid that mortgage every month knowing we could buy twice the house today for what we *still* owe.
I paid $345,000 for my home in 2005. It needs a lot of work - probably 50-75k. We've already put about $10K into it in repairs. We've paid off $60K on the mortgage and we've paid nearly $80K in interest. And yet, we'd STILL need to come to the table at closing with another $30K PLUS more for an agent.
Since our income has grown we can afford to buy a second home and bail on this one, because at this point it is a money pit that we've dumped far too much of our future into already.
To all you righteous Realtors - you're not thinking about the good of anyone but your industry with your advice.
Shame on all of *you*.
They must know all of the underwriting guidelines set by the individual mortgage holder, Federal, State, FNMA, FHLMC, FHA, & VA.
The main responsibility of loan underwriting departments is to make as certain as possible that the borrower will not default. So to answer your question...as to why should an underwriter care.....If a borrower is planning on defaulting on their current lender it sets a precedence that the borrower could default again.
In the simplest of terms: "Once a cheater always a cheater"
Most people who want to do a buy and bail will not be able to qualify for both homes anyway, because thier credit is bad, and especially with the lending requirements becoming more stringent and with interest rates on the rise.
The legitimate buyers of multiple homes have no problem getting qualified because many of them buy their investment homes with cash. Then they put a loan on the home and go buy another one with the cash from that loan.
Personally, I can afford to be very selective about my clients and who I represent and if I suspect that someone is going to bail I run the other direction.
Hold on. Are you saying that if he asked us PRIVATELY, we would explain to him how he can buy and bail? LOL!
I took this quote from your last comment. "There is nothing illegal about purchasing a second home, if your financial situation allows you to do so, and you are not falsifying any documents in the deal. If you have a down payment, the required reserves, and can afford the payments, there is absolutely nothing illegal about it."
This is contradictory to your question.
Did you actually forget your initial question?
You asked for Guidance to Buy and Bail. No one will help you and you have sour grapes!
Also, in your last comment you are attempting to blame agents...just as I stated in my last comment....everyone blames the agent. Do you actually think that if an agent told a client that a loan they were getting was a bad one they would listen. No, they don't listen because they want the big house that they cannot afford.. You act as if we agents make them sign the documents at gun point......WISE UP!
I just wanted to say that I have NEVER sold a home to anyone who used an ARM to purchase the home. Having been an accountant, I could not and would not recommend such risky mortgage vehicles to my clients. So, that would make the statement about the 99.9% of us who did be completely false since there are only really 15 respondants to this thread.
Second, I found it interesting that today the Federal Bureau of Investigation (FBI) noted that mortgage fraud had increased from 68% to 84 percent in the past year, and that they (the FBI) would be cracking down on these cases, specifically of , buy and bail schemes intended to defraud the government--and remember that Fannie and Freddie are, in fact, GSEs (government sponsored enterprises).
The question, of course, that must be answered by individuals far more learned than I would be at what point do your actions or failures to disclose vital facts constitute fraud. I'd suggest strongly that if you are still planning to do this, you contact an attorney because it sounds to me as if the government does plan to take some action against those who are trying to do what you suggest.
Just a word of caution.
Interesting, that we have not heard from anyone who has done this successfully. My lender tells me that underwriters are heavily investigating buy and bail opportunists. Why? Because it is fraud.
I can only imagine that if an agent did help Mr. Upsidedown the first thing that went wrong would cause the agent to be sued. All of the blame would go to the agent.
Real Estate Agents are put through rigorous background checks, fingerprinted and held accountable for the actions, advice and service we provide. Why would we want to jeopardize our integrity?
I USED MY BRAIN!!!!! I THOUGHT FOR MYSELF!!!
If someone offers you Cocaine on the street to you say "Sure, it's offered to me so I guess that means this guy knows I can handle it." NO!! You would think "That would be a bad decision since it could kill me".
People just need to take responsibility for their decisions.
If you are in a recourse loan and you buy and bail you are asking for trouble. If you are in a purchase loan and only one loan on your property you might be able to pull it off, good luck with that! Are you in a position to rent out your current home to cover the piti and then move up like the jeffersons? This might be a more ethical approach for you. Good luck!
When you read every word in the lender's loan documents (has any consumer actually read every word?) one should see that they reserve leeway to their protection. Also, the documents you sign at closing - HUD - which when you Google ends with the word dot gov. This is a federal document - your statement. Which means any falsification of these documents can be punishable as a Federal Offense.
Attorneys speaking at our short sale seminars are sharing some pretty scary stories so my advice is to be fair, honest and ethical and your are more likely to avoid problems. There are deficiency judgments which can come back to haunt you in the future and fraud statute of limitations is longer.
So options. Stay put and ride it out. Do something unethical and bare the consequences.
Also, any agent who is a party to this may end up in trouble as well. It just sounds like a bad idea all around.
1) In order to qualify for another purchase of a primary residence, you will need to have equity in the property you are vacating. (25-30% depending on if you are buying conventional or FHA)
2) If you do not have the 25-30%, you will be required to qualify for both PITI mortgage payments.
3) In addition to #1 and #2, lenders are asking for a letter of explanation as to why you need another property and requiring a fully executed lease agreement on the property you are vacating and evidence of a security deposit being paid.
4) If you manage to have the income to afford both properties and falsify the lease agreement, you are a great candidate for mortgage fraud and an orange jump suit.
Summary: The only way to "buy and bail" is to be in a financial position where you would not have to do so. Also, if you are 180K upside down and trying to upgrade, no U/W is going to let that fly; they are not stupid!
Should I be entitled to the same treatment from the banks as those who buy and bail? I would like to negotiate with them to forgive 20% off my mortgage balance, even if I have to pay tax on that 'gift'. That would be nice!
I had plenty of opportunities in 2005, at the peak, to buy a bigger house or speculate on investment property, but I didn't, because I saw the risk when I looked at the loan vs. rental income ratio which told me that the market was overvalued and ready to pop.
While I sympathize for those families facing genuine hardship (loss of work, etc), I have no sympathy for those who wish to buy and bail. The 'Buy' implies that they are not actually facing hardship at all, have a down-payment and good credit. They took the risk of their original loan and were perfectly willing to take the gain (if the property had continued to appreciate), but cry for help when they make a loss.
Didn't the public, aka Main Street, criticize Wall Street over the bailout? Companies reaped massive rewards when they were making money leading up to the crash, and then got a bailout when they made a loss? How is buy and bail different from that?
You reap what you sow, sooner or later. So if some folks do buy and bail, you're going to have to live with less sleep and continually looking over your shoulder. And you can bet that the banks and lawmakers will come after you if they smell blood on your hands.
2) Large businesses do this all the time and no one says crap about it being ethical or immoral. You have to remember that this is a business decision. Do what makes the most financial sense as long as it falls within the proper guidelines.
3) Contact a lawyer not an agent to give you advice about the process.
Anyways up until today we planned on "buying and bailing." We have the help of my father to buy a second home and we are approved. We placed an offer on a short sale 3.5 months ago and we have been waiting for a final signature. The house is twice the size of our home and is 225k, but today we decided to back out of the deal and to keep our home because after 3.5 months of waiting the bank counter offered (because the market changes) 258k, and we do not qualify. We need to listen to all these little voices that is asking us if this is right and just stay in our current loan.
We have decided to stop paying on our current mortgage in hopes that the bank helps us since I have had my loan modification paperwork in their hands for 5 months now. In California a bank cannot foreclose on you unless they prove that they have tried to modify your loan so we hope this helps us.
The bottom line is - if part of you questions if what you are doing is wrong then don't do it. Listen to the little voices and advise from others.
And now we come to the crux of the buscuit, (to quote the late, great Frank Zappa): “when you made the MOST MONEY OF YOUR LIFE”. That’s what rankles you, isn’t it? The money we earned. When did you make the most money of your life? Were you embarrassed because you “made the most money of your life”? A little sour grapes here?
Carol made several great points good luck to you..
I tried for 1.5 years to get my bank to modify my mortgage and they refused because I am current. I really had a legitimate hardship! I got over pretty well and was able to make my payments, but I never forgot. Then I learned a modification would just tack on the difference to the back of the loan to ensure my great gra I live in Emeryville Ca and purchased my home in 2006 for $550K. Living in my home today, I barely see that money. I care for my aging mother, who rents in a better area. My home is work about half that now. I found a foreclosed home around the corner for $125 asking. Thank goodness my family was willing to support me. I borrowed half from them and took a hard money loan to purchase the new place. Why keep paying on a ridiculous mortgage! I am closing this week on the new . I bought it as investor owned. Yes it needs some work and yes it's a lot of risk, but I have the steady job and get paid about 90K a year. I plan to hold title for 6months then do a cash out refinance.
I'm still in my late 20s so I've got some time. No kids, no hubby. I just got real tired of hearing those NPR stories about people getting kicked out of their homes and other investors with cash swooping in. I wouldn't dare use my family's money just to "sustain" check to check in my currrent home.
Wish me luck.... I wish you the best.
I felt cornered in this position