Have you heard, the lenders call it "buy and bail"? Owners, who are having a good credit rating buying a second home at a low price, telling the lender that they will rent out the first home. However, their only intention is to walk away from the first home leaving the lender holding the bag.
There are some real estate agents and brokers that see nothing wrong with this tactic and even suggest to homeowners to do the "buy and bail" process because homeowners are upside down on their mortgage.
As a homeowner and Realtor®, I can't see that this type of action will benefit you, the homeowner. All it does it prolongs the mortgage problem. In the end it will always catch up with you, if you don't take care of your mortgage crises right away.
I hope that under the revised Fannie Mae guidelines, applicants claiming such actions should be held accountable and produce documentations supporting such actions by the homeowner.
What do you have to say?
Managing Broker - CDV TransAtlantic, Inc.
(863) 619-6918
Well, I have to side with those that think it serves the banks right. They did nothing to help this situation. They encouragesd people to overspend on homes they really could not afford. And it is the bank that has the formula to determine how much buying power a buyer has. Based on pure speculation that the market would continue to rise, they dug the holes that these people are now finding themselves trapped in. Please do not think I believe in this unethical practice, nor would I encourage or show anyone else how to do such a practice ... but I do think it serves the banks right. They need to do more to help.
I completely agree that this is a problem. Of course, as a lender I can tell you that borrowers have been doing this for years. They buy another home and receive a better rate and price on the loan because they claim it is going to be owner occupied. Now, they are actually moving in to that home and "walking" from the other home.
I think one of the reasons they get away from this is that underwriters are afraid to demand documentation for this because they will be chastised. It is easy to be principled when there is something to fall back on such as hundreds of underwriting jobs. That is not the case any longer so many people who know what is going on turn their heads.
Until we all decide to clean up the industry, we will still look and act like what people think are used car salesman with no ethics.
Hey, Petra. I would have to side with you on this one. Now, this is not something that I have seen first hand but I hope that this is not a popular alternative. Thanks for sharing, Jim
Patrick - I just can't believe that Real Estate Agents even suggest to do a "buy and bail.
Mortgage Rate Reduction Services - There we go again, underwriters should take a second look before approval.
Jim, I have not seen this kind of activity either, however, we as Realtors(r) must comply with the Code of Ethics. Thanks for commenting.
Hi Petra...
Off topic comment here :)
I think going the extra mile is a great slogan. I didn't realize that you actually had client is king on your profile. Do you like it? Or are you in the market for something more 'marketable' ??
TLW...ROAR!
Hi TLW
No problem :) Actually going the extra mile and client is king almost go hand in hand. I use going the extra mile more and more, since it is mostly used but not unique as you wrote in your post. But, what do you think is more marketable if you don't mind me asking? Thanks for writing back, but if you'd prefer email you can email me at petra@petranorris.com.
TLW - I just noticed you subscribed to my blog, I'm very honored to have you in my small family of subscribers. Thanks and Herzlichen Dank!
The underwriters are smarter than most people give them credit for. They are aware of these practices and this hasn't just started happening. One thing they normally require is a signed rental agreement. This doesn't mean that it won't happen but it does show strength in the file. The downside is this. Ok so you get the loan and you do get the new house. The first house goes into foreclosure. Then the bank takes you to court and is awarded a judment. You cannot sell the new house until you settle the judgement. Looks like to banks gets their money and they will be willing to wait to get it.
PETRA - I've heard of this, but it doesn't make any sense to me because they are going to destroy their credit rating in the process.
Shaun - I totally agree with you. It will always come back in the end, this is not a win-win solution for the homeowner
Adam - You are right, but what Real Estate Agent in their right mind would suggest a "buy and bail".
Fox news just had story about this happening over the weekend. When the media starts talking about, you know it must be pretty common.
Susan - Thanks for reading and commenting. I haven't seen it on TV yet, but I'm sure it will be on every channel pretty soon.