What's up with the Buy and Bail Strategies??
Do some here feel that it's legal? Unethical? Or, just a downright bad decision? I'd be interested to hear how lenders feel about this.
I know that there are hardships, transfers and variences granted, but does this fit into those categories?
In the last 2 months I've witnessed 2 buy and bail short sale strategies put into play. BTW, no relations, just an accquaintence and a person I just met. One, that I can give specifics on involves a middle aged couple just getting married and already mortgaging 2 separate residences with one spouse with teenagers about to leave the nest. So, they go out and buy another much, much larger home for all. Now, with 3 homes and only being able to afford 1, they are trying to short sale the 2 original homes.
In the other case, the individuals know better........they're in the real estate profession.
Excuse me but, I just don't get it!! What an I missing here? Don't they know this ends up costing others, especially if they have to foreclose or bankrupt?
Replies to This Discussion
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Permalink Reply by Bryant Tutas on
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going in the newsletter today
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Permalink Reply by Samantha James-Tharp, PA on
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This is morally wrong yes but if they work within the system and the bank agrees to play along with them then they should move forward.
The system is truly flawed and in my area their are a lot of people doing this. Married couples with one spouse as the owner of the short sale and the other buying the new home at a much lower price.
This market has enough blame to go around the table. I use to be a mortgage broker and I have to say the banks as well as the consumer have put themselves in this mess. Banks are the number one wrong doer, letting people buy a home just on credit score alone and using others credits to qualify. Writing loans people could not afford.
I use to also do loan signings and quite frankly their were a lot of consumers that just did not know what type of loan they were getting into and most did not care.
Responsibility starts with the professionals by telling their clients the truth. I am still a Realtor and today I tell my clients to ask for a fee sheet and to make sure they can live with their monthly payment and still enjoy their lifestyle. We as professionals have to look past that rush to get a paycheck and do what is right.
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Permalink Reply by Richard on
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What about all the debt left on the table as a result of this bad decision-making? There was no hardship? Why should you, I and other taxpayers pick up the tab? This has to stop. The other case I mentioned earlier at the start of this article involves a real estate broker who seems to be definitely taking advantage of this strategy. She knows better.
She has a nice home....maybe not exactly what I'm looking for. The truth of the matter is, she built a bigger new home just 3 miles away fully knowing that she was going to bail on this one. However, if she is not willing to personally carry the debt with her, then I see a problem with just leaving it to someone else. The question is, did the lenders know? I decided not to submit an offer on it based on the principles involved.
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Permalink Reply by Simone St Clare on
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Many people do not feel that this is a moral or even an ethical issue. It's a business decision, pure and simple.
All around us corporations and large companies restructure their debt using allowable bankruptcy laws and avoid taxes by using allowable tax laws. I know that I'm fed up with these and other Big Business shenanigans that have been voted upon by lawmakers who don't care about the voters until it's time for another vote. I can't be the only one who feels like this!
In my opinion there are many of us who look at Big Business and say "if they can do it, why not me?" There's a trickle down effect in play here that nobody has addressed. This, to me, is at the root of most of our financial problems.
Until Big Business is made to play by similar rules and regulations that the rest of us are forced to play by, there won't be full scale ownership of America's debt problems by the public. Yes, I know that Big Business needs some tax breaks and incentives to create jobs and maintain the capitalistic system. (which I am in favor of) However, greed and graft is out of control and the American public knows this and is reacting to it!
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Permalink Reply by Tara Nagelhout on
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I think it is illegal because they are making loan application based on their current financial situation. It is fraud because the INTENT to defraud their bank exists. There is a lot of talk about legal this and legal that, but what people forget is INTENT. Intent weighs in heavily when judges decide is the actions taken by somebody were indeed in the fraud realm. Strategic default should be illegal in all states. Where I live, we are a non deficiency, non recourse state. If somebody chooses to walk away from their home, this is virtually no consequence. Sure, their credit report will be trashed, but.....other than that...they have no consequences. In addition, through December 31 2012 there are no consequences of paying taxes. Sure, it has to be an owner occupied in order to qualify for the mortgage debt relief IRS thing, but all these people doing short sales and having the foreclosures say they are owner occupied at the time of title transfer, even thought they are not really living there at the end
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And, if they walk away from it or strategic default then there is one more problem for HOAs and other homeowers nearby. Here in AZ, some HOAs are way behind in their responsibilities because of the abundance of foreclosures and the lenders are not picking up the tab. You can't tell me that loss property values don't hurt everyone. Even if there is no HOA involved, nearby home values suffer.
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Permalink Reply by TG on
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Ethics? Please... these are financial and business decisions same as the bank makes. As long as people are not outright breaking the law (committing fraud), and are honest on all loan applications etc, then that's all that matters. There's no place for moral judgement here. Am I really supposed to shed a tear for the banks when people do this?... Banks make decisions every day woth 0 regard for ethics and morals, 100% based on what their bottom line will be. Whats wrong with an individual consumer doing the same?
There are laws and other 'rules' of the system that are set up so that everyone must deal with the consequences of their choices. As long as everyone understands these and is ok with them then that's the end of it. I will be the first one to say that someone who gets into a mortgage they can't afford, or a bad loan that they end up 'not wanting' a few years down the line "knew what they were getting into" when they signed the papers. They knew the risks. But guess what... so did the bank. Both parties made an agreement... You agree to pay X amount on this schedule, and if you don't Y happens. The banks know "Y" is a possibility (or one of several possibilities), but those are all defined. If a consumer chooses to go the rout of "Y" doesn't break the law who is anyone else to judge them. The banks don't have to like it- but the did agree to it.
The bank can always turn down a short sale if they don't like it, and let the homeowner forclose. If the homeowner is not prepared for that situation then they took a risk and lost. If they are, then again- everything is being played by the rules.
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"I think it is illegal because they are making loan application based on their current financial situation"
It's not illegal, check the laws. The bank's application can only get and take into account information based on your 'current financial situation' and that's as it should be. It can't take into account some theoretical future event. Think of the opposite case... what If I go to the bank asking for a loan way more than It looks like I can afford and I say "yeah, but in a few weeks I'm going to be rich! I INTEND to be making $50k more a year in the future. Even if you are right, without current, documented proof they cannot take that into account. History and present situation is all.
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Permalink Reply by Jeff Payne on
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TG, I agree with you. If the borrower qualifies for a new mortgage on a new home, they certainly didn't break any laws. If they buy a new home and bail on the old one, that is a decision that they made and there may be consequences with that decision because they will have broken a contractual obligation, it would be up to the lender to pursue them through legal proceedings. As far as the new mortgage, there is nothing illegal there unless they lied on their application.
Sometimes homeowners have to make tough decisions and those decisions will most always have some sort of consequences.
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i dont shed a tear for the banks, but I do feel badly for the neighbors of the people doing this. Their values drop each time a foreclosure or short sale hits the market.
TG said:
Ethics? Please... these are financial and business decisions same as the bank makes. As long as people are not outright breaking the law (committing fraud), and are honest on all loan applications etc, then that's all that matters. There's no place for moral judgement here. Am I really supposed to shed a tear for the banks when people do this?... Banks make decisions every day woth 0 regard for ethics and morals, 100% based on what their bottom line will be. Whats wrong with an individual consumer doing the same?
There are laws and other 'rules' of the system that are set up so that everyone must deal with the consequences of their choices. As long as everyone understands these and is ok with them then that's the end of it. I will be the first one to say that someone who gets into a mortgage they can't afford, or a bad loan that they end up 'not wanting' a few years down the line "knew what they were getting into" when they signed the papers. They knew the risks. But guess what... so did the bank. Both parties made an agreement... You agree to pay X amount on this schedule, and if you don't Y happens. The banks know "Y" is a possibility (or one of several possibilities), but those are all defined. If a consumer chooses to go the rout of "Y" doesn't break the law who is anyone else to judge them. The banks don't have to like it- but the did agree to it.
The bank can always turn down a short sale if they don't like it, and let the homeowner forclose. If the homeowner is not prepared for that situation then they took a risk and lost. If they are, then again- everything is being played by the rules.
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Sure we feel bad for the neighbors.... however it would take more than one strategic defaulter to bring down the property values in a neighborhood. I would imagine that if one homeowner was upside down, then there are plenty more who are and plenty who have to short sale, at least where I am that is the case.
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Well, that I do agree with, as far as 'feeling bad'. But we all have our own decisions to make. If that were me, in the end the financial situation and future of my own family would have to come before that of my neighbors. And I would expect the same from them. I might not like their decision, but it's not my call to make and I wouldn't hold it against them. (and again this is as situation we all knew was possible. We're all aware that our home value can be affected by decisions of others).
Tara Nagelhout said:
i dont shed a tear for the banks, but I do feel badly for the neighbors of the people doing this. Their values drop each time a foreclosure or short sale hits the market.
TG said:
Ethics? Please... these are financial and business decisions same as the bank makes. As long as people are not outright breaking the law (committing fraud), and are honest on all loan applications etc, then that's all that matters. There's no place for moral judgement here. Am I really supposed to shed a tear for the banks when people do this?... Banks make decisions every day woth 0 regard for ethics and morals, 100% based on what their bottom line will be. Whats wrong with an individual consumer doing the same?
There are laws and other 'rules' of the system that are set up so that everyone must deal with the consequences of their choices. As long as everyone understands these and is ok with them then that's the end of it. I will be the first one to say that someone who gets into a mortgage they can't afford, or a bad loan that they end up 'not wanting' a few years down the line "knew what they were getting into" when they signed the papers. They knew the risks. But guess what... so did the bank. Both parties made an agreement... You agree to pay X amount on this schedule, and if you don't Y happens. The banks know "Y" is a possibility (or one of several possibilities), but those are all defined. If a consumer chooses to go the rout of "Y" doesn't break the law who is anyone else to judge them. The banks don't have to like it- but the did agree to it.
The bank can always turn down a short sale if they don't like it, and let the homeowner forclose. If the homeowner is not prepared for that situation then they took a risk and lost. If they are, then again- everything is being played by the rules.
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