Buy and bail ?

[EnergyAZ]

My situation:

My wife and I had a home built in Arizona in 2006. We have a I.O. 5/1 ARM at $280,000 6.75%. This ARM will adjust in 18 months. Needless to say, interest rate well above current market for people with solid income & credit history and its going to go even higher.

Once upon a time, our home was appraised at $325,000 and trending higher. As of today, estimated value is $159,000 and falling. We currently owe $120,000 more than the home is worth.

According to formulas, we technically can 'afford' the loan. We have decent income and good credit. As result all communication with our lender in regards to loan modifcation, etc have gone ignored.

Fact of the matter is, we struggle to make our payments by the 15th. We have liquidated our assets to keep afloat. Each month that passes we find ourselves slowly falling father behind. We cannot contribute to retirement savings, 529 savings, any savings for that matter. While our credit cards are not maxed out, and we do make more than minimum payments, we find ourselves charging things a little more often each progressive month. We have never been late on any payment, although it is uphill battle to make payments on time (or within grace periods) because of our home loan which is nothing more than 'rent' at this point as it is impossible for us to make principal payment.

Our ARM will adjust in 18 months. At that point we will no longer be able to afford our mortgage and will be forced into foreclosure. We are fighting a losing battle. Our future as it stands now is pure debt slavery.


My question:

I would like to make a pre-emptive strike and give up this battle and walk away from our family home. But before I do, I would like to secure a new loan on a new property.

I have heard this concept described as 'buy and bail'. I have heard 'buy and bail' considered mortgage fraud.

I am also under the impression that mortgage fraud is when an applicant lies to a lender in attempt to secure a loan. IE: false rental agreement on former property, etc.

I have no intention of lying to any prospective lender. I wish to be totally honest that market conditions force me to consider something I never dreamed I would. As of today we still consider ourselves reasonably attractive loan candidates. We will not be able to say the same in 18 months.

Our lender is facing bankruptcy, and keeping us on the hook for $$ that is not supported by the value of the property is not going to change thier fate. Eventually this loan will be sold to another party...what is preventing them from behaving humanely and adjusting this loan? What is thier loss here? Why are they ignoring good customers in favor of those who default? Why must we skip payments & ruin our good names before being heard? Very frustrated here.


So my question is......

Is it reasonable to think any prospective lender would be willing to deal with us knowing full well we plan to allow our existing property to foreclose upon closure of a new home loan? Comparable homes can now be found for so much cheaper than what we currently owe, we would have no problems at all making payments & savings contributions. I am willing to trash my credit score for the opportunity to be on solid ground. It seems like a no brainer to me.

Is it reasonable to think...that as of today...our loan candicy would be considered purely on the strength of our credit scores, income, employment history, payment history, demonstrated responsibility...and not be penalized for market conditions beyond our control?

Is it reasonable to think a lender would not feel we would simply walk away from the new property in the event value continued to fall? (we couldnt, our credit would be wrecked but at least we would be in a situation that was solvent for long term. We have young child and desire to have another baby..we want the stability of long term homeownership for both financial and family reasons.)

In other words...would prospective lenders see me as a fruadulent criminal for trying to improve this situation for myself and my family?





PS - If there are any lender representitives reading this who are not intimidated of our situation and would like to have our long term business and willing to negotiate with us...please send me a PM

[SillyWorld]

Well as far as I know no matter what you do that does not endanger anther's Life, all will clear up in 10 years

[faith]

EnergyAZ,
Welcome to this forum,
Before you do your plan, let me inform you that Buy and Bail is a Mortgage Fraud and the FBI and the IRS is hard on them and the penalty is huge so it's better to let go of the house.


Buy and bail is the result of buying a new home with the intention of bailing on the old. It is considered mortgage fraud. Even extenuating circumstances do not give a home owner the right to commit mortgage fraud. Homeowners who plans to walk away but wants to buy a house and falsified loan documents and deliberately lied on his loan application. That is mortgage fraud. Mortgage fraud happens when a borrower withholds information -- such as a deliberate intent to stop making payments to another creditor -- or falsifies information -- either of which would cause the new lender to reject the loan if the lender knew about it.


As a result of buy and bail practices, Fannie Mae guidelines now require buyers to qualify for mortgages on both homes at loan inception, unless the existing home has plenty of equity. That's because a home owner with plenty of equity would be foolish to walk away from it.
Sometimes home owners feel justified because they believe they were duped when they bought their existing home. Buy and bail involves lying. It typically involves drawing up a phony rental agreement and presenting this false documentation to the lender.

It's also considered fraud to lie on a loan application and produce false documents to the lender. The FBI defines mortgage fraud as "any material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan."

Please search the net about Buy and Bail and the EXTREME consequences. We care about you so please be careful.
Thanks,

[faith]

P.S.

Here's the link that Moe posted about Buy and Bail

http://www.loansafe.org/forum/chase-mortgage-tell-us-your-chase-story/8414-buy-bail-chase.html

Hope this helps.

[briknope]

I was considering the same thing almost, seeing as how my name is on my current home and my wife is not. Can a couple legally married buy another home under the other spouses name? Allthough my wife doesn't make enough money to qualify, my income would pur her into that income range listed as additional or "other" income source. At the time we first purchased our home, she quit claimed to me because her credit score was a little low and it was recommended by our broker to not have her on the application. Being in a community property state it is still 50/50 ownership of course.

[faith]

[QUOTE=briknope;105660]I was considering the same thing almost, seeing as how my name is on my current home and my wife is not. Can a couple legally married buy another home under the other spouses name? Allthough my wife doesn't make enough money to qualify, my income would pur her into that income range listed as additional or "other" income source. At the time we first purchased our home, she quit claimed to me because her credit score was a little low and it was recommended by our broker to not have her on the application. Being in a community property state it is still 50/50 ownership of course.[/QUOTE]

Welcome to this forum,
Unfortunately Fannie Mae, Freddie Mac and other lenders like Bank of America, WellsFargo etc has new guidelines regarding buying homes, loan modications etc. When you complete a Loan Application, you will be asked a lot of questions about your marital status, if your wife is working, proof of income, proof of assets, if you own a house, if your wife owns a house etc. And if you lie in your application it is considered mortgage fraud by FBI which was mentioned on previous posts. They have also income requirements and you have to put 30% down or more. They have strict guidelines now that it's very hard for a one wage earner to buy a house, unless the income and the dti ratio pass their requirements.

Take care and God bless.

[Bill_IN]

I have been in a similar situation as you. Our house has been on the market for 3.5 yrs, we continued to make payments using savings, taking out a credit line to pay off credit cards used for house building materials, then having to use the credit cards again to live while we used the line to make the payments, and borrowing against future bonus money from my employer to make payments. All the while having to drop the price and drop the price to try and move our house. So over 3 years (the stuff for the house on cards was about $17K), doing this has grown from the original mortgage and $17k on cards to the 1st mortgage, the credit line (now $35k), and two cards back up to max of $15k and $6k.

What we finally decided to do was to stop paying everyone (I've tried working to get all payments down for two years, but they won't work with you if you are making payments). It's been about 60 days, Citimortgage couldn't/wouldn't do a loan modification because my monthly outgoing is too high! Does that make sense? It's all because of the house that my payments are too high. So I continue to get call everyday (3-6 a day) on my cell, which I generally ignore. But, they are coming around....just very slowly.

At this point our $90k equity is gone, and so are my next year's bonuses. I wish I would have done this a year ago. The news keeps reporting that the economy looks as though it has hit bottom, even though they acknowledge a long slow road back to better.

If I were you, I would stop making your payments NOW! What will look worse on your credit in a year or two? You missing 3-6 payments, and having a loan modification paid for through TARP funds, or bankruptcy/foreclosure?

I'm planning on not paying the mortgage for 3-6 months, asking them to write off the arrerages, and using the money I haven't been paying to anyone (been saving what I can back in cash, so they can't see it in a bank) and use that money to payoff card "settlements". Still will hurt my credit, but still better than bankruptcy too.

Here's the thing. After I get this all done (and I still want to sell and move) if the banks decide not to lend to people like me (and you) they will have to go out of business because there won't be enough people to lend too. At least that's what I believe.

Anyone who has ANY comments, good or bad, I would like to hear your opinions. Please?

Thanks!

[faith]

[QUOTE=Bill_IN;105937] Here's the thing. After I get this all done (and I still want to sell and move) if the banks decide not to lend to people like me (and you) they will have to go out of business because there won't be enough people to lend too. At least that's what I believe.

Anyone who has ANY comments, good or bad, I would like to hear your opinions. Please?

Thanks![/QUOTE]

Welcome to this forum..
Unfortunately, these banks are still making a lot of profits even with the current crises.
Here's what the New York Times reported

Bank of America and Citigroup, giants that have come to symbolize the ills plaguing the banking industry, announced on Friday that they had set aside billions of additional dollars to cope with looming losses on everything from credit cards to home equity loans.

Like Goldman Sachs and JPMorgan Chase, two banks that stunned Wall Street this week with robust earnings reports, Bank of America and Citigroup got big lifts from their trading operations. Bank of America reported a $3.2 billion profit for the second quarter. Citigroup said it earned a $4.3 billion profit.

Home sales went up every where from the North, to the South, to the East and to the West. Banks and lender institution are making money and that's why they are very careful lending money and approving loan modifications. They want to make sure that the homeowners who are asking for loan modifications will be able to afford the home they are having trouble making payments before will be able to make payments now.

As far as your home being in the market, if you want to sell your house, you need to price it right and you have to have a good real estate agent who has experienced doing Short Sale. List your home at a price within 85-90% of the current fair market value of your home. Nowadays if you want to sell your house fast, you have to ask your lender to approve a Short Sale. If you want someone to buy your house, PRICE IT RIGHT, otherwise your house will be sitting for months and no one will even look at it. Remember there's a lot of competition out there and the number ONE MAIN REASON you need to do is to ATTRACT A BUYER IS, IF THE PRICE IS RIGHT, they will come.

Hopethis helps, God bless and take care..

[Garry]

[QUOTE=Bill_IN;105937]


At this point our $90k equity is gone, and so are my next year's bonuses. I wish I would have done this a year ago. The news keeps reporting that the economy looks as though it has hit bottom, even though they acknowledge a long slow road back to better.

If I were you, I would stop making your payments NOW! What will look worse on your credit in a year or two? You missing 3-6 payments, and having a loan modification paid for through TARP funds, or bankruptcy/foreclosure?

I'm planning on not paying the mortgage for 3-6 months, asking them to write off the arrerages, and using the money I haven't been paying to anyone (been saving what I can back in cash, so they can't see it in a bank) and use that money to payoff card "settlements". Still will hurt my credit, but still better than bankruptcy too.

Here's the thing. After I get this all done (and I still want to sell and move) if the banks decide not to lend to people like me (and you) they will have to go out of business because there won't be enough people to lend too. At least that's what I believe.

Anyone who has ANY comments, good or bad, I would like to hear your opinions. Please?

Thanks![/QUOTE]

I'd say your on the money, there's no doubt in my mind they will be begging to give us credit again. Unfortunately for them, some of us have learned our lesson and won't let this happen. Screw the credit cards, I was much happier when I didn't have any. As far as Mortgage fraud goes (buy and bail) That's a joke, it would make perfect sense that the little guy goes to prison as the big guy gets bailouts, get out of jail free cards, and massive bonuses, but the prison system is getting a little over crowded! So I think the little guy will walk on this one. Nothing but scare tactics.

[briknope]

I sort of agree with Garry on this one. Surfing through countless posts here on this website for months and months many seem to think that they will be able to stay current struggling to make home payments and the banks are out to help people. I seriously doubt anybody will get the modification without going in default, and I mean big time in default. Screw the credit, yes at this point you almost have to. If you are on this website, you either already have bad credit or soon will. No way will anybody get a modification on a home or property that has equity...period. I myself am in a trial mod, or whatever they call it. My payments were reduced, but not much. I decided to stop paying on that also. I was a fool to agree to it in the first place. After seeing how everybody is not getting the golden goose at the end, why try? The contract that I got is very open ended and I assume that most trial mods are.

I'm banking cash for the big day, which I am positive will come where its do or die. Want my house 70 grand underwater, or give me a more acceptable term on the mortgage. My credit will repair itself over time, if the worst happens and I'll buy again for much less in a few years, if not sooner!

[Garry]

Land contracts are already becoming popular again. I started my mod and will follow through just to see what happens with my second, if it doesn't work out they can shove this house up their rears. I'll stay until the sheriffs department throws me out, and then go rent a house down the street for a fraction of what I'm paying now.

[cinman]

You will be amazed on how fast they contact you for a loan modification when you miss a mortgage payment...just 1! Sad to say...

[briknope]

miss 5 payments on a home thats upside down by 100k and then you really have their attention.

[Garry]

Had a foreclosure date set before I got my MHA mod trial offer. That's what it took, begged for help countless times before that and was told I didn't qualify.

[Garry]

I should also say I put 100k down when I bought my house, they would have got every penny back plus some change. They had no intent on helping me and where very fast to set a foreclosure date. Still don't know why they decided to send me a trial package, have to assume the Gov cracked down on them.

[mel239]

try 10 payments and 80,000 upside down--still fighting and no offer or trial payments.Ive only had one phone call in 5 mos-my payments under the NPV analysis Show my pymt would go from 2400 to 996 I CAN HANDLE THAT and thats even tacking on forebearance at 3.1% which Im hoping they forgive Some of that! Now--why cant I get that? Its not rocket science

[thill23]

What it really comes down to is "intent" - you will see this word highlighted throughout my post. If your "intent" is to buy a new home and then bail on your existing home, then this could be considered fraud - clearly, the lender would not have originated the loan had they of known this was your intent. I can guarantee that they will ask what your "intent" for your current property is before granting a new loan. If you state that you intend to walk away, they will not grant a new loan.

Your "intent" should be to attempt to rent the house. Common sense - if you can rent the house and recoup your mortgage each month it's a no brainer, right? Buy your new house...list your current one for rent. If after a reasonable amount of time, you are unable to get a renter at a reasonable rental rate, contact your bank - explain the situation - see if they will work with you. Perhaps they will adjust the interest rate, reduce the principal, etc.. If not, hey, at least you tried - and clearly, your "intent" was to rent your current residence - not bail. If you have to walk away and default on your mortgage, this is not fraud - defaulting on a loan in America is not fraud. Don't destroy your credit unless it's absolutely necessary...you would be surprised - there are renters out there - loans are more difficult to get now. Even if you can recoup the majority of your mortgage payment, it's still not a bad deal to rent...and hopefully, over time, home prices will recover, and you can at least reach a point where you can sell and reach that break even point. And hey...again, as a worse case scenario, you can walk away - and this isn't fraud.

I see a lot of people here posting FBI logos, etc... save it for the banks that caused this mess. If anyone deserves to go to jail, it's the bank executives that created this crisis to begin with! People in trouble now aren't people who made bad choices and bought more than they could afford - many people in trouble now made good choices and are simply stuck because their houses have lost 30 - 50% of their value, thanks to the greedy banks that originated loans that never should have been! And these same executives didn't lose their jobs...they didn't go to jail...the continue to thrive, stealing our tax dollars and continue to make headlines as they allocate those tax dollars for "well deserved" bonuses for a job well done. So, save the scary logo - post it on B of A's web site, or perhaps AIG's...

[faith]

[QUOTE=thill23;115071]What it really comes down to is "intent" - you will see this word highlighted throughout my post. If your "intent" is to buy a new home and then bail on your existing home, then this could be considered fraud - clearly, the lender would not have originated the loan had they of known this was your intent. I can guarantee that they will ask what your "intent" for your current property is before granting a new loan. If you state that you intend to walk away, they will not grant a new loan.

Your "intent" should be to attempt to rent the house. Common sense - if you can rent the house and recoup your mortgage each month it's a no brainer, right? Buy your new house...list your current one for rent. If after a reasonable amount of time, you are unable to get a renter at a reasonable rental rate, contact your bank - explain the situation - see if they will work with you. Perhaps they will adjust the interest rate, reduce the principal, etc.. If not, hey, at least you tried - and clearly, your "intent" was to rent your current residence - not bail. If you have to walk away and default on your mortgage, this is not fraud - defaulting on a loan in America is not fraud. Don't destroy your credit unless it's absolutely necessary...you would be surprised - there are renters out there - loans are more difficult to get now. Even if you can recoup the majority of your mortgage payment, it's still not a bad deal to rent...and hopefully, over time, home prices will recover, and you can at least reach a point where you can sell and reach that break even point. And hey...again, as a worse case scenario, you can walk away - and this isn't fraud.

I see a lot of people here posting FBI logos, etc... save it for the banks that caused this mess. If anyone deserves to go to jail, it's the bank executives that created this crisis to begin with! People in trouble now aren't people who made bad choices and bought more than they could afford - many people in trouble now made good choices and are simply stuck because their houses have lost 30 - 50% of their value, thanks to the greedy banks that originated loans that never should have been! And these same executives didn't lose their jobs...they didn't go to jail...the continue to thrive, stealing our tax dollars and continue to make headlines as they allocate those tax dollars for "well deserved" bonuses for a job well done. So, save the scary logo - post it on B of A's web site, or perhaps AIG's...[/QUOTE]

Thill23,
But there's nothing wrong of Moe and I and others giving information and the truth about Buy and Bail, the more information we give, the more information we received and get is better so we can all fight a good fight. Sometimes when question is ask we want to cover every sides so we can all arm ourselves of knowledge and information ready to face the battle. Bor this battle has just begun...........

Thanks and thank you for heartfelt opnion.

God bless and take care..

[cwb124]

I have sort of a related question. What if you have 0 late payments and want to short sale the house because you are so far under water it isn't worth it. Right now I could qualify for an FHA no problem (If I didn't have my house). So let's say I begin the short sale process and also find a good deal on another house. During my pre-approval stage do I have to disclose that I have my current house under short sale? If not, what if I were to close on both properties within a couple days of one another? Would at some point during that closing would I have to disclose that I did a short sale? It would certainly not be on my credit at that point. Thoughts?

[faith]

[QUOTE=cwb124;120512]I have sort of a related question. What if you have 0 late payments and want to short sale the house because you are so far under water it isn't worth it. Right now I could qualify for an FHA no problem (If I didn't have my house). So let's say I begin the short sale process and also find a good deal on another house. During my pre-approval stage do I have to disclose that I have my current house under short sale? If not, what if I were to close on both properties within a couple days of one another? Would at some point during that closing would I have to disclose that I did a short sale? It would certainly not be on my credit at that point. Thoughts?[/QUOTE]

CWB124,
The lenders now are very strict in approving home loans. They have new application and ask you a lot of questions about your finances, your spouse, your work and income, assets, etc. They can easily access your credit thru Experian, Equifax and TRW and find out that you have existing loan and if it shows paid or not or how much you owed to that house and other debts.

In the cases of those who have 2 homes and they say that they are renting the other home, the lender requires rent receipt, letter from the renters and other documents to prove that you are renting this house. Freddie Mac and Fannie Maie made their own new guideliness on approving prospective new home buyers. For Short Sale you have to wait 2 years, for foreclosure 7 years, they also require 20% or more on down payment and income guidelines.. So if you do not disclose that you have pending Short Sale, they will find it out one way or another thru credit bureaus etc. And is still consider Buy and Bail.

As far as Short Sale, you have to list your home with a real estate agent for at least 60-90 days, you must be behind at least 60-90 days and have a buyer that already made an offer, without a buyer no Short Sale, you also must be in financial hardship, and I am sorry to say that your house being underwater may not qualify. But you have to ask your lender and ask them their procedures and guidelines about Short Sale. If you tell them you can no longer afford to make payments due to adjusting interest or high payments, loss of overtime income etc, they might consider it. Or you may ask them to accept a Deed in Lieu but the affect on your credit is just like foreclosure, so Short Sale is the best option.

God bless and take care.

[cwb124]

How will they find it out through the credit bureaus if it takes at least 30 days to show up on the credit report and we close on the new house within that period?

Will the lender look at my credit, see that I owe X amount on my mortgage and investigate how much it is worth to see if I am indeed short selling it?

I guess my question is, during the process of applying for an FHA loan, will there be a line somewhere in the application asking me whether or not my current home is under short sale? Also, if I show my new lender that I am closing on my existing home on a certain date, will they schedule the closing very soon after that so I can get into a house? Will they ask me at this point if the house was sold under short sale?

[faith]

[QUOTE=cwb124;120528]How will they find it out through the credit bureaus if it takes at least 30 days to show up on the credit report and we close on the new house within that period?

Will the lender look at my credit, see that I owe X amount on my mortgage and investigate how much it is worth to see if I am indeed short selling it?

I guess my question is, during the process of applying for an FHA loan, will there be a line somewhere in the application asking me whether or not my current home is under short sale? Also, if I show my new lender that I am closing on my existing home on a certain date, will they schedule the closing very soon after that so I can get into a house? Will they ask me at this point if the house was sold under short sale?[/QUOTE]

CWB124,
Falsified loan documents and deliberately lied on loan application is a mortgage fraud. Mortgage fraud happens when a borrower withholds information - or falsifies information -- either of which would cause the new lender to reject the loan if the lender knew about it.

It's also considered fraud to lie on a loan application and produce false documents to the lender. The FBI defines mortgage fraud as "any material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan."

Fannie Mae has new guidelines for converting a principal residence to a second home or investment property.

Buy and Bail!
•If a customer is purchasing a new home prior to selling their existing home they must qualify with both payments (PITI (principal, interest, taxes and insurance). If the equity is less than 30% (market value less than amount owed) 6 months reserves are required. If equity position is 30% or greater 2 months reserves are required.

•If a customer is renting out their existing residence the borrower must also qualify with both payments. Rental income can only be used if the equity position is equal to or greater than 30%. Note only 75% of the rental income can be used, even then, for qualifying purposes. An executed 12 months lease and proof that a security deposit in the customers' account is required.

•If a client's pending sale for the existing home blows up before the closing of their new purchase, or will not occur prior to the new home closing the rules are a little different but similar to the first explanation. The payments for the existing home are not required for qualifying purposes if reserves can be documented along with a copy of an executed sales contract and confirmation of all financing contingencies are provided.

As far as your credit, yes the lender will check everything to make sure you don’t have other debts and can make payments. . For an example, after I short sold my home in July of 2008, we have decided to buy a new car this August of 2009. The lender told us that they checked Experian and still we owed the 2nd mortgage. I told them that the 2nd mortgage was forgiven but they need a proof stating that this loan was forgiven and we were no longer responsible for it. Good thing I brought a copy of Equifax and TRW credit report stating that the 2nd mortgage was paid settled less than full balance and it showed zero balance. and so they have approved our loan.
..
. Of course, many individuals still can qualify for that second loan because of a strong credit and ability to pay the 1st property and the 2nd property both at the same.

Here's the link for Short Sale
http://www.loansafe.org/forum/short-sale-outpost/


Thanks and God bless.

[flagirl4444]

Then what happens a year from now when your new house value has depreciated to less than you owe? Are you going to bail on that one too?

Fortunately, buy and bail doesn't work. You have to qualify with income to support both the current mortgage payment and the new one. In order to use a sales contract on the current home to qualify for a new one, the house must have at least 30% equity. Obviously yours doesn't.

[faith]

CB124,

I wish we can give you the best solution to your situation. Please forgive us if we have not given you the information that you are looking for and not sensitive to your case. The information we have given you about buy and bail is something to ponder. But you need to think of you and not what we all have said. I know it's easy to say things that you need to do this or that because we are not wearing your Shoes. This is a very dificult situation for you and I can feel your worry and pain. Obviously the decision is yours to make and you have to do what you think is best for you and family. Can I at least offer this song to you?

There is no problem too big
God cannot solve it
There is no mountain too tall
God cannot move it

There is no storm too dark
God cannot calm it
There is no sorrow to deep
He cannot soothe it

If he carried the weight of the world upon his shoulders
I know my friend that He will carry you
If he carried the weight of the world upon his shoulders
I know LOANSAFE MEMBERS that He will carry you all

He said, Come on to me all who are weary
And I will give you all rest
You can rest my friends
For He will carry all your weight.

God bless you all and take care.

[cwb124]

[QUOTE=flagirl4444;121096]Then what happens a year from now when your new house value has depreciated to less than you owe? Are you going to bail on that one too?

Fortunately, buy and bail doesn't work. You have to qualify with income to support both the current mortgage payment and the new one. In order to use a sales contract on the current home to qualify for a new one, the house must have at least 30% equity. Obviously yours doesn't.[/QUOTE]
I don't really consider this a buy and bail. I am selling my house off before I get into a new one. There is more to it than being upside down. My neighborhood has quickly gone down hill, filled with renters who don't take care of anything and a few houses around with known drug dealers in them. With a newborn, I am not excited about that.