Buy-and-Bail. Some Buy a New Home to Bail on the Old

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Submitted by farbet on June 10, 2008 - 8:35pm

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 Ms. Augustine, 44 years old, 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
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http://online.wsj.com/article/SB12131481...

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It's more common than they
Submitted by golfproz on June 10, 2008 - 11:23pm.

It's more common than they want to believe. I already know 2 people who have pulled this stunt in the last year. And in the early 90's a fireman that lived 3 houses down from me did it then too.

If this article gets enough
Submitted by feraina on June 11, 2008 - 4:44am.

If this article gets enough publicity, maybe more people will attempt the practice. But I don't think that NAR's argument that such buying hurts "the average consumer" holds water. These new purchases are bringing down the comps, and moreover their old home is going back to the bank as foreclosure and which will be eventually sold for even less. So as an "average consumer" waiting on the sideline for the prices to drop to more reasonable ranges, I for one am not bothered at all by this practice, at least from a market perspective. Also, presumably owners that buy-and-bail are less likely to be bitter, and therefore less likely to cause unnecessary damage to their foreclosed homes when they leave.

This is all much better than the bank quietly writing down the loan and not allowing the local market to have the benefit of a low comp, and also better than a bitter owner leaving without a new home and intent on trashing the house.