When you first find out about the new lending rule it can come as a bit of a shock. Knowing the rules and how to work within those rules will allow you to achieve you future goals.
Here is one persons take on the “buy and bail” rules and my response on how to work within the rules:
Subject: Buy and Bail
Brent,
I had never even heard of this until yesterday.
My husband and I own a townhouse. We have excellent credit, no late payments, no problems paying the mortgage at all…we simply want a house instead of this “hell” called townhouse living.
We paid 382,000 in March of 2007 and planned to stay here for only two years, then sell and get a real house. Fast forward to today, August 23rd 2008 and with 12 units in our complex for sale, all UNDER 320,000, some as low as $250,000, we know that we will not be able to break even let alone make a profit if we sell now.
As we drive around this city we see “real” homes that we could now easily afford if we could only get out of this townhouse. We have tried to think if every scenario possible to get us into a house but just ran into dead-ends all over the place. Yesterday, however, I spoke to a realtor about a really cute house that I saw.
Two bedroom, two bathroom, great landscaping, very modern upgrades and smack dab in a part of town that is almost always sunny..even when we have our horrible June gloom and May gray months.
I talked to the realtor for quite awhile about our situation and he gave us a lot of info on the sellers of the little house I like. Before he ended our conversation he then told me about “buy and bail”.
As home buyers who did not purchase beyond our means and who pay bills on time it is a real kick in the head to see people get refi after refi for hundreds of thousands of dollars or watch as they purchase a house that is WAY TOO MUCH MONEY…..then just casually walk away. Because of the thousands that have done this, my husband and I can not sell our home for what we paid for it and loan rules are going from no guidelines to “extreme” guidelines that even those of us with good credit will not qualify for.
Until yesterday I had never heard of buy and bail but I can tell you that this is now an option I am seriously looking into. I know we could actually get a renter for our townhouse but it would not be enough to cover the actual mortgage, HOA fees and taxes on this place. Maybe we should give it a go and hell…if we can’t make ends meet..looks like buy and bail might have to be our option.
Thousands of others are committing fraud…my luck…WE would get caught!
My response:
Hi C.!
I see it all the time, people who feel they are paying the price for others actions and honestly I can understand their point of view.
There are so many people out there who DO take advantage of the system and have gotten away with it! Now the banks have to make adjustments so they don’t continue to get burned.
Enter “Buy and Bail” here you have a scenario that is coming up all over the place but there are solutions to this issue.
To buy while owning and renting another property you simply need to qualify for both payments! This can be done by either (1) having enough income or (2) by adding a non-occupant co-borrower on an FHA loan to buy your new property.
The other way is a bit more drastic and risky but you could short-sell your home and then qualify for the new one. This would take timing and negotiation skills but it can be done. Short-sale the current home and buy the new one before your credit reflects a settled account. (not perfect but possible)
When you get thrown a guideline like this you need to get creative and work with the underwriters to find ways to work with the rule! Be Smart and NEVER LET THE BANK TELL YOU WHAT YOU CAN AND CAN’T DO! Find a way to get it done!
Both situations are not fraud, not illegal and overall follow a moral compass!
Let me know your thoughts!
Brent Lane
The Lane Group
www.thelanegroup.blogspot.com
www.brentlane.wordpress.com
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If buy and bail means buy the second home and then walk out on the first, I think it would be a mistake. Illegal? No. But they have entered into a contract, and they should honor it if they can. If they do chose to buy and bail, however, they shouldn’t do it on the justification that they can’t sell their home now because others have done the same thing. That kind of rationalization is a tad too transparent.
Interesting. I have never heard of buy and bail. I guess I would be worried about how ruined credit would effect your life. I know right after college I had a $30 medical payment I forgot to make. I thought I had paid it and I never got bill because I moved around a lot. Long story short it tanked my credit. I only discovered it when I could not get home phone service because of credit. Pretty much anything I tried to do I was denied for.
I think Buy and Bail just adds to the real estate problem.Regulations are laws for corporate entities.
The GOP model of the world is one in which there is no laws governing corporate entities, and heavy regulation of human entities. This is evidenced by the ‘Free Market’ where businesses can freely lie, cheat and steal from humans with no consequences, but humans are thrown in jail for exactly the same behaviors. The GOP already acts as if corporate entities are American’s citizens and we humans are ‘illegals’ that have no rights: we would be slaves but for the pittance we receive as ‘income’ from our owners.
We humans are regulated by ‘fraud’ laws, the lenders are not and don’t want to be
It is possible for borrowers with good credit to buy a new home with a lower price and then bail out of the “upside down” mortgage on their first home. Some cases, homeowners are coached through the buy-and-bail process by real-estate agents and brokers who see nothing wrong with it.
Property Management – Propety Sourcing, Property Acquisition, Buy Property, Sell Property, property repossession
HI TWA!
I agree that people shouldn’t buy and bail on their existing home because there are so many different ways to get out from under an upside down mortgage as I demonstrate on my BLOG. http://www.brentlane.wordpress.com
Austin,
Be sure you don’t let your clients get into contract if they have this issue! Know there are ways around it and a professional loan person will know what to do!
Office Space!
I agree Fraud is Bad! The rest is too detailed for this miniature box I get to write in.
Beeinti!
Coaching clients through the process becomes part of your job as a real estate person. There are some Real Estate people who take their clients down the wrong path and that is unfortunate but it happens. Hopefully there are those who do the right thing!
Brent
Brent Lane – Guest Bloggers last blog post..Mortgage Shoppers: My Experience with a Pro! Part 2
Wow, I never knew about buy and bail. I think this procedure would take time and compromise but it can be done. That’s pretty interesting…Thanks for sharing it
Never heard of this process before. thanks for some interesting ideas concerning it.
@Stephen . Thanks for getting back to me. I hope the material really help you. As I explained, buy and bail can have a lot of advantages.
The other way is a bit more drastic and risky but you could short-sell your home and then qualify for the new one. This would take timing and negotiation skills but it can be done. Short-sale the current home and buy the new one before your credit reflects a settled account. (not perfect but possible)
Hopefully the above shows up this time.
How exactly do you do this? Can I get some more details?
We don’t operate this kind of system here in the UK but if we did I’m sure, given the option of being able to move or lose your home, many thousands of homeowners would at least consider it, regardless of their moral standpoint.
As mentioned above: “NEVER LET THE BANK TELL YOU WHAT YOU CAN AND CAN’T DO!”. They’re in for the money and not for you.
Get second opinions from independent sources before doing a move. Professional opinions. This matter is serious enough.
It’s important to know exactly where you are heading, otherwise you might be getting yourself in the group of irresponsible people who made this problem happen in the first place, by not being able to pay their mortgage and driving of real estate prices down.
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