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Buy and Bail Mortgage Fraud

(This post is a requested follow-up to my post Homeowners Also Responsible for Mortgage Fraud.)

Lenders are finally on to this particular scam & are responding with even further tightening of the lending requirements (The Wall Street Journal). They even have the ability to sue the borrower if fraud can be shown.

How Does a ‘Buy and Bail’ Scheme Work?

A borrower qualifies for a loan on a second home by asserting that the first residence will be rented out to help cover the mortgage payments for the second home. Once they are approved for the new loan they walk away from the previous loan not renting out the home or making any further payments.

Are These Professionals?

Possibly most unsettling are real estate agents who believe this is nothing more than a financial strategy and provide ‘tutoring’ for this practice.

Posted by Lynnette Phillips Real Estate Consultant on 09/17/2008 01:34 PM

Comments (19)

Mortgage Fraud in the ActiveRain Channel

buy and bail, mortgage fraud, reverse mortgage scam, avoid foreclosure

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19 Comments on Buy and Bail Mortgage Fraud

SEP

2008

I've heard of this and don't neccesarily believe the skipee will let on what they are up to to the lender or the realtor. Wouldn't that unravel this scheme?

Fannie Mae and Freddie Mac require 12 months of PITI (principle, interest, taxes and insurance) payments for the home that will be "rented" to be in reserve (money in the bank after the new deal closes) if the borrower does not qualify for both payments without count rental income for the new property. Really, the new lender is not protecting themselves with this guideline but rather protecting the other mortgage holder.

Randall, You'd think so but according to the Wall Street Journal article many are being coached on how to do this!

Beth, Your're right! I never thought of it this way.

SEP

2008

The coach here needs to be sought out then and taken to task.

Randall, Definitely! If this is not in violation of the state's ethics code then there definitly needs to be an amendment!

Thanks for the eye opener!! Yikes....how awful! I have heard of people doing this and I always wondered how they got away with it. I can't believe some agents believe this is a financial strategy. How do these people sleep at night?

SEP

2008

Janice, If the borrower can be criminally charged then why not the agent that coached them? That'd sure keep me awake.

Thanks for stopping by.

SEP

2008

I'm working on a file now where the client told both the realtor and the mortgage broker that he was using the investment property as a investment property. Yet, the mortgage broker submitted it to the lender as an owner occupied property in order to qualify the client for a lower interest rate that he promised him. The broker was able to do this because the value of the 2nd home was worth more than the first. The broker can claim the client is "moving up".

Steve

www.mfi-miami.com

Steve, Clearly it's not always the borrower...I've known of many such instances where it's not even considered a grey area - just a matter of course! Thanks for sharing

SEP

2008

Have you noticed a wave of lenders corking this hole this week? Too Funny!

SEP

2008

What's interesting about this type of deal is that undewriters used to tell brokers to submit lease agreements they knew were fake to get loans funded.

Randall, What took them so long?

Steve, Mmmm, Why do you suppose they stopped?

what a strange time we live in. while I don't agree with it I certainly understand it. Our financial system has been developed to hurt the consumer. Me thinks that if this were corporations doing this it wouldn't get so much press or regulation - it would be called good business. Both corporate and personal ethics are sorely lacking from our society.

SEP

2008

Kate, I definitely agree!

SEP

2008

Your post is now a feature on the Mortgage Fraud Group. We're seeing a lot of this as people realize they can now buy their same house for 1/2 the price in the same neighborhood and dump the old one. They know it will raise hell with their credit for 7 years but don't care. And yes, sadly there are Realtors advocating this. It will now become more difficult for honest people to buy a 2nd home.

SEP

2008

Gene, Thanks for helping me spread the word. This scam seems just as wrong as any other...Why anyone who is supposedly a 'professional' would be a knowing part of this is amazing. I must be more naive than I thought.

Thanks again!

NOV

2008

I agree, a scam is a scam and fraud is fraud. Things like this is just adding more fuel to the fire! Some people just don't get it--fraud hurts everyone, even them! What are they teaching their childern--it's ok to lie and cheat to get what you want and the heck with everyone else! (maybe that's how they got thier fist home!) Well it's their children who are going to end up paying for what they are doing--they won't be able to get loans for cars, education, homes--this is hurting them more than they think.

NOV

2008

I am a homeowner in Las Vegas and one of my neighbors just recently let their home get foreclosed on and just walked away. They already had bad credit and couldn't affford their house payments do to an ARM, so their leaving wouldn't neccessarily harm them. Also, they didn't put any money down so there potential for loss even lessened.

I found out that they bought another home a few miles away as they told me they would in a "buy and bail" scam. It is bad enough that they bought a home that they couldn't afford, and do to their history of bad credit probably never intended to pay on. They just walked away without regret, why not?, they didn't lose any money and their credit was already poor. First they drove the housing prices up with their actions which didn't help me because I didn't own a home during the boom, I was too busy serving in the military, but I did buy a home I could afford and at a good rate after I got out of the military.

Now they drive the housing prices down do to leaving another foreclosure in the neighborhood. Who can I report this too? I am tired of the greed and the lack of care by both lenders, realtors, and borrowers alike. This activity has to stop and we all have to do our part to stop it.

Thank you, John

JUN

A major factor is that these buyers purchased homes that were offered at high prices (new homes). Now, as values decline, their new neighbors are not those who could afford the original price, but those who can afford the NEW, LOWER price. Newer developments have turned into low-income communities due to the failing market. Why would anyone stick around in a $250k home when adjacent homes are selling for $80k?

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