Intentional Foreclosure - An Ethical Opinion

I have been asked to assist individuals with "Intentional Foreclosure".  I have sidestepped the issue and have successfully avoided becoming involved in something that I believe is unethical and potentially litigious.

I'm not talking about the honest person who looses his or her job. This type of "Intentional Foreclosure", is where an individual seeks to purchase a bigger and better property and intentionally walks from his or her prior home.

Recently, a prospective client called me and asked me to find him a "View Property", so he can buy it and intentionally foreclose on his current home. 

This person was angry at the fact that his current home was worth half of what he originally paid for it.

After speaking to this person, I really didn't believe that this person could qualify for both homes.  This is the biggest problem for most people even considering this.  Qualifying for one home is difficult these days and to qualify for two homes, one has to have stellar credit, down payment funds, and they are understandably scrutinized by the underwriter.

If he could qualify for both, why walk from the first one?  I told him he could do all of this ethically and rent out the current home.   I explained that when the market improves his property would gain back it's value.

Before anyone decides to be involved with "Intentional Foreclosure", please consider the consequences.

When you qualify and obligate yourself to a "new" loan.  If you foreclose on your prior residence your "Intention to Foreclose", will be considered fraud.

Lenders for New homes are especially on the look-out for this type of fraud!  Buyer's think that because the builders are anxious to sell standing inventory they will look the other way but this is not the case.  New Home sales agents have, "Intentional Foreclosure", participants come in often and are aware!  It happens so often that I have had agents for new homes ask me, when I bring clients in, if the the client is intentionally walking from their current home.

During the qualification process, loan underwriters make certain, that a home buyer who owns more than one home substantiate the purpose for each home.  They must either rent out the other home or if it is a second home their income has to be sufficient for both mortgages.

Underwriters ask for and verify that any potential buyer of a second home, produce a rental agreement for their prior home.  The buyer must find and qualify a credit worthy tenant to rent their prior owner occupied home. 

Other, less obvious negative aspects, of "Intentional Foreclosure":

• Employers doing a background check will view "Intentional Foreclosure", as a signal that anyone doing this has a serious lack of integrity.
• "Intentional Foreclosure", will be on your credit history for years to come and an attorney friend told me it considered worse than bankruptcy.
• If the lender on the new loan discovered and determined that a buyer has committed "Intentional Foreclosure".  If they wanted to, the new lender could call the loan due based on loan fraud committed by the buyer.

One more thing:  If you dare to consider the ethical aspect of ditching your lender just so you can buy a bigger and better home, remember that there are people who have lost everything through no fault of their own.  The down turn in the economy has made it impossible for some people to find work in the career field they have been very successful in all their lives.  They will loose their homes because they are victims not because they are choosing to victimize their lenders.

"Intentional Foreclosure", hurts the homeowner who justifiably cannot keep their home because when word gets out that someone has done this, and yes, they do brag about it.  The consensus is that "everyone" loosing their home has been irresponsible or scammed the mortgage system.

There is much on the Internet about whether "Intentional Foreclosure" is ethical.  My opinion is that it is not ethical and I choose not to participate as a Real Estate Professional, in assisting anyone in this concept.

 

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