Those who read the Wall Street Journal recently made acquaintence with a new real estate term - “Buy and Bail.” It involves taking advantage of an underwriting loophole long-used to help homeowners get a new home (for example if they were relocating) even if they hadn’t sold their previous residence yet. It works like this: You advertise your home for rent and get a tenant. You include that rental agreement in your mortgage loan application package when you apply to finance your new home. The underwriters add most of the rental income (75% using Fannie Mae guidelines) to your income and it helps you qualify to get a new house even if you haven’t sold the old one.
Well guess what? That option is going away, largely due to the efforts of some fraudulent-minded neighbors and their gutter-dwelling real estate agents and mortgage brokers. Just when you thought people couldn’t go any lower….See, most homeowners aren’t exactly aware of the ins-and-outs of lending, and they don’t know about this loophole–unless some greedy commission-at-all-costs dirtbag helps them out by telling them. So these creeps are getting someone to sign a rental agreement on a house they have no intention of keeping or making another payment on once they close on the new house. They have their next house (taking advantage of the drop in values) and their lender gets the old one and the mortgage. And their neighbors get another foreclosure property down the street and take another hit on their own values.
Aside from the fact that this is just plain wrong, it could (and hopefully will) bite these people where it hurts. The guy who signs the rental agreement, the real estate agent and loan broker who participates in this or actively encourages it–are all participating in a scheme that could be defined as fraud by many standards. Their intent is clear. So I hope they enjoy that new roof over their head, and that it comes with bars on the windows.
(21 votes, average: 5 out of 5)
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Is it possible that the homeowners who participate will lose the new house they acquire through this fraudulent activity?
“I can find the same exact house as what I live in right now for half the price.”
It seems these homeowners have no idea that they are doing something wrong. They have to know this isn’t exactly moral. I think any lender or real estate agent who participates should be held more accountable than the homeowner. Those types of people are supposed to provide guidance to potential buyers, not instruct them to participate in something that can be considered fraud.
I guess we’ll have to see how this all shakes out.
The worst part is that the people who really do need to get another house because they are relocating… will suffer because of what these people are doing. Like they say, “it takes one rotten apple to spoil the bunch.”
On top of that the poor neighbors who’ve already taken a hit have to take another one.
I hope Fannie Mae does something about this, and quickly.
I’m not sure. I know that in bankruptcy court if you run up a huge bill with no intention of paying it (planning on blowing it off in a Chapter 7) you can be prosecuted — not sure how this would pan out in a foreclosure proceeding. My guess (and that’s all it is) is that in the event the first lender goes after the borrower for a deficiency (the difference between the value and sales price of a home) the fact that the homeowner engaged in deceitful practice to obtain the new home would play a huge role in the judge’s decision. If the homeowner was then stuck with that obligation it might render him / her unable to pay the new mortgage as well. It strikes me as just incredibly stupid to pass off something so obviously wrong as a business decision — hopefully our legal system will make the cost of that level of dishonesty so prohibitive it will be stopped quickly.
What would these people think if a thief came in to that new house, robbed them at gunpoint, and then said, “It’s nothing personal — a business decision, you know, it just doesn’t make sense for me to buy stuff when I can take yours for free.”
I’d pay to see that.
What if you are a renter and the owner of the home decides to do this? How soon will you have to leave?
Generally when the lender forecloses and takes posession of the house. The owner will have had plenty of notice as the process takes months. however, unless he / she decides to fill the renters in you may find yourself with very little time to vacate. One way to avoid this is to occasionally check for NODs (notices of default) in your county. In mine you can do it online; a simple search of the owner’s name can tell you if they are involved in foreclosure proceedings. Foreclosures are public record matters; in some places it’s easier to get that info than in others.