In a recent article I wrote on Google News I mentioned that some homeowners are choosing to have their homes foreclosed on and a percentage of those homeowners are doing what is called a buy and bail. And that I have seen this practice in Southern California in the Inland Empire and San Diego area. As I said in that article that this practice could be construed as mortgage fraud. I have had a lot of interest from my readers wanting to know more about this. I do not condone it, it is mortgage fraud! Buying and bailing requires you to lie about your finances, your standing with your current mortgage and if this new property will be owner occupied or not when obviously your current mortgage is an owner occupied. That is mortgage fraud. Mortgage fraud happens when a borrower withholds information -- such as a deliberate intent to stop making payments to another creditor -- or falsifies information -- either would cause the new lender to reject the loan if the lender knew about it. This is usually done by homeowners who have some money in the bank and are either unable to make their current high interest high amount loan and want a comparable home for a smaller loan or they can afford their payments but don't want to, or it is more rare to be a homeowner who is completely ignorant of this and thinks its ok to do and his loan agent doesn't advise him.
It's also fraud to lie on a loan application and produce false documents to the lender. The FBI defines mortgage fraud as "any material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan."
If you are thinking about doing a buy and bail you should re-consider as if you get caught you might go to jail and pay a hefty fine for the fraud. This is something that we will be seeing in the papers banks will start prosecuting homeowners for mortgage fraud with the buy and bails. You have to remember there is a paper trail, this can be proven in court that a homeowner committed fraud. This has been happening in California I am sorry to say and I have personally seen some of it in my area, Riverside County. I do not advise doing this. As a realtor I know the ramifications and as a paralegal I really know the ramifications.
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