12 Sep 08 Buy and Bail: Making The Rule Work For You. Part I

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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

Tags: brent lane, buy and bail, buy and bail rules, enough income, excellent credit, fha loan, new property, non-occupant co-borrower, short sale, the lane group