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?
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Beth, I would say absolutely not - Think about the situation - a new mortgage co went all over these buyers' credit - they know that they own these other houses and in their own best interest decided that they are good risks for buying a house. They have much more responsibility, data and tools available to check out the situation than a real estate agent. If they said it is cool, what responsibility or RIGHT does an agent or broker have to screw up the deal? Doing that would make them liable to a suit from either or both the buyers and/or their new mortgage co.
Even a simple form signed demanding that the buyers will not attempt to short sale their current properties for X years would add a lot of responsibility to the buyers - nobody did that, right? If they don't care, where does the real estate agent have the right to interfere?
Personally, ethically, I don't like this sort of thing, however, the mortgage association did this very thing this year - to their own mortgage co for their offices, hard to (un-2-faced) point the finger, as they do, to individuals doing the same thing to cut their losses in even a more personal way, right? And, what big chunk of mortgage brokers made a ton of cash and walked away (last count, 0 put in jail) after knowingly giving mortgages to people who clearly could not pay for them for 20 to 30 years? How many people don't feel a little bit, at least, that the bank ruined their future with these mortgages?
Not nice, but sure does seem like the personality of America these days, sadly..
Hi Beth,
That's a very interesting question and not being an agent myself I can't answer that. I'm sure the professional here will weigh in on this. However, I do know that it is a real estate agent/broker and another agency is handling the short sale.
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
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.
"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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