Buy & bail ?

[azhardspot]

i have a question about buy & bail (we live in AZ, community property law state)
If the HUSBAND is the only borowwer for Mortgage & is the only person listed on the TITLE of the 1stHOME

And the WIFE wants to buy the 2ndHOME all by herself

in that case

do the standard 2 questions even apply to her

1-do u own a home
2-what will u do with it if you want to claim the second one as your primary residence

thanks & god bless

[azhardspot]

any help is appreciated
thanks

[AZOwner]

If her name is not on the loan or the deed for the house that you occupy right now, then legally, she does not own proprty (legally, according to the banks and lending institutions.)

If it were me, I would buy the house in her name.

If you really question it, see an attorney.

[StuckInAZ]

I am in the same situation and I can offer you the information that I have found out.

It depends on the lender's policies and whether it will be conventional, fha, etc. If you can find one that doesn't require your spouses information then it may be possible if she can qualify with her income alone. There remains a question of whether or not a title check on her would bring back the house in your name due to the marriage link and the fact that Arizona is a community property (and debt) state. If they find something, I think it is for certain that a underwriter would torpedo the loan right then and there just do to suspicion, so you risk going through the entire home search process, falling in love with a house, etc only to be rejected right before closing.

The other option of course is to buy together, but most guidelines require you to qualify for both residences or have a secured rental agreement in place for your current place.

Good luck.

[azhardspot]

thank you stuckinAZ

lets say that we were to buy it together
also assume our incomes can support both mortgages at this time
and per the fannie may guidelines - we can show 6 months of PITI for both properties right now

in this case when we are asked about what will we do with the 1st home on the mortgage application --> can i specify that the 1st home will be a investment property and any thing related to that depends on how the market pans out ?
OR do they want a specific reply like will RENT or SELL etc?

i specificaly ask this because if we put it on rent and it doesnt get rented ...there is only a limited time after which it will make no sense to hold on to it .. which means we might try to short it ...

is that considered mortgage fraud?
i mean how can we predict the future ... and how do we make sure that we dont hide anything in the mortgage app

thanks again and god bless

[StuckInAZ]

I, unfortunately, cannot provide you with a concrete answer as I have not gone that far down the path. This would be a great question for a real estate attorney, and as always you should clear everything through one before your proceed.

What I can tell you is that the lender I spoke with pretty much advised me of exactly what you are saying. If I can qualify for both mortgages based off of all applicable guidelines then I should advertise the place for rent for a reasonable price for x months. After that point, if I can no longer afford the investment then oh well, stuff happens. Having proof of that "intent" to rent would supposedly cover me if needed in the future. Now how that relates to a question on the mortgage app, I am not sure.

Just my opinion, but I think it really comes down to if the lender thinks your intentions are good. If you are buying down the street and downsizing then things look suspicious. The loan officer I spoke to (who worked for a major bank) seemed to indicate that the story was just as important to the underwriter as the numbers. Not sure how much truth there is to that. Then again, you might be able to find a broker that doesn't care and just wants to do volume.

Good luck.

[Sparky06921]

From what I've heard from friends who have recently purchased, they wll want to see that it's rented. No what if's or attempts to rent were acceptable to the underwriter. That means signed lease agreement, copy of deposit check for lease & paper trail showing it deposited into your account.

They also had to have a valid explanation in writing as to why they were buying another house when theirs was underwater. If you can afford both, just rent the first out for a year. After the lease is up then re-evaluate your situation on the property and make your decision accordingly.

[StuckInAZ]

Originally Posted by Sparky06921

From what I've heard from friends who have recently purchased, they wll want to see that it's rented. No what if's or attempts to rent were acceptable to the underwriter. That means signed lease agreement, copy of deposit check for lease & paper trail showing it deposited into your account.

My understanding is that this is only applicable if you require the rental income in order to qualify for both houses. In the past, a simple rental agreement was acceptable, whether it was truly valid or not, which was the basis of most buy and bail scenarios. If you have enough income to qualify for both then it should not matter if you are renting the first or not.

That said, the lender can ask for a further explanation and if they don't like your answer, they can certainly deny to extend the loan.

[azhardspot]

StuckinAZ ..thx for answering my questions so far
so looks like ther is no easy solution out of this problem

1. if we buy together then, eventualy we will have to short or forelose the first home .. may be 1 year after closing on the first home ...if not immediately .. we can certainly put it on rent or atleast advertise it, to show that the intent to rent was true ...in that case NOT SURE HOW LONG DO WE HAVE TO RENT IT BEFORE SHORTING IT ... TO PROVE THAT IT WAS NOT A BUY AND BAIL ..THERE ARE NO CLEAR GUIDELINES ON THAT ...AS FAR AS I HAVE RESEARCHED ON THE WEB

2. if we only buy on my wife's name then there is a greater risk of the loan not going through because of the reasons mentioned above by you...
also since arizona is a community property state....even though my wife is not on the title and mortgage ...IS SHE STILL CONSIDERED A OWNER ...THATS THE MILLION DOLLAR QUESTION...I AM WORIED THAT IF SHE ANSWERS NO...THEN IT WOULD BE CONSIDERED A MISINTENT OR MISREPRESENTATION ON HER BEHALF AND THAT WOULD BE CALLED MORTGAGE FRAUD ...

CAN A ATTORNEY ANSWER THE QUESTIONS ABOVE I HAVE ....
ALSO IS THERE ONLY 1 ANS TO THES QUESTIONS BASED ON THE LAW
I WOULD HATE 2 ATTORNEYS TO GIVE ME 2 DIFFERENT ANSWERS

THANKS MUCH

[StuckInAZ]

Originally Posted by azhardspot

1. if we buy together then, eventualy we will have to short or forelose the first home .. may be 1 year after closing on the first home ...if not immediately .. we can certainly put it on rent or atleast advertise it, to show that the intent to rent was true ...in that case NOT SURE HOW LONG DO WE HAVE TO RENT IT BEFORE SHORTING IT ... TO PROVE THAT IT WAS NOT A BUY AND BAIL ..THERE ARE NO CLEAR GUIDELINES ON THAT ...AS FAR AS I HAVE RESEARCHED ON THE WEB

2. if we only buy on my wife's name then there is a greater risk of the loan not going through because of the reasons mentioned above by you...
also since arizona is a community property state....even though my wife is not on the title and mortgage ...IS SHE STILL CONSIDERED A OWNER ...THATS THE MILLION DOLLAR QUESTION...I AM WORIED THAT IF SHE ANSWERS NO...THEN IT WOULD BE CONSIDERED A MISINTENT OR MISREPRESENTATION ON HER BEHALF AND THAT WOULD BE CALLED MORTGAGE FRAUD ...

CAN A ATTORNEY ANSWER THE QUESTIONS ABOVE I HAVE ....
ALSO IS THERE ONLY 1 ANS TO THES QUESTIONS BASED ON THE LAW
I WOULD HATE 2 ATTORNEYS TO GIVE ME 2 DIFFERENT ANSWERS

Almost all of this stuff falls into a huge gray area, which is why there is so much disinformation out there on the topic. I do not really know any more then you do on the matter. All I know is what I've picked up from these forums and talking with professionals (lawyer, CPA, lenders, etc).

1. There is no exact answer here. I really doubt any attorney would be able to advise you because, as far as I know, there is no law directly governing it. Heck there really is no true law against buy and bail either, but the concern is that the FBI might all of sudden start to go after homeowners in this type of scenario for mortgage fraud. IMHO this is pretty far fetched, but everyone has to make that call for themselves.

2. No your wife is not considered an owner. She is not on any paperwork and the mortgage is not reflected on her credit report. Her only link to any of it is the marriage. That much an attorney could confirm for you. However, technically, for purposes of determining an extension of credit to your wife, your debt is her debt and vice versa, but if the mortgage app doesn't ask for spouses info then there is nothing to misrepresent.

Also, I think the key issue here is does a title search in your wife's name bring back the house in your name. I haven't found anyone who can provide a straight answer for that one. Obviously, if she applies for a loan, part of the underwriting process will be a title search and if it shows a house with a big fat mortgage under your name then that will raise some eyebrows. Even if that happened though, you may be able to explain it away and it may help your case if the house was a pre-marital asset, but the risk is there as I posted about before. Personally for me, I am not okay with that risk because my wife would kill me if we had to go through the whole home buying/loan process more than necessary.

Here's one off the wall thought I had, but later disregarded. You could legally separate (not divorce but file something in court). She applies for the loan, and if the title search does bring back your current place you can claim that you are separated and she is buying her own place then you end up reconciling 6 mo from now. Technically half the debt would eventually be hers, but it may be enough to satisfy the underwriter.

When are you looking to make a decision?

[azhardspot]

looking to do this pretty soon
my first home was brought in 2005 for 340K
i currently owe 290K on it
comps are ~210K

well the only other thing i can think off is to actually rent the first ome for a year or more and then make a decison about it based on the market conditions

what a shame .. the banks/lenders/brokers who did all kinds of fraud in 2005 and not prosecuted by anyone ...

but people who are caught into this are ....