From Jingle Mail To Buy And Bail
First, there was “jingle mail.” Now, it’s “buy and bail.” Nick Timiraos of the Wall Street Journal wrote yesterday:
Next month, Michelle Augustine plans to walk away from her four-bedroom house in a Sacramento, Calif., subdivision and let the property fall into foreclosure. But before doing so, she hopes to lock in the purchase of another home nearby.
“I can find the same exact house as what I live in right now for half the price,” says Augustine, 44, who runs a child-care service out of her home. She says she soon will be unable to afford her monthly payments, which will jump to $4,000 from $3,300 in August, and she doesn’t want to continue to own a home that is now worth $200,000 less than what she paid for it two years ago.
In markets hit hardest by falling home prices and rising foreclosures, lenders and brokers are discovering a new phenomenon: the “buy and bail,” in which borrowers with good credit buy a new home—often at a much lower price—then bail out of the “upside-down” mortgage on their first home.
Homeowners are able to pull off this gambit—which some lenders and real-estate agents call mortgage fraud—by taking advantage of mortgage-lending practices that allow them to buy a new primary residence before their existing residence has been sold.
And with the lending industry in disarray as it tries to restructure millions of mortgages, some boast they are able to pull off the strategy with ease.
The best part of Timiraos’ piece?
In some cases, homeowners are coached through the buy-and-bail process by real-estate agents and brokers who see nothing wrong with it…
“It’s just a business decision,” says Linda Caoili, a Sacramento real-estate agent who is working with Augustine and others who are considering walking away from their mortgages. “If you’re upside-down $250,000, why would you keep it? It just doesn’t make sense.”
Readers- fraud or fair play?
Source:
“Some owners plot walking away from foreclosed home”
Nick Timiraos
Chicago Tribune, June 15, 2008
June 17th, 2008 at 11:56 pm
Back in the 1980’s I bought a second house when the first was still unsold. I rented it out for a couple of years and then found a buyer. Had no intention of bailing. It was not uncommon to own two houses while making a move.
June 18th, 2008 at 12:11 am
Thanks for the comment Scorpio.
“It was not uncommon to own two houses while making a move.”
Unfortunately, this is probably becoming more common as the original properties are unable to be sold.
I think a number of people would probably have an issue with the fact that in a “buy and bail” scenario, the troubled homeowner buys the cheaper home, knowing darn well that they are going to “bail” on the original home and mortgage. Some would say this is deceitful. Others would go so far as to call it fraud.
When you factor in that a number of real estate agents and brokers are helping them do this, now you’re talking accomplices…
June 18th, 2008 at 10:18 am
I am REALLY disgusted with people who knowingly help others commit fraud, which is EXACTLY what those real estate agents are doing when they ‘coach’ homeowners who Buy and Bail - and they wonder why people think the worst of real estate agents?!!
June 20th, 2008 at 11:01 am
Thanks for the comment Erkel. Here’s a joke for you (compliments of Real Estate Jokes, Humor and Satire):
“It’s just a business decision”