The New "Buy" and "Bail" ~ Does This Make Sense? Why or Why Not?

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The New "Buy" and "Bail" ~ Does This Make Sense? Why or Why Not?

Okay, I've been away for a few days - reading and working.

As I was reading an article in the Wall Street Journal describing this tactic of buying a less expensive home in your neighborhood, and then letting your bigger, more expensive home go back to the lender, I was shocked at the audacity of people in this world of our's.

To some it might make sense; however, it is considered mortgage fraud to buy another home as a primary residence never mind knowing beforehand that you were planning to let your other "primary" residence go back to the bank.
What do some of you think? Have you heard of this type of goings on?
As an additional caveat to this story, while I was having my hair done this morning and visiting with my hairdresser and telling her about this stuff happening (I have her home listed) - she told me that she had heard about it from some friends - but didn't think it sounded "right." She felt that it was making it more difficult on those that are trying to do it the right way. She was actually a bit confused about her friends doing this, and didn't feel it was right. I agreed, and told her that maybe, one day, someone would catch all of these people taking advantage - when in fact, in my opinion, they know it isn't right!

According to the article, there are sympathetic ears to these types of shenanigans. To think that a Realtor or a mortgage broker would "suggest" this approach is beyond my comprehension. Is there nothing that people will not do in order to make money? What about integrity or honesty? I truly believe these are the people who got us into this mortgage mess to begin with. Those seeking a quick and easy buck with no thought of the detrimental effect on anyone/everyone else.

I suggest, as real estate professionals, and consumers, we be aware of this latest "NOT get out of jail free" card.

Thinking about relocating to Mesa, Arizona or the Phoenix Valley? Call me at: 480.216-3334 for information on purchasing or selling a home in Mesa, Arizona or surrounding towns. OR email me: Teri@TeriEllis.com. OR visit one of my websites: HomesAzRE.com, MoveToSunnyAz, or AzLadyInRed.com , for photos of models, floorplans, new construction, resale and more.

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Mesa, Arizona Real Estate. Call me at: 480.382-8711 for information on purchasing or selling a home in Mesa, Arizona or surrounding towns. OR email me: Teri@TeriEllis.com. Feel free to visit my website: HomesAzRE.com, or stop by my blogs at: MesaAzRealEstateVoice and AzLadyInRed!

Posted by **Mesa, Arizona Real Estate** Mesa Arizona Realtor on 06/13/2008 04:52 PM

Comments (98)

The Buy and Bail Schemes in the Real Estate Market Channel

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Originally posted at: Mesa, Arizona Real Estate - Teri Ellis - Homes Arizona Real Estate: The New "Buy" and "Bail" ~ Does This Make Sense? Why or Why Not?

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98 Comments on The New "Buy" and "Bail" ~ Does This Make Sense? Why or Why Not?

JUN

2008

Teri I saw it happening here. Plenty of times that they downsizes and let there bigger more expensive homes go back to the bank. Its because its not on there credit yet and once they have the new home they don't worry about the credit once the bank forecloses on the older one. Sad story but true! BTW glad to see you :)

Jeannette, thanks....I guess I was one that hadn't heard this mess before. Good to see you too. ;-)

Teri,

Thank you posting this.

I couldn't agree more! I cant believe people are doing this but, nothing surpises me anymore. I started my career in the industry as an underwriter with a now long-defunct lender and I learned rather quickly common sense went to the wind after a while there.. simply for the sake of fulfilling securitzations.

To bring back additonal lending programs and fully recover the fraud has to stop, first and foremost. The sheer lack of accountability is frightening!

Teri, what a bizarre "strategy". A foreclosure will wreck your credit so I hope they are happy in the new place. Very strange.

JUN

2008

Hi Teri, in desperate times/situations people often do desperate things, unfortunately without thinking about the future consequences.

That's a pretty odd thought process... I can't believe a Realtor would suggest or go along with something like this but then again stranger things have happened, as they say.

Pretty sad that there always people out there looking for ways to cut corners in life but and not caring how this could affect our economy. There is no easy way out there, the price is having a foreclosed credit ding on your credit report for 7 years even if gone into a short sale the notice of default will still show on the credit report and some cases are just as worse as foreclosure proceedings in lenders eyes.

Teri, It happens more than you would suspect. And yes, it is Mortgage Fraud! AJ

Teri - There are so many scams today nothing is surprising anymore! A Realtor participating in this would be crazy.

Teri--Thank you for posting this article. I would consider it fraud too...I am certain there are people who really intend to rent out the current home so they are able to buy another one but if there is no intention to rent and only to stick the bank with another foreclosure, how can anyone do that? And for an agent to suggest it? Unconscionable!

I think some of this nonsense can go back to people purchasing with no money down - nothing invested, nothing lost

I've seen this happen over and over. Sometimes it is planned in advance to default on the first home, and sometimes, not. You know how some people can be . . . they have no intention of buying a new home, but la-dee-dah, they're out driving around one Sunday afternoon and whammo -- there's the perfect home being held open. Curiosity grabs them. They stop, tour the home and fall in love. So, they buy it. They hope their existing home will quickly sell because now they are carrying two mortgages. It doesn't sell, and voila! Into foreclosure.

But some of those people are definitely calculative and commit mortgage fraud. Because mortgage fraud, basically, is anything you withhold from a lender that would cause the lender to not make you the loan. If you don't tell your new lender that you're letting your old lender eat it in the shorts, that's fraud.

Teri, I have had people tell me this is what they have read and that is what their plan is!!! I have told them not to do it. I was told by an attorney here in MD that the first mortgage company can put a lien on your new property for the difference. As the lenders are starting to suffer more and more I think they will go after people more. This is fraud no matter how you slice it.

The other thing that I think will happen is that down the road, once all of this shakes out - and it will- is the people that "let" the house go to foreclosure under these circumstances, will want to refinance or buy another home. At that point all they will probably have to do is write a letter of explanation to the new lender saying they caught up in the foreclosure crisis of 2008. They will probably get away with it.

It's too bad that people feel they need to do such things. We need to raise standards for ethical behavior. After all, lenders lend money in good faith, so they deserve to be paid back in good faith.

I've heard about this happening before, but I would definietly steer someone from doing it

Gasp! What will they try next???????

And to think....that some think they are the ones who won't get caught.

Great article to open the eyes Teri!

These types of people make life harder for the rest of us, the honest and the decent people.

I do recall this sort of thing happening- late '80's, Denver. I was selling new construction at the time, and the market was awful- a buyers delight. Sellers would tell the lender that they were renting the old house (ratios applied- if I recall, 20% was DEDUCTED from the rental amount, leaving the balance "debt", which counted against their ratios. Ratios were NORMAL (28-36 for reasonable credit,exceptions typical, but not "no doc", for heaven's sake). A financing addendum was added to the loan package, and had to signed by the "renter" (who was usually a relative of some sort, with no intention of renting the house). The sellers didn't care if a foreclosure hit their credit, because they'd have secured the NEW house. Some probably did succeed in renting out their property, but the rest? Same dance, different tune. And time.

It's very unfortunate that a few bad apples will spoil the crate since their former home (now owned by the bank) will blemish the neighborhood with low values.

Ronda

TERI, Congrats on that gold star; I guess we won't be seeing you for a while (lol). I am so naive I could not even imagine that scenario. How could anyone live with themself? That is beyond me!!

In the later part of 2007 we had numerous requests to do this but we didn't entertain the posibilities. In our area where housing values dropped 30% to 40% people were quickly in homes that they owed considerably more than the home was worth. Many people saw the opportunity to buy a large, nicer home for a very low price. I've also seen numerous people move out of their homes, let the bank have it, and then rent a larger, nicer home with a pool for a fraction of what they were paying in mortgage payments before.

I have mixed feelings on this, but if their payments were increasing and they couldn't afford the higher payment, I can blame them for trying to get a home at a much lower price and lower monthly payment... whether they would be renting or paying a new mortgage.

Wow, all of these great comments!!! Very funny Marchel!!! I had never heard of it either. I have to add a story at the top about my hairdresser knowing people who do this!! ;-)

Kevin, it is frightening. To think we live in such a society absolutely disgust me.

Gary, from what I'm told, their mindset is - so they stay in their new home for seven years...at least they have a home. AND it's much less money than it was when they purchased in 2005-2006!

Hi Marti, I think you're right. I am a lot more irritated at the "real estate professionals" who are suggesting this type of behavior. ;-)

Jesse, I think this mindset is what got us all into this mortgage mess to begin with - greed!

Justin, you're absolutely right. A real sad state of affairs.

I am hearing about this a lot more frequently these days. You suggested that a seller is downsizing then letting their house go, but people who can afford to upsize are doing the same thing. Leaving behind their smaller home that was tapped out of equity at the height of the market.... the buyers spoke of "bad karma" as a way of their conscience speaking, but let it go anyway.

There is a lot of bitterness, especially when lenders got away with praying on the consumer with offering 100% financing and giving out equity loans to people who could not qualify by today's standards. Maybe this is the lender's bad karma catching up with THEM!!!

Just because you can do it doesn't mean you should do it. The jails are full of people who justified they could do it. There isn't any gray area here and those who "can empathize" need to check their moral compasses.

AJ, I just wish that there was a better way to catch the crooks so it doesn't ruin it for everyone else.

Bill, agreed.

Teri, great word! Unconscionable indeed!

Susan, you're right. So many different mind sets - but bottom line, fraud!

Elizabeth, you're so right. I've run across this type of individual as well. Anything that doesnt' pass the "smell" test - I pass. ;-)

Audrey, I'm sure there will be some ramifications for "some" of those dealing in fraud; however, hopefully it isn't widespread yet, but I think people are confused about the ethics. Cannot believe it, but if their Realtor or their lender suggests that strategy...........I can see how they might rationalize themselves into this type of action.

Marzena, I couldn't agree more. ;-)

AJ, I just wish that there was a better way to catch the crooks so it doesn't ruin it for everyone else.

Bill, agreed.

Teri, great word! Unconscionable indeed!

Susan, you're right. So many different mind sets - but bottom line, fraud!

Elizabeth, you're so right. I've run across this type of individual as well. Anything that doesnt' pass the "smell" test - I pass. ;-)

Marzena, I couldn't agree more. ;-)

John, I must live in a vacuum. Never even heard of it. I would steer clear too. ;-)

Sally, who knows what they will think of next. Anything it takes to make more money I guess, huh? Can you just see it? The Realtor and the lender all over it...they'll make money on the buyer, and off they go to their next prospect. So crazy.

Mana, you're absolutely right. It's a shame!

Laurie, really? Wow! Guess someone will always figure out how to get around the system, huh? My mind just doesn't work that way.

Ronda, absolutely true.

Marchel, yep, you're right. AND guess I will have no problem finding blogs to post on for a few days, huh? I had that funny feeling that the star had happened when I saw so many comments begin to pour into my mailbox. ;-) Not until you mentioned it did I go and check. ;-)

Sean and Pillar, couldn't figure out just where you "are," but I understand your thoughts. Hadn't thought of the other way around, but I suspect that's happening now as well.

Angela, I can see both sides; however, I am of the belief that if you "say" one thing, and make a commitment, then you keep it. So many people were jumping on board to become a Realtor and a lender that many, many people were unknowingly taken to the cleaners. That is very sad...but, does it make it right to do the wrong thing?

JoEllen, right on!!

Whew! Now I'm caught up - for now. ;-)

I wrote about this issue a few weeks ago on my outside blog. I was floored when I saw an agent offering to help people do just this. I don't think I could work with someone knowing they were planning to do that.

Terry~ It is hard to believe that people would even think to do this and even harder to believe that any professional would suggest it! I guess some people just don't have a conscience!

Hi Teri,

Please send me your list of tips for beginners. I would really appreciate it!

Yea, this has been going on for months now. It is fraud and I think that the lenders and Realtors that are aware that the owners are doing it should be held accountable in some way . What's even more amazing is how many Realtors and lenders are doing the same thing themsleves!! It just goes to show you how many unethical people we are working with day in and day out and why typical Joe Public thinks that we're just as snakey as used car salesman!!

Teri: I CAN'T imagine anyone letting this happen (doing it!)...on purpose. But I am hearing about it. Great post and congrat's on the feature, my friend.

Melina, I'm torn about sharing this information. I don't want to give anyone who hasn't thought of this tactic any ideas. ;-)

Vickie, as you can tell, I was blown away......

Barb, here is the link you asked for. It's great for newbies! ;-) I'll send it to you on your email as well. ;-)

Kat, thank you so much for the congrats! I can't imagine it either, that's why I'm so shocked! ;-)

Good Lord, will it ever end? The agents that are involved with this "scam" should LOSE their license. These agents are doing nothing but making matters worse in the long run, for the REST of us, including the homeowners that have enough pride in themselves to do the right thing. Granted, some of these poor people just can not help the situation in. Some. FAR from many!v Shame shame shame!

As for the woman mentioned in the Wall Street Journal, they will qualify her for TWO mortgages, but she says she can't afford her new payment when it increases???

I am not blaming the mortgage industry, nor the homeowners entirely. However, I'm so tired of hearing how these folks can't afford their "new" payment. What did they THINK was going to happen when they were TOLD it was going to increase before THEY signed and agreed?

It's time to get this mess cleaned up and let the chips fall where they may! No more band-aids. Get it over with. Rip it off quickly, it hurts less!

I'll get off my soap box now, lol...Great post and great information. I'm off to take a blood pressure pill, LOL.

Elizabeth, LOL, I'm with you girl! Great comment! ;-)

I always wonder how Loan Officers structure these types of loans since you have to show that the clients have enough income to support both house payments; or a rental agreement showing that the house they are moving out of will be rented or is rented currently. To much trouble for the chance of losing my loan officer license.

Nicole, I completely agree. Of course, I've "known" of those who have put together a bogus rental agreement, and on and on it goes. Pretty silly to risk our licenses, I'd say. ;-)

I had heard from a lender that Fannie Mae's rulse had changed and they would not buy loans where the borrower owned another home and and "planned" to rent it unless they had history as a landlord. That would nip this type of problem in the bud.

I would love it if they got their note called for misrepresentation on their loan application. And then of course the fun part would be the 1099 for the shortfall in the sale of the foreclosed property.

It is shameful what is going on but how can you blame the homeowners when in my area I am hearing and seeing that it IS being suggested by professionals, both real estate and mortgage alike. In fact, I had a situation where a local associate had potential tenants for one of my rental listings. During the interview stage it came to light that the "tenants" lived in the neighborhood and were losing their home to foreclosure. While speaking to their agent and hearing the full story I recommended that she talk with the client and try to short sale it. She advised that their bank was helping them sell it. WHAT? Yes it is true, when I drove by the home there were numerous hand written for sale signs with a toll free number posted. I called the number and got a company, not a broker, but a real estate investment company or so they called themselves. I was very specific in asking if they were real estate agents and was told NO. That did not stop them from trying to sell me a home, the one I called on or otherwise. They took all of my personal information as well as my home preference criteria and a few days later my call was returned by a local mortgage company, a loan officer I see advertised in the local paper weekly! She was trying to sell me a home! Apparently this a part of the "NEW" motivational programs being taught in hotels and sponsored by a prominent businessman. I was told by a fellow REALTOR that she had a friend who attended and that they did not want licensed agents to attend because we would discourage other attendees. They are taught ways to sell real estate without being licensed and it is legal or so it is claimed.

Joe, definitely would be a good start! ;-)

Lane, I think that will happen along the way, don't you? At least I hope so. This is craziness!

Donna, really? That's crazy isn't it. So many crooks in this world! Too bad they're affiliated with us, as real real estate professionals. I suppose wherever this is money to be made, the crooks will be there. ;-)

Teri, I get as red in the face as the skin on your blog when I hear or read about this. I hear the chatter about it, but haven't run across it personally. These folks are only contributing to the problem...

Natalie, I, too, was incensed, thus the reason to write this post! The problem is: how does it get stopped! ;-)

I still can't believe a lender would allow any one to borrow more money if they can't even pay the one they have.

As a loan officer I routinely talk to FSBOs about the type of house they would like to move into. Although, I am also very careful not to try to sell them anything. I offer to put them in touch with one of my RE partners and that if they tell me the type of house they are seeking I will make sure the RE agent calls them back with what's available or if nothings available. I find it cuts down on the number of phone calls made; but I always remind them I am not a RE agent and that they have to talk about specifics.

Ronda, there must be a way. They're doing it. Can't imagine how, but it's being done. ;-)

Nicole, great idea. I also defer any financial issues to my loan officer. ;-) She, after all, is the expert in loans.

I have not heard of this before. I don't know how they can possibly think they will come out ahead. The mortgage holder on the first house will just go after any equity in the second house. Florida has the most protective laws for bankruptcy, so it may work there. These are desperate times for some people.

Wayne, you're right. People will do anything - it seems - just to get out from under an uncomfortable situation.

Oh Teri, this is so happening here and I find it disgraceful! So many shenanigans and I like the idea of people being placed in jail for this too.

Renee, really? Guess it takes me awhile to get in the "know." I find it disgraceful as well - and I, too, like the idea of seeing people who steal in jail! ;-)

JUN

2008

I have heard about it. I don't condone it. And I've been shocked by persons who have come to me and talked about it. It's sickening to me. But it is the crux of this mortgage scandal. "Fog a mirror, get a loan". Those who were fraudulet in the beginning, will try again to slip by. The banks and the IRS are catching on. And those who think that they can get away are fooling themselves.

Although this is not the right thing to do, maybe this is some sort of karma for the banks who were lending money to people knowing that these borrowers would not be able to pay it back.

Marshall, you're right. It'll all catch up to the offenders sooner or later.

Joseph, I don't think the banks necessarily knew they couldn't pay it back. I think that they were way too lenient on the paperwork and the stated loans without any documentation to back up their work history, etc. I DO think there were a lot of Realtors and loan officers involved though, which has been discovered - at least in Arizona - after the fact. Many of them have lost their licenses and worse.

Interesting article and thanks for sharing. Also so many great comments and insight. Glad I came across this.

Different market here and not without it's faults, but now hearing about this scam! This will be an endless trickle down if it isn't stopped! The ramifications will create unthinkable impacts on our national economy. I am so sick of scammers. Thanks for the "Heads Up".

Teri, I have heard this a few times, but not with the clarity you brought to the conversation. I have a client that moved into a million plus home, they custom built, she lost job, market went down and they could not sell the original home for what they owed.

I got an offer, tried to get the short sale to go through, no avail. It went to foreclosure.

Teri - Interesting article. Thanks for the heads up. Real estate transactions often seem to either bring out the best or the worst in people. Responsible lenders wouldn't participate seems to me.

Teri -

Similar to the trend of those who purchased a few years ago, for 100% or better financing, first gutting and then simply walking away from their to-be-foreclosed-on home.

In the olden days, folks had the gumption and pride in their home to never even consider doing this - it was a badge of dishonor. Now, many people, especially those without much actual financial stake in their home, and no or negative equity, see nothing wrong with it.

Very sad, indeed!

DEAN & DEAN'S TEAM CHICAGO

I know of a Realtor who has a listing that just won't sell for what the owners need to get out. They have already been transferred out of State close to a year ago and have been renting in the new town. He got a call the other day, the owners said their bank told them that they could buy another home and switch the current one to subject to short sale. Of course if the short sale doesn't work it will end up as a foreclosure, but it was the lender that gave them the idea and the go ahead to do it (the same lender is on both the new and old home). I think the lender knew it was only a matter of time and the family couldn't keep making payments so he will have them in a loan that they will pay on and have a short sale that would have happened anyway.

This is a new wrinkle...we know of one that is sort of backwards of this story....the folks had a newish (7ish years old) home in a nice sub-division but it backed to an expressway and they had managed to alienate most of the neighbors for a variety of reasons...so they decided to build elsewhere...a newer, bigger house and listed the first house...for tooo much...it didnt' sell for over a year and then finally as a short sale while they enjoyed their new house....there oughta be a law...apparently there is not.

I am appalled at all the self richeous talk going on in here..I PERSONALLY know at least 5 couples who are doing this. With the market collapsing in some areas, and the present homes going up and up due to resetting loans, what should they do????

Good people keeping thier homes but losing thier bank accounts month after month see no way out....These are hard working, God Fearing, salt of the earth type of people. They can't get the banks to stop the madness on the accelerating interest and the refinancing they WERE PROMISED by those same lenders is now not possible. So, month after month they continue to pay the ever increasing monthly payments on a home that they can never pay off.Soon, there will be no options...I applaud those who take the path that protects thier family..

So when these people who sit next to us at Church, or are close freinds or family members that have to do something to save thier families and have a home to live in. Does anyone here think less of Walt Disney, he did this in a big way, before finally getting it right. The list goes on and on....

Every situation deserves to be looked at on its own. Is this problem any better than the thousands, hundreds of thousands of homeowners who simply don't pay thier note at all for 6 months, and then file bankruptcy to gain another 6 months of free rent...

When it is you, or a freind or family member who is caught, I bet there is a different tone....

Mike, I think the issue for most is that it's fraud. To have compassion for those in a bad situation is a given; to participate in fraud, as professionals, is problematic, regardless of the circumstance. People will do what they have to do; for lenders/real estate agents to participate is another black eye.

Teri,

I know my comments will not be the most popular, but lets face the facts. This is 100% loan fraud and the parties involved need to be prosecuted. Its that simple. This is no different from walking into a department store and stealing thousands of dollars of merchandise. All this scam does is hurt all honest Realtors, Lenders and homeowners who are trying to do things right. The minute a borrower applies for a new loan and he states he is going to rent his old home and qualifies for the new loan and never makes any attempt to rent the old home its plain and simple LOAN FRAUD.

Many years ago the music industry had problems where people were downloading music for free. They got smart sent some people to jail and now most people think twice before downloading music that does not belong to them.

Our industry just needs to prosecute some wrong doers to protect all the people who are doing business fairly.

I do have sympathy for all homeowners who are suffering through this tough and challenging real estate market, however 2 wrongs do not make a right.

I am shocked that this is happening but it is another case of some people bending the laws in their favor. This is how we ended up in this mess in the first place by allowing people who should never had been able to buy a house do so. Now we are allowing those that bought above their head to downsize and walk away from the other house. It is not right and if someone out there is helping them do this they should be prosecuted.

Drastic measures and I feel pretty sure the total number of people doing this is very, very small compared to the total numbers of homebuyers.

I came back to see these responces...I am surprised at this outrage....I guess its better for these people to just whittle thier savings down to nothing, go into foreclosure, and join the ranks of all those with ruined credit and still have no home...Have you tried to get someone in foreclosure into an apartment...Sorry...you didn't pass the credit checks.....

I take those who read back to a fact...A recession is when someone down the street loses their home..

A Depression is when you lose yours..

If the mortgage fraud police go back a few years and start putting everyone in jail that participated in No Doc loans, then we as a society better kick all the murderers and robbers out to make room for the thousands and thousands of Realtors, mortage brokers, Bank Employees, Loan Officers, Appraisers, and all the rest of us that need to show up and turn ourselves in now. Lets just get off the high horses and go turn ourselves in..

Quit blogging, just go turn yourselves in for all the home loans and mortgage fraud that has already happened in your presence over the last few years. Just because you did not sign the docs yourself dosen't mean that you weren't involved..Just because everyone was doing it does not clear your concience.

How many here did not turn your head as YOUR CLIENTS signed these loan docs with the full intention of Re-financing before the new rates started kicking in...This situation is always about the family that has to make choices..The majority of these deals are interest only with increasing payments...They will NEVER PAY THE HOUSE OFF...

Like it or not, this is my opinion... One last Question...What would you do if it was your situation, your financial ruin that was coming up...

I am all done now

Happening every day here in SW Florida. Right or wrong - illegal or legal - sadly is going on.

I think this post has taken on a life of its own....now for responses to the comments:

Michael, you're very welcome. Very enlightening to me as well. ;-)

Debbie, you're so right. I hope it is stopped soon...somehow. ;-)

Missy, are you saying they bought another one before it went down, or????

Judy, unfortunately, you are right. Best or worse - many times the worse side of human nature shows its ugly head.

Dean, exactly - that's why I'm so shocked. I would never have thought to do this type of thing. When I purchased anything, I knew that I needed to BE SURE I could afford it, have some in savings, and honor my obligations. I NEVER would have bit off more than I could chew. That would be terrible.! Especially in THIS business, we need to be as prepared as possible.

Beth, wow! I suppose that did happen didn't it? Knowing before hand and then ripping off the lender. What about their consciences? Hmmmm.....

Sally and David, you're right; however, what I'm not understanding, is why there needs to be a law. Why is it that people cannot be honest with their dealings?

Mike, while there can be extenuating circumstances - and it sounds like you're "personally" familiar with one, I just cannot relate to the dishonesty and lying that goes along with it. I really ditto the comment made by Laurie at Options - below your's. I agree.

Laurie, I agree with your comment.

Gary, right on!! I agree with you all the way!

Paddy, you're right. The problem is that it not only compromises the one that is doing it, but the ones that are not. Lower appraisals, etc.

Jim, I really, really hope you're right!

Mike, your comments are very interesting. As I said before, yes, there can be extenuating circumstances, but do you truly think that lying is a good alternative? What about robbing a bank to get out from under. Would that be a good thing? I think this is something along the lines of a very real white collar crime. I appreciate your passion -- so sorry that someone you are personally acquainted with went through this. I feel for anyone that has suffered for either a good decision gone bad or a bad decision gone bad. Truly, I do. ;-)

Susan, I suppose some markets even more than others? Arizona is one of those states I fear. ;-)

Just because someone thinks it is o.k. certainly won't pass the sniff test.

My reference of thinking is much like Mike Norvelle's, a person's #1 priority is their family. If that means stiffing the bank and moving somewhere else, then so be it. One thing about America is that we do not have debtor's prison, although it could be fraud. Let them come after the people. The lenders don't have the financial resources to do so. i'm not saying it is right, but hey if I get in that type of situation, I'll walk.

One way many of these people are able to get away with leaving one home while buying another is that many couples financed the first home in one persons name, and then the second home is now being financed in the other persons name.

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I also do not blame the people whose payments are rising. I will be willing to bet that 99% of the people who were getting a loan using an ARM were never told by their mortgage professional how their payment will adjust in 2 yrs or 3 yrs. On top of that I bet EVEN if they did ask the mortgage professional, the mortgage person couldn't asnwer the question accurately. Typically the only documents which the borrower saw in regards to the payment adjusting was at the closing table and it is a bit difficult to back out at that point.

So now their payments are sky rocketing and they can't afford them, well I too would buy another home and stiff the lender and I would sleep very well at night if it had happened to me.

Sean Allen

Sean/Pilar, though I disagree with the method as described in your comment, I'm sure many people find a way to rationalize their behavior. I simply am against fraud - no matter the justification therefor. Thanks for chiming in. It's always so interesting to hear other's opinions. ;-)

Teri, yes I've heard this is going on. It is difficult to find a loan for some of these folks, I would think with all of the restrictions that have now been put into place but I suppose there are a few places left that might loan.

For those that buy hoping to rent out their previous residence or sell it and find themselves in Foreclosure, I can understand their poor judgment

BUT

for those who consciously deceive, knowing full well that they don't plan on selling or renting but merely taking foreclosure, this is just another one of your irresponsible acts that may come back to bite you.

It takes all kinds, Teri and nothing surprises me anymore. I think we need to have classes on morals, character, responsibility and common sense.

Teri, I truly have never heard of this before. I'm afraid if I heard of it I would rat them out in a heartbeat. Now, there's a great way of helping us all dig out of the mtg crisis. ugh.

Later in the rain~Deb

JUN

2008

I got a call this week from a young man whose parents wanted to list their $535K home as a short sale, persuade the bank that they couldn't make the payments, then he, their son, would buy the home for $250K and they would all live happily ever after in the same home with their payments reduced by about half.

My only response was to let him know that what they were contemplating was mortgage fraud.

He never called back.

It's sad to say but I had clients come in from FL and they are buying up here in NC and closing before their home(s) go into short sale in FL. Normal people - PHD and retiree w/pension. Sometimes people get caught up in the craze - like the stock market.

But, the same neighborhood? And foreclosure? SAD!

JUN

2008

Hey there...good stuff. I featured you in the Mortgage Pro Week In Review.

Gena, your suggestion on taking a class? More people should have been raised in the 50's. ;-) We were taught the right things growing up. Guess values have gone down the tubes. ;-)

Deb, I'm with you. ;-)

Lenn, I just can't get over the moxey of some people. Do they really "not" know it's wrong? ;-)

Tracy, still amazing to me as well. ;-)

Joey, thanks....;-) I like being feaured. ;-)

JUN

2008

Okay, I am a little late to the party. I was going to post a similar blog as I had read the same article and was taken aback, but it seems a little late at this point, glad somebody brought it up though. After reading all the comments I think there are a few things I have learned...

1) Buying and Bailing is dishonest. Lying about your intentions to rent your current property, in order to buy a new one, and then foreclosing is fraudulent.

2) "Real Estate Professionals" that promote this idea hurt the business far more than they help.

3) It is sad and discouraging to know people must go to such extreme lengths no matter the previous circumstances or how they "found" themselves in that situation.

4) As fraudulent and illegal it may seem, I can understand the motivating factor for trying to pull off this "scam" (for lack of a better word). (I think it is less of a scam and just plain bad underwriting.)

Many Americans are struggling to make ends meet. With that said, the desperation people feel to find a way out can definitely overcome their better judgement and with it they may make poor decisions. Though I don't fully agree with the contrary opions to your blog, I can say that until we are placed in the situation it is hard to say what we would do. My only concern is that the people promoting this course of action (if they are indeed "real estate professionals) are not bringing to the forefront the legal and ethical ramifications.

My last comment is in regards to the argument that they will never "own" their home unless they take this action. I doubt they are thinking about owning the new home they are purchasing, if they truly wanted to pay off the first loan they would have never gotten into an I/O loan, wherein they never pay anything towards the principal, or the Option Arm and paid the least amount. Common sense says that won't pay off the mortgage.

{I believe it is the responsibility of the LO to explain the details of the loan product the borrower is choosing to use and to educate them as to what it all means. Sadly this isn't done, even today. -Two recent customers said the loan officer never explained the FHA product or how the process worked. That is not good.}

Isn't it possible that they may be thinking (total conjecture not accusing them of) that if they buy the new home at half the price then in 7-10 years when the house is worth what they originally paid and the foreclosure is off their credit, they will have "X" amount in profit. Again to use the money to buy a larger house and hope the market doesn't tank. If they were serious about owning the actual home they live in, then they would fight tooth and nail to keep it, buying and bailing is not the hard road, it seems as though it is the easy road. I am not one to judge, nor would I, but I do believe that if the intentions were/are truly to own the home, they would work to find an amicable solution with the lender, It is a crazy time, let's just hope we find ways to help people truly own their homes by placing them into homes and loan programs they can afford.

Sorry, I have said too much. Thanks for the great post Teri.

Eric, I couldn't have said it better. Thank YOU! ;-)

JUN

2008

Teri, just swung back by here as I see you are a STAR!! Congratulations on the feature. Of course you were a star before this ; )

Gary, thank you for the kind words. Yep, got a star....and l hope that it was useful information....;)

JUN

2008

Teri, way to many comments for me to read, here. But had to get my 2 cents in ... mortgage fraud with a big M. Can't imagine a Lender loaning money for anyone to purchase another home within a short distance of the other in this particular time since Lenders should be aware of how desperate people do desperate things.

Sometimes I wonder how many people are left that have morals, character and a conscience.

Gena, I hear that one. It does appear that there are less and less of people left with morals, conscience and character. It's "all about me." ;-)

JUN

2008

Teri - Congratulations on a well deserved feature. I will never understand how someone could do this, but I guess these days anything is possible.

Debbie, thanks so much. It is amazing isn't it? ;-)

JUN

2008

I agree with you Teri. Something doesn't quite sound right about giving that kind of advice. It seems a bit like advising someone to commit fraud!

Myrl

Myrl, it IS advising your client to commit fraud. NOT a good thing at all....at least not if you want to stay out of jail, or at the very least keep your license. ;-)

DEC

2008

Why is it that when some working class stiff does something like this it's "FRAUD", but when some rich bastard does the exact same thing it's an "intelligent business decision"?

Can anyone riddle me that?

Mr/Ms No name: While I agree with you to some degree, it is NEVER okay to commit fraud. Those that can figure out a way to get around it, will continue to do so. Unfortunately, the remainder of the people will suffer the consequences. There are many that feel the same way you do - thereby rationalizing their actions. Bottom line? It's fraud......;-) To coin a popular phrase, "it just isn't fair."

MAY

2009

I don't at all understand why this is fraud. The terms of the contract are laid out there for everyone to see, and are agreed to at the signing, aren't they?

If I don't make my house payments, then the bank takes the collateral (i.e., the house), and it's not like I get my down-payment or any of my other payments back. Buying a different house is a totally separate contract.

No reason at all why this is fraud. You're simply fulfilling both contracts in different ways (paying the new one, letting the old one go to foreclosure). The bank knows the risk - that's why there is an interest rate.

Walking away is simply a business decision. Take your emotions out of it, and see it for what it is.

MAY

2009

I completely agree with post number 95.

How is it any less rational for a bank to refuse a principle write down and refinance at 50% of a loan but then forclose and sell that same house to a new person for 50% of the original loan?

Banks have zero intention of keeping people in their homes. They are motivated only by profit and loss. They have actuaries who are paid to analyze and price risk, that is the purpose of the interest rate in the first place. There is no benefit to an 800 credit rating if a bank won't lend you any money and/or you have zero need or desire to take on debt?

There are two sides to a mortgage contract, the bank took equal risk. When you add the principal and interest payments as well as the money they are recouping from the foreclosure and then tack on the taxpayer (yours and mine) dollars they recieved, they are losing very little and not passing that on to the homeowners. If they wanted to stem this tide, they would write down principal and refinance the mortgages. If Congress wanted to solve this, they would pass laws to sheild the banks from investor lawsuits and mandate that banks bailed out by the government make these adjustments.

It is not fraud. Arizona is a non recourse state and you are simply honoring your mortgage contract. You EITHER make payments OR relinquish the collateral. This country is built on honoring contracts. I think more people should remind the banks there are two sides to this coin.

In a capitalistic society we are supposed to behave as rational economic actors. There are consequences, so stop acting like they are getting something for nothing. They will be "trapped" in the new home for at least 5 or so years and they lose whatever investment they had in the old home. The credit ratings will be adjust downward but will recover.

If this were your brother or daughter or mother or you, you would want them to make the most financially sound decision. People are allowed in this country to restart, its how it works here in case you forgot. When I bought in '05 homes went for 230-250K. Now those same homes are 50-90K. If my home began appreciating at a rate of 4% per year starting today, I would still be underwater in 10 years.

I applaud this as it is actually healthy for the market (albiet in a perverse sort of way). The house prices will get reset more quickly and we can begin healing process.

AUG

2009

Hi Teri -- Thanks for bringing this to light, I hadn't heard of this until recently and I was informally approached once and turned it down, it just didn't seem right.

AUG

2009

Amazing! How do people even come up with these ideas, and then have THE NERVE to execute them????

Kathy Opatka

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**Mesa, Arizona Real Estate** Mesa Arizona Realtor

Mesa, AZ

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Teri Ellis at Homes Arizona Real Estate LLC

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Office Phone: (480) 382-8711

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