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 Victoria Frieberg on
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Awesome discussion! One my colleagues and I have been having for some time now, and great to see both sides validated. I had an interested discussion with a loan officer, who told me a couple weeks ago that Rural Housing and FHA will now run a search on the spouse of a borrower for a new loan, to see if that spouse is in the short sale or foreclosure process..when only one spouse is on the application. I cannot remember the number she used..something like a '406K blah blah" search. If the non borrowing spouse is not on the application, I do not know if that is even allowed...but apparently she says this is a new way for them to verify that they family will not be allowed a new government backed loan. Anyone else hear of this?
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Permalink Reply by Edward Aretz on
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As people who get paid by doing short sales, I believe we will have to leave morality to others. I spend some time explaining to others how banks think. So here is where we are: a borrower somehow got approved for a third home loan and is going to bail on his other two properties. It seems to me that nobody can force him to keep paying.
So what do the servicers do to put themselves in the best position: foreclose or short sale. The answer depends on what gets them the most money. If an offer, supported by comps, is supplied, it is in the best interest of the investor on each mortgage to take the short sale that will get them more money sooner.
If an investor or servicer wants to hold out for some type of retribution, it may hurt the scumbag borrower, but it will cost them a lot of money to distribute "justice." It would be extremely difficult to establish a case for fraud without some hard evidence.
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Permalink Reply by Richard on
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"So here is where we are: a borrower somehow got approved for a third home loan and is going to bail on his other two properties. It seems to me that nobody can force him to keep paying."
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. So then, the taxpayers get stuck with another irresponsible decision.
Here again, lay the problem at the feet of the taxpayers and at their expense, then walk away from it. I'm sure there are others, just as myself who are sick and tired of paying for others bad decisions and carelessness.
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Permalink Reply by Isabelle Javier on
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Kate, I agree with your thoughts and comments. It is NOT our responsibility to report what our clients are doing. You (the author of the article) are not the buy and bail police. It is however your responsibility to lead them in the correct direction by offering them names and numbers of both tax/real estate attorneys and CPA's so they can make an educated decision on how they wish to move forward. Stop worrying about the taxes you pay, and concentrate on getting this real estate mess solved. Perhaps you are not in this predicament. It's a horrible feeling, and most likely an uneasy decision for many Americans with good morals. But when it comes down to sink or swim, a smart head of a household will have to set their pride aside, and do what's right for their family. If one can afford to hang on to their real estate in order to do "the moral thing' and keep paying for a property that's worth less than 50% of their mortgage, kudos to them. Last I checked the notes were tied to the real estate, and if a person could not/would not make the payments, the note could be satisfied by giving the real estate back. So the answer is 'no', these people are not doing anything deceptive by returning the real estate to the bank. A short sale or foreclosure constitutes satisfaction of the note as it is the bank who decides what to sell the property for. And if we want to talk about deceptive, let's start with the banks themselves. They are showing record breaking profits.....this subject goes a lot deeper, my friend.
Please post only real short sale issues on this web site and keep your personal beliefs to yourself. I'm not interested to hear laments on what our clients are doing. I'm interested in hearing good advice on how to get our short sales processed quicker. I love this web site for the useful information I pick up on. After all these years, I feel I'm still learning. There are so many knowledgeable Realtors out there, thank you so much for your contributions. Keep them coming.
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I think the whole situation is a "lose lose" for everybody... even the spendthrifts who are defaulting, yet have the jet skis and motorcycles and RV's in the driveway... they are still losing their home, ruining their credit, etc. I don't condone strategic default (and in fact am about 250K upside down on my own 2006 purchase, but I just keep paying and paying)... but, these people have to live somewhere. If they CAN"T keep making payments on their inflated home purchase, should we judge them for doing the smart thing for their family? They are using a strategy that results getting another home and starting over again with the least disruption to their lives. They keep a roof over their heads and start over right away. What are the other choices? Is it better to lose the upside down house and rent? Live with parents?
I just think the big picture is simply too big for any one family to say "I'm going to sacrifice my time with my family, all my vacations, any extracurricular activities that we might be doing, work overtime, give up college for the kids, all so that I can keep paying the mortgage on a house worth half what I paid for it."
As an article in "First Tuesday.com" said... in any given family, the breadwinner is "too big to fail". The First Tuesday article also pointed out that in this recession, when so much money is tied up in underwater mortgages, the economy will remain sluggish because the struggling homeowner isn't spending money elsewhere.
http://firsttuesdayjournal.com/rentiers-and-debtors-why-cant-they-g...
http://firsttuesdayjournal.com/debating-for-the-underwater-and-unde...
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Buy and bail is wrong no matter how you look at it! Not to mention it is fraud! The poeple doing this are only making this mess of an economy worse....and making short sales harder for people who have a true hardship or circumstance that has forced them to have to do a short sale and really wish they could keep their homes and cannot.
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Permalink Reply by Jeff Payne on
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Crystal, where is the fraud? I wouldn't do it but understand that it happens. It is breaking a contract and there may be legal recourse from it but I don't see how that is fraud. They borrower already has a loan and gets a new one and stops paying on the old one. Not necessarily always the right thing to do but certainly not fraud. Who was defrauded?
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Thank you Jeff.
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If they lie on their new loan application it is considered loan fraud.
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Permalink Reply by Thom Colby CA Brkr 888-391-5245 on
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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.
When a borrower signs a mortgage application listing all of their income, assets, and liabililities, they have attested to the information stated. If in fact they, all along, intended to walk-away from another mortgage - I believe that's "Fraud for Housing" and may be "Fraud for Profit" (walking away from a debt they can afford to pay). I believe that's intentional deception.
At the end of the day, I think (my opinion) it's immoral and unethical and that's why I won't do business with anyone who intentionally defaults when they can well-afford to pay their debt.
However, if they truly have a REAL financial hardship I will do everything I can to help.
Just my .02
Thom
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Who would you be claiming it's fraud against? When they answer all the relevant questions truthfully on the loan application, they aren't being deceptive. They are divulging all their financial /obligations/ the banks application makes no claim or even implication that they want to know whether you plan to HONOR those obligations or not in the future. So even if the law could work against you in that situation, which it can't, the deception wouldn't be against the lender on the new home... You ability to get the new loan is based on nothing more than a mathematical calculation of your current and past financial obligations, and how you met those- not what may or may not take place in the future. Even if people think it's wrong, they should not be able to take into account events that have not occurred, planned or not.
It's lucky for...pretty much everyone in business that fraud is based on actual laws and not a vague wikipedia description. If the basic description of the word fraud were legally binding, pretty much no business in the world would be around today (least of all these banks!). "That employee told me this shirt looked good on me to get me to buy it...fraud! ".. "the box said installation is a snap, but it was hard for me..fraud!" Everyone is welcome to their own opinion on the moral side of this argument, but when it comes to the the actual law with regard to fraud- this simply is not it unless there is flat out lying on applications involved.
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Here's a scary quote from First Tuesday:
More to the point, is anybody surprised by the fact that while the borrowers who make up a preponderance of the US population continue to suffer a reduced standard of living due to high unemployment, most abusive lenders continue to succeed and even thrive economically? Citigroup reported profits of $3.3 billion in the second quarter of 2011, and Bank of America would have done similarly well had it not been forced to pay for the extensive legal troubles of its mortgage lending department. [For more on the employment and debt in the recession, see the August 2011 first tuesday article, Jobs are scarce whether or not you can sell your home.]
The fact is, lenders are merely working in their own best interest—and their continued financial success indicates that their strategies are effective.>>>>>>>>>>>>>>
and this one ,,,
It is important for homeowners to remain aware of which class — rentiers or homeowners — stands to benefit from future changes in fiscal or monetary policy, including those changes which are ostensibly enacted in support of the homeowner. The pace of the economic recovery and the long-term personal financial success of all mortgaged homeowners depend upon the outcome.
If the huge debtor class of homeowners is to preserve its ability to recover from a general financial crisis and create a future for itself collectively, it must emulate the bankers and rally to advocate political positions which allow it the same privileges rentiers take for granted. Perhaps most essential among these privileges is the guilt-free ability to legally walk away from mortgage debt, since within their own households, every homeowner is ‘too big to fail.>>>>>>>>>>>>>>>>>>>>>>>>>>>
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