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.
