Some Buy a New Home to Bail on the Old

[Liberal_in_LA]

http://online.wsj.com/article/SB121314811278463077.html?mod=fpa_mostpop

Some Buy a New Home to Bail on the Old

Fannie Plans Rules
To Avoid Practice
Described as Fraud

By NICK TIMIRAOS
June 11, 2008; Page A3

Next month, Michelle Augustine plans to walk away from her four-bedroom house in a Sacramento, Calif., subdivision and let the property fall into foreclosure. But before doing so, she hopes to lock in the purchase of another home nearby.

"I can find the same exact house as what I live in right now for half the price," says Ms. Augustine, 44 years old, who runs a child-care service out of her home. She says she soon will be unable to afford her monthly payments, which will jump to $4,000 from $3,300 in August, and she doesn't want to continue to own a home that is now worth $200,000 less than what she paid for it two years ago.

In markets hit hardest by falling home prices and rising foreclosures, lenders and brokers are discovering a new phenomenon: the "buy and bail," in which borrowers with good credit buy a new home -- often at a much lower price -- then bail out of the "upside down" mortgage on their first home.

[SoCalDem]

1. Shame on any lender who will allow this stuff to go on..

:grr:

[no_hypocrisy]

3. I don't understand HOW you'd be able to qualify and be given another mortgage

for another home so soon after you let a prior property go into foreclosure. This is equivalent to declaring bankruptcy and this would certainly have a black mark on your credit.

[Liberal_in_LA]

4. They buy the new house while credit is still good. Then let the old house go into foreclosure rather

than trying to sell it.

[ProdigalJunkMail]

11. but the problem there is the qualifying bit

you not only have to be credit worthy...most lenders (and I do say MOST) will look at your financial income and obligations prior to making a mortgage for you. Owing $4K/month on a home has GOT to be eating up most of their income stream and that alone should be enough for a lender to ask questions...and probably deny the loan. When they ask, "OK, you bring in $6700/month after taxes...you currently have a $4k mortgage with lender A. The new mortgage will run you $1500/month...that only leaves you with $1200 for other expenses. How do you plan on disposing of the $4K mortgage???" the prospective client says, "Foreclosure?" Ain't gonna fly...especially when the bank liquidates the property and then sues the former owner for the money not made up in the liquidation...

sP

[Liberal_in_LA]

17. When selling a home to buy another, the bank allows a little window to own both

The assumption is that the first home will be rented or sold ASAP. The bank knows the seller can't swing both mortgages.

[ProdigalJunkMail]

19. here in GA they MIGHT allow that but only with a bridge loan

you have to be able to compensate and have a plan for extricating yourself from the other house...and lying about that would certainly be fraud...

sP

[KitchenWitch]

2. I certainly do not agree with the practice

but damn, some people when they find themselves in a desperate situation will throw all ethics and scruples to the wind.

[Uben]

5. That is fraud, with evidence

Poor michelle might end up in prison for this. It is clearly fraud. She intentionally committed to defraud her first lender, and should go to prison for it. Failure to prosecute this case would be injustice.

[Monk06]

6. Strictly speaking this isn't fraud depending on the wording of her mortgage

agreement. Back in the day the fine print on
my mortgage stated that if I took on additional
debt after qualifying the mortgage was null and
void and the bank could call the note.

Failure to pay resulted in foreclosure but was
civil not a criminal matter.

Given the conscious role banks have played in
this latest Enron style bubble, I can't help
cheering for her if she pulls it off.

Caveat Emptor means let the buyer AND the lender
beware.

[DemoTex]

7. Ecclesiastes 1: " .. there is nothing new under the sun."

What has been is what will be,
and what has been done is what will be done,
and there is nothing new under the sun.

Houston (1986 oil bust) redux.

[JCMach1]

8. Computerized Credit has destroyed DUE DILIGENCE

If there was actually a human being using their brain in a case like this, it would NEVER happen.

Obama should offer an immediate ban on the current credit system when he takes office (no shared computerized databases allowed).

This would also make many new bank jobs for new loan officers who would actually have to investigate new applicants.

It's a no brainer... someone applying for a new $50,000 credit card should get a visit from the bank!

[JANdad]

9. Kinda throws the "Affirmative Action" Thingy out the window

does it not? That is why credit ratings were pushed into the front and center, due to illegal lending practices...I.e., Fair Housing Laws

[JCMach1]

10. Simple answer- minority loan examiners...

Computerized easy credit has led directly to the current credit crisis.

Time to move in a different direction.

[Carnea]

12. How would a Chinese credit examiner make the process less racist? NT

[JCMach1]

14. For Chinese, perhaps

[NNN0LHI]

13. So what is Ms. Augustine gonna do when...

...the lender sells her home she walked away from, for pennys on the dollar and then send her a bill for the balance including all the foreclosure and legal costs accrued?

Because that is what they do.

Don

[ProdigalJunkMail]

15. this is what i'm saying...

she can look forward to defaulting on TWO loans when that happens! having a home foreclosed on is NOT the end of your troubles...it is really just the start...

sP

[lonestarnot]

16. be smelling like the turd that she is.

[azmouse]

18. That is exactly what the family across the street from me did.

They put their house up for sale last June for $550,000. No offers. They lowered the price over the last year to $330,000.
A few months ago I talked to the realtor who had the house and he said the family had bought another house in the next town over and were willing to let this one go into foreclosure. In the meantime, we've had to live with a house that has become an eye-sore with waist high weeds.

Thankfully, this last week another realtor came to my door and said they have a buyer who is interested and she needed to know where the previous owners were because the bank has the home in foreclosure and didn't know where they had gotten to.... like I'd know where those loser were.