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 Kristy Hamilton on
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I have one right now that the lender has labeled a "strategic default." The lender asked for a promissory note and a cash contribution at closing. We aren't talking about a car loan-size promissory note, either.
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Permalink Reply by Kimberley Kelly on
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Loss of Income, financial hardship..not increase of babies..especially "unplanned"..I bet the person reading that letter waved it over his/her head so everyone else could see it before they rejected it.
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yeah, i'm sure the lender is champing at the bit to do more work and get less money via forclosure than approving the short sale, lol. When those mortgage payments stop coming, the bank becomes surprisingly lenient on what starts to count as 'hardship'... they might TRY to play hardball and ask for promissory notes etc, but especially in a buy and bail situation, nobody cares if their credit goes bad, they already got the new house!
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Permalink Reply by Richard on
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The key words,
"but especially in a buy and bail situation, nobody cares if their credit goes bad, they already got the new house!"
That's the problem! And, it needs to get fixed.
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well, the only way you can fix it is by not lending to people who are completely qualified at the time of applying for the loan...and that is never going to happen. Even people with bad credit still get loans, because the fact is they still want to sell these loan products. And there's not going to be any retroactive action taken because the new lender could care less as long as they get THEIR payment.
This situation is bad for everyone from all sides, and while consumers bear part of the responsibility, the meat of it was brought on by the banks. When these guys (and other corporations out there) are making destructive decisions and moves that hurt consumers and drag down the economy purely to look out for their bottom line, everything is business as usual...when a consumer does it all of a sudden it's "stop the presses, the system needs to change!"
Come on...
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Permalink Reply by Joshua Gayman on
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When you agree to take a mortgage, the bank agrees to take the house as collateral. So when it comes to "buying and bailing," it's just a business decision. When it is legal to make a business decision that improves any entities bottom line, I think it is a good idea.
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Hi TG and Joshua,
I am by no means condoning the actions of the banks. In fact, I'm of the belief they should shoulder a majority of the blame. Then you have the people who used their homes as ATM machines. And, then there are the honest, hardworking people who end up dealing with the issues afterwards.
I'm choosing to look at the bigger picture. I don't think the public want this strategy becoming the norm. And, certainly as people we will have their own personal problems and debt to deal with, however if this was to happen on a large scale basis it could grossly affect the market, neighborhoods and ultimately the economy. I can't see where it improves anyone bottom line.
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Everyone has their opinion, I can respect yours I just don't totally agree.
Honestly, while strategic defaults in general (not just buy & bails) have a negative impact on the market, I don't think this is a "chicken or the egg" situation (and I'm not trying to imply that you think so).
My point is just that, like we both mentioned a large part of the blame for this terrible market we're in is because of the lending and business practices of the banks. I think that for the most part, all types of strategic default are /reactions/ to the position people are in, much less than the cause. And we should be clear about one thing, it's the 'default' portion of this that has the (at least direct) negative impact on the market. The buying a new house part doesn't really change what happens in the neighborhood where the consumer was foreclosed on (and if anything the buying part actually adds some stimulation to the market as long as they are paying their new mortgage on time).
Overall I agree with you that this should not be the norm, but I don't think it is. Everyone has been put (and indeed also put themselves) in a crappy situation, and some people are just doing what they think is best for themselves to get back out. I know several people who have done a SD (no buy and bail though), and it has definitely improved their bottom line. They had bad loans where they were barely making a dent in principal, way underwater, etc. With no debt and spending less money to rent bigger homes they are now saving money and out of debt in an at best 'uncertain' market.
In the long run, you may be right. It was definitely the bank's desire for the short term gain that put us here, so maybe the short-sightedness of looking at the immediate benefits from SD will end up hurting us down the line just as much. I guess for me I just feel like i'm not going to fault people for doing/getting what they can in this situation as long as they are playing by the rules/laws.
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TG,
You're absolutely correct in that this is an opinion base forum. I highly respect that and thank you sincerely for chiming in. I harbor no ill feelings, in fact this is the reason I posted the discussion and that is to get other's viewpoints. It's these types of discussions, that allow me to learn. At least, I know it is for me. A forum that bring expert, veteran, and newbie opinions into one discussion is good.
As I've said openly, I'm no agent and, short sales are somewhat a mystery to most who don't deal with them everyday. However, that being said, I don't know why ethics, moral values and good business practices can't be an everyday part of the process. This goes for businesses and property owners alike. Realizing that every state have their own twist or regulations, and lending institutions are continuing to want to do their own things, it's ashame that property owners have to look for loopholes just to keep out of hot water. In retrospect, property owners don't write these rules, they just play by them.
Have yourself a great week!! I'm sure we'll talk again.
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I agree with you 100%. It is a business decision however(or should be) and so if I have a client who has the oppertunity to legally improve their personal financial situation, even if that means hurting the neighborhood values, I MUST consult them to do it.
You are so right tho about people who used their houses as ATM machines and now can walk scotch free, while all along their are others who have been responsible in keeping their debts low and saving money. These are the people who get screwed. They get screwed because in this economy, savers are losers. What a shame..
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As of right now, we could not come up with an agreement on a contribution and promissory note on my "strategic default." So, for now, the house may be going back on the market to try to get a higher sales price - hope it appraises if we do. The lender wanted half of the net loss. They might just end up with a house, instead. That is the sad part. I can understand the different points of view when it comes to these short sales. But, the fact of the matter is, the sellers are in a different house. This house is now vacant and water/electricity to get turned off. We all know what then starts happening to the house. So, who is going to set out the true guidelines for all to follow regarding what constitutes a "strategic defalut" or a "true hardship?" For now, I believe it is the guess of the negotiator who claims it is the investor's requirement. : \
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Kristy,
I'm sure the sellers had to have known that this was one of the possibilities of the buying and bailing short sale process. But, here's one of the many problems with the buy and bail strategy. For one, there are no guarantees.
I agree with you that rules, true guidelines need to be set out and a true distinction between the strategic default vs. true hardship could be a very good thing. However, as a current homeowner I don't think its worth the risk of bad credit and the host of other problems that come with it if, it's not a true hardship.
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