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 Thom Colby CA Brkr 888-391-5245 on
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It seems to me there has been an uptick in Buy and Bail schemes lately. Just this week, I got calls from 2 potential short sale negotiation customers where their agent referred them to me so I could handle their short sales. In both cases, the individual had NO financial hardship and in fact were flush with cash on hand. The agents are actually working with them to buy new properties with the intention of either short selling or walking away from the current properties which are seriously underwater.
After long conversations with both individuals (unrelated in any way to each other) I told them I could not be involved in their short sale as it was really a "Buy and Bail" and clearly "Fraud". Both had not understood that before calling me and both decided against the strategy.
The conversations were really about what are the alternatives which included, paying down the mortgage and refinancing at a lower rate (they have the scores and the cash to do it), selling the property and paying the difference, or just holding onto the property as a long term investment. These are 2nd homes in vacation areas.
Unfortunately, I think so many agents are struggling to make a living, they are not looking at the big picture and advising clients appropriately. They see only the purchase of a new property and the associated commission, versus the legality of what their client is actually doing - and - they are participating in !
It is either Fraud or Unethical - or both! Remember, if we as agents / brokers participate in this activity, we are just as guilty as the individual who perpetrated the crime since as agents / brokers, we facilitate the transaction. I know the District Attorney here in Orange County CA is certainly pursuing agents and brokers when they are involved in this activity.
Fraud
From Wikipedia, the free encyclopedia
In criminal law, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation. Defrauding people or entities of money or valuables is a common purpose of fraud, but there have also been fraudulent "discoveries", e.g., in science, to gain prestige rather than immediate monetary gain.
Ethics
From Wikipedia, the free encyclopedia
(Redirected from Unethical)
For other uses, see Ethics (disambiguation).Ethics, also known as moral philosophy, is a branch of philosophy that addresses questions about morality — that is, concepts such as good and evil, right and wrong, virtue and vice, justice and crime, etc.
Thom Colby
Broker
Newport Beach CA
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Permalink Reply by Richard on
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Well put Thom!! As I said earlier, it's just my opinion.......2 in a billion, give or take. This economy is tough, so why make it tougher. The reason I posted this question originally is because like yourself, I saw this very thing happen twice in the matter of a week. One case involved a real estate broker who was blatantly doing it.
I certainly don't condone the unprofessional business antics of the lenders, but I 'd hate to see this strategy become a frenzy and ultimately make it harder for real hardship candidates.
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Permalink Reply by TG on
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from your previous post:
"Well, he or she said they would when they signed the mortgage. It comes down to deception and, if they lie on their applications, it's fraud."
This is true, but incomplete. What the buyer said was "I agree to pay the mortgage OR not pay the mortgage in which case you get to forclose on my house" (or any number of other options the lender accepts such as short sales, DIL, etc"
As mentioned before, strategic defaults, even in a buy and bail situation are still simply following along with the terms BOTH the lender and seller agreed to in the contract. People simply cannot call this fraud unless it actually involves lying on the mortgage application. Outside of that, I don't see any fraud or even simple deception for that matter. If you tell the truth to the bank you get your second home on, and they give it to you- everything is as it should be. If you choose to default on your first home and don't have any hardship, it's the bank's decision whether they want to foreclose or do the short sale anyway because it's less work and potentially more money for them.
I can certainly agree that ethics should have a strong place in business, but when the companies you're doing business with have all the money, all the resources and could care less about ethics, you're bound to be in the 'nice guys finish' last category trying to play that game with them. When you're dealing with a company that sees nothing more than their bottom line, I see no shame in approaching them in the same way.
"I 'd hate to see this strategy become a frenzy and ultimately make it harder for real hardship candidates."
THIS is a very interesting point, and I agree I definitely hope people who need the help most don't suffer from others just trying to choose the best option out of a bunch of bad ones for their own family. That is one crappy thing that goes back to the banks holding all the cards... Both the banks and consumers made bad choices that put us here, so we both deserve to see the consequences from that. But big companies never absorb the negative financial impact of their decisions...they always find a way to pass it on to their customers : /
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Permalink Reply by Isabelle Javier on
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Good one, and correct. Before some of you continue with this conversation, I advice you to see a tax/real estate attorney and get yourself informed. As I mentioned before and TG repeats, the note is tied to the real estate. Not to some sort of promise bound by "till death do you part". As far as buy and bail, as long as the Buyer does not lie or their loan application, there is no fraud. Underwriters require more than a lease these days, and most often do not want the lease, so it would be foolish for an agent to provide a fictitious lease which is not supported by tax returns. What underwriters want to see these days is that the Buyer can qualify to pay for both his/her new home and the one they are moving from. Stay out of the loan process, and you will be fine.
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there is no crime involved... honestly, if there were, do you think some people on a message board would be the only ones to recognize it? With all the money at stake here...with all the high priced lawyers these banks have on staff? People would be getting sued left and right here, but they aren't. They are playing within the laws and rules of the system, whether others feel the need to pass moral judgement on them or not.
Everyone certainly has the freedom to choose if they want to work with a potential customer or not, but i say good to those agents who keep a business relationship business. I'm sure you don't want someone else telling you how to do your job, and customers don't want people telling them how to run their lives.
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Permalink Reply by Jeff Payne on
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Thom, very good post, you are someone that I really respect and I always read and take in everything that you say. I am struggling with calling this fraud. Where does the fraud come in? Who is being defrauded? The lender that is being bailed on? The new lender? How would this be any different than someone finding a rental that is much nicer than their home and moving in there and no longer paying their mortgage? I ask these questions in all sincerity.
The lender that is being bailed on has legal recourse and if this buyer can get a new mortgage, chances are they may have something to attach a deficiency to. It stinks for that lender but quite honestly, they made their bed by giving anyone a mortgage, now they have to lie in it.
I live by the Dave Ramsey rule of paying cash for everything so I really don't have much of a dog in this fight and I don't work with buy and bail buyers, for the record.
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Permalink Reply by Jim Hale on
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Jeff raises a grate (make that great ... or grating) question:
How could they qualify for the third home unless they can really afford all three?
Could it be that the mortgage fraud, being speculated on here, actually occurred in the application for the third home?
If no fraud was involved in that loan, how is it that now they cannot afford the first two?
Or is it in making the case for hardship on those two bail situations that the fraud comes in?
As they say, something just doesn't seem to add up (to anything other than fraud) here.
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"If no fraud was involved in that loan, how is it that now they cannot afford the first two?"
I'm not sure if I missed the part of the post you are responding to, but was it ever claimed that they /couldn't/ afford all 3? I mean...that's where the 'strategic' comes in in the strategic default. People are allowing their home(s) to go into default even though they can afford the payments.
If they lied on any of the applications, then of course it would be fraud, but there is no legal requirement in claiming hardship. Writing the hardship letter is simply a requirement most banks request as part of the process. You give your opinion of why you feel it's difficult for you to make the payment, the bank gets to accept it or not. In the end, the fact is that it doesn't matter; all the bank cares about when the read this letter is "what situation is going to give us the most money here". The letter is just another tool for them to base their next business decision on (can we get no more money out of this person, can we try and get them to take on a note if we approve the short sale, etc etc). Just like they want your financial details in a short sale only to find out if you have the assets to make a denial-> judicial foreclosure worth it.
You could write a hardship letter that said flat out "I can pay my mortgage but I don't want to anymore". The only thing that's going to matter is that bottom line. If they put the puzzle together and it looks like the buyer could care less about their credit and watching the home go to foreclosure, and they think they'll get more money out of the short sale, it will be approved, plain and simple. Banks are not going to let themselves lose money just to "stick it" to people, or teach them a lesson...
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Jim, Good post. I just think that they are breaking their contract and the note or mortgage holders have remedies should they choose to pursue.
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Permalink Reply by Marina Solo on
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I think that would be a lending fraud and I would report them to FBI and NAR. Dishonest people like that are destroying our country and our economy. We must speak out to stop them.
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Marina, Which lender are they defrauding? The new one of the one that they are bailing on? Did they intentionally misrepresent themselves when they got the new mortgage? Did they intentionally misrepresent themselves when they got the mortgage that they are bailing on? Why is buy and bail any different than someone who moves to a new city, can not make their mortgage payment and just lets the bank have it back? Would you feel the same if they rented a nice beach house and bailed on their mortgage because they were able to get a nicer home?
Fraud is a pretty tough word. Wrong? Depends on if you put your family or your lender first. Fortunately for me I am mortgage free but given the choice between my family's needs and the needs of my lender, my family will always come first. I hope I never have to be in that situation
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Permalink Reply by joe beauchamp on
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Practical: getting a new property signed up before running into credit/foreclosure trouble is the best way to cut losses and move on to a nice place. Ethical: it looks bad, but the mortgage association itself did exactly this same thing in the last year. If they have no trouble ripping off their mortgage company, it makes it hard (at least for me) to lecture individuals on the morality of the issue. Sad, eh? I think so..
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