Home Buying in 85085>Question Details

yococ14, Home Buyer in 85085

Is it OK to buy a house that's cheaper and then short sale your your other house?Is this illegal?

Asked by yococ14, 85085 Sat Jan 15, 2011

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22
Hey yococ14, are you seriously going to make a major decision like that based on the comments from unknown folks on a national real estate forum like this? I'm just curious.

Consult an attorney. That's the best CYA advice I can offer you.
2 votes Thank Flag Link Sat Jan 15, 2011
The purpose of a SS is to be relieved of debt. Burdening yourself with extra debt and then SS your house because you can no longer afford it is walking a thin line. From my experience it is not going to sit well with the bank you are attempting to make the SS with. In addition - with the follow up question "is this illegal" - ask a REAL ESTATE attorney and get the real answer. There is always room for one more bank frauder in the clink!
1 vote Thank Flag Link Tue Jan 25, 2011
Some food for thought........ if it feels wrong or you think it's questionable and might get you in any kind of trouble... DON'T DO IT!

Several people you may want to ask this question are, your current lender, your real estate attorney and your tax accountant.

Best of luck!
Web Reference: http://www.jameswehner.com
1 vote Thank Flag Link Sat Jan 15, 2011
Good Chilly Afternoon to you!

Those here that are suggesting you go see a good Real Estate Attorney are right on the ball. We've got a few that we have worked with and also have one that will provide a FREE consultation with our clients. These are questions best answered by an attorney. Everyone's situation is different and depending on certain factors it could be legal or illegal.

Have I seen someone do this legally, yes...unlike most states Arizona allows you to walk away from your home, of course insert legal disclaimer - under certain circumstances/consult an attorney. If you have a toxic asset worth half what you purchased it for and the oppurtunity and means to purchase a home that is better, in a nicer neighborhood, better schools, safer etc it comes down to a business decision in Arizona. Is it ethical, moral that's for the individual to decide.

Now will your lender allow you to complete a short sale after purchasing a new owner occupied home is a completely different situation and question...
0 votes Thank Flag Link Sat Apr 9, 2011
As long as you qualify for both payments on the puchase of your new home you can buy a home at any price in relation to your existing home. I close loans all the time where your existing home is under water and you are buying another home, as long as you qualify for both payments. You definetly want to check with an Attorney or experience Short Sale Realtors about the tax ramifications of a Short Sale. Is it illegale no!
0 votes Thank Flag Link Tue Jan 25, 2011
On a short sale, you're going to have to provide some "hardship" documenation to your existing lender. The fact that you have enough $ to put a down payment on another property may not help your case. That being said, any question that has "is this illegal" should be answered by a real estate attorney. Good luck!
0 votes Thank Flag Link Thu Jan 20, 2011
Hello Yococ14

You should seriously talk with a Real Estate Attorney.
Don't do anything until you do.
You may not know, but people out there are going to jail for real estate fraud.

Phyllis JC Anderson, GRI, AHWD
Liberty One Realty
602-316-0115
Web Reference: http://wwwYourAzCastle.com
0 votes Thank Flag Link Mon Jan 17, 2011
Dear Yoco:

Yes, short sales are legal in Arizona. Arizona is a non recourse state in terms of the bank pursuing the borrow for the "short" amount when paying off your mortgage in a normal situation. To review all of the options available to the homeowner in Arizona, see on the attached link for the "Short Sale Advisory" published by the State of Arizona's Department of Real Estate: http://www.arizonahomesland.com/forsellersorlandlords.html

Many people do buy another less expensive home after they sell their home in a short sale.

As always check with our attorney, accoutnant to make sure of your own particular situation.

If you have any questions just ask.

May I wish you the best.

Jeff Masich
Arizona Homes and Land
HomeSmart
Web Reference: http://ArizonaHomesLand.com
0 votes Thank Flag Link Sat Jan 15, 2011
Hi yococ14

Here are the answers to you above question, I understand you are in Phoenix.

It is being done.
It should be.

You should consult a good Attorney familiar with short sales and a CPA to cover all issues.
Remember, Arizona is a non recourse State.

Goodluck.
Perry
0 votes Thank Flag Link Sat Jan 15, 2011
It depends on many factors. I have had buyers that have purchased a home and then later completed a Short Sale of the old home. The process on both ends of the transaction must be done properly and carefully.

Some buyers really do need another property for reasons that make sense. Some individuals may take a moral perspective on this but without knowing all of the facts it is unreasonable to make such a judgment in my opinion.

It is possible and it has been done without repercussion.

Doug McVinua
HomeSmart

Arizona Homes for ale by a Guy from Iowa
Web Reference: http://www.McVinua.com
0 votes Thank Flag Link Sat Jan 15, 2011
You can certainly try but then the old bank that has been shorted may attach your new home for the amount that was teh difference for what it sold for and what was owed. you should seek legal advice beofre attempting such a purchase.

please see my blog with tuips and advice on getting a short sale approved.
0 votes Thank Flag Link Sat Jan 15, 2011
Anything is possible. It just depends on your specific situation.

Call or email me anytime, I would be more then happy to help.

AZ Short Sale Agent
phxLeslie@gmail.com
480.335.3636
Web Reference: http://iclickRealEstate.com
0 votes Thank Flag Link Sat Jan 15, 2011
Hello,

What you are asking is for a " strategic default " This is were it makes more financial sense to purchase a lower priced home rather then being under water on yours. If this is the case, you would definitely want to consult a real estate attorney and your account. You would need to know what your liability is to the lender as well as what your tax liability will be on the defiency. My underatanding is that there is no law on strategic defaulting, individual's and companies do it all the time but there are financial consequences. Again these are questions to ask an attorney.
0 votes Thank Flag Link Sat Jan 15, 2011
it could easily be looked at as mortgage fraud if that is your intent from the beginning. Be careful. Get legal advise before you do anything like this.
0 votes Thank Flag Link Sat Jan 15, 2011
There was a loan program where you could short sale your home and not be behind in payments and then purchase another home right away. I am not sure if this is still in place and a call to a lender would be the person to check on this. The problem comes in when most of the current lenders (that have the current loan) won't discuss a short sale unless you are behind in payments which make this type of financing not work due to late payments.

Many people have purchased a lower priced home to help their monthly budget, but to do so and plan the short sale in advance should be discussed with an attorney. To let it go into foreclosure is a buy and bail and is a problem. If you purchased a home and tried to rent the home for awhile and then it became to large a burden, well that may be okay, again check with an attorney. A real hardship is needed before the banks are looking at the short sale applications and if renting the home doesn't work out then having two mortgages could be a good enough hardship to get the banks to work with you. Again, you need to discuss this with an attorney.
0 votes Thank Flag Link Sat Jan 15, 2011
Without getting into the legal ramifications, if you qualify for both payments and it makes sense a lender can't deny the application on a
0 votes Thank Flag Link Sat Jan 15, 2011
Hi Yocco14,

A Real Estate Attorney is the person that can properly answer this question. Buying a home and then foreclosing on your current home is a big no, no. In lending circles we call it "Bank Fraud". There could be some bad repercussions from Buying and then Selling Short (credit, taxes, deficiencies, etc.) I know several attorneys that can answer your questions for free. Let me know if I can assist you with anything.

Matthew Remus
480-233-5002
0 votes Thank Flag Link Sat Jan 15, 2011
What Tim says is true in general but it my opinion the banks do not apply it strictly. They know if they deny a short sale it will most likely become a foreclosure. From my experience they may ask for a cash contribution if they think you have money or if you have a good monthly income. If you don't have cash they may ask you to sign a note. Then it's up to the home owner to decide how much they prefer the short sale over the foreclosure.
Back to what you actually asked: From what I was told by a mortgage person, a borrower needs to plan on keeping the first house in order to get a mortgage to buy another one. Fannie Mae backs most loans and they will not participate in helping you default on the loan of the first house by giving you a loan on anotehr house. If you ly about your intentions then that would be a legal issue and I don't know how bad that can get. Also, I think it matters how credible your explanation is why you want to buy an additional house. If they think you do it to let go of the first one then they don't give you the loan. This is what I heard. I'm not sure if it works exactly like it.
0 votes Thank Flag Link Sat Jan 15, 2011
What you are talking about is called a Buy and Bail. Terry is correct, you really should contact an attorney for legal advice. If you would like a number to a real estate attorney, I can provide for you. If you can afford to buy a new property, would you qualify for a short sale? That is where the catch 22 is. You need to have a hardship to short sale a home. A hardship can be that you took a new job and need to move closer to work, your family has out grown the home, divorce, etc....

Brooke C. Martin
Designated Broker, Exit Realty Dynamics
Direct: 480-235-0024
eFax: 480-406-6769
BrookeAzAgent@gmail.com
http://www.AZHomeSalesByBrooke.com
0 votes Thank Flag Link Sat Jan 15, 2011
Hi yococ14. That's called 'Buy & Bail', and why it may not be completely 'illegal', it's not exactly 100% legal. If you google that term (buy and bail), you'll see some stories of lenders putting liens on the 'new' home that was just purchased prior to allowing the 'old' home to go to foreclosure (IF your 'old' lender finds out about the 'new' purchase, which they can). This will almost certainly prevent you from EVER selling the 'new' home thanks to the large lien that was placed on it by your former lender.

Your best bet is to short-sale your current home (staying current on the payments IF your lender accepts this), thus avoiding foreclosure if possible, OR try a 'died-in-lieu' of foreclosure, and THEN purchase the second home IF you can qualify.

The other option is to purchase the 2nd home NOW while you CAN qualify for BOTH sets of payments, and then rent out the 'old' home (even if it's at a loss) for a year, and THEN try and short-sell it. At least you can show your lender that you tried to keep it as an 'investment' property however you couldn't continue to maintain the monthly 'short-fall' any longer.

In any even, 'buying and bailing' is not ethical or responsible in my opinion, and I'm sure that will draw the ire of some other real estate agents (and sellers) throughout AZ and the US. While it may help you in the short-term (lowering your payments, getting you out from your 'under-water' home), there are other avenues that should be explored first. Such as...how about a loan modification on your current home? Maybe your lender will modify your loan by lowering your principal balance to get you closer to 'market value'? This IS a rarity, but It's worth a try and you can at least show your lender that you tried to work with them prior to either (a) short-selling the home OR (b) allowing them to foreclose.

Hope that helps!

Jim Mitchell
Century 21 All Star, REALTORS
0 votes Thank Flag Link Sat Jan 15, 2011
We can not give legal advice, I suggest you talk with a real estate attorney and tax adviser.

What you are proposing is called a "Strategic Foreclosure" Here's an article to read

http://massrealestatenews.com/tag/strategic-foreclosure/

Keep in mind that if your loan has an option for a deficiency judgment (again talk with an attorney) you may open yourself up to attachment to your next home.
Web Reference: http://terrivellios.com
0 votes Thank Flag Link Sat Jan 15, 2011
If you buy with cash this might be possible. To get the bank to even allow a short sale you would have to be behind in payments and be able to show good credit and enough income to be able to get a mortgage for another home. I think this would be difficult if you were behind on the payments of the short sale house. If you used cash to buy another home and the bank did not find out about it, in which case they would not allow the short sale, it might be possible.

Many owners think that they can get a bank to do a short sale just because they are upside down on the value of a home, but the bank is not going to allow a short sale just because it would be nice for your portfolio or make you sleep better at night. You have to be behind in payments and have a hardship for them to allow their bank to loose money for you.
0 votes Thank Flag Link Sat Jan 15, 2011
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