To put it simply, “buy and bail” means buying a new home, and “bailing” on the mortgage payments of your old home, effectively forcing the old home into foreclosure. But in practice, there is nothing simple about it.
When Do People Buy and Bail?
In today’s real estate economy, a lot of people find themselves with mortgages that are underwater. So for example, your mortgage may be for $300,000, while the current value of the home is $180,000.
How Does It Work?
Let’s use a fictional example of a homeowner named John:
- John decides that, for whatever reason, he doesn’t want to live in or pay for his home anymore.
- John knows he won’t get approved for a new mortgage if his home goes into foreclosure or if he short sells the home, so he decides to buy a new home before defaulting on the old one.
- John puts in an offer on a new home and submits a loan application
- The lender asks John for a rental agreement to show that a tenant will move into John’s old home when John moves into the new one.
To continue reading this article click Is Buy and Bail Really An Option?
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