Monday, Sep 26, 2016
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Homes

Your Mortgage Questions Answered

Q. Is it an offense to buy a less expensive house and then walk away from our current one?

A. No. At least if you mean, "Is it illegal? Will they throw me in jail?"

But is it right? Or smart? Those are tougher questions.

"Buy and bail," as this practice is known, is the latest twist on the mortgage crisis.

It works something like this: Consumers with good credit find themselves upside-down on their mortgages because property values have fallen and they now owe far more than their homes are worth.

The borrower buys a second home, moves in, then stops making payments on the first home and allows it to fall into foreclosure.

Lenders consider "buy and bail" to be nothing short of mortgage fraud. It's not OK to walk away from your mortgage just because the home became a bad investment.

So should you do it?

It's wrong to default on a debt just because you don't want to repay it. You'll probably have to lie about your plans sometime during the "buy and bail" process.

Q. What problems could I face if I do this?

A. Lenders are responding with new rules that make it tougher to borrow money for a second home, especially where home prices have fallen the most.

We can't imagine any lender approving a short sale on your first home if it knows you just bought a second home.

It's difficult enough to get banks and mortgage companies to accept short sales when borrowers are in legitimate financial trouble. They aren't going to accept a loss to help a borrower "buy and bail."

A foreclosure will wreak havoc on your credit score for seven to 10 years. You'll have a difficult time qualifying for car loans and credit cards. You might be refused for a new job because some employers review credit histories when filling positions.

And you could be sued for damages. Banks and mortgage companies almost never pursue borrowers who lose their homes because they can't afford the payments. But lenders will be tougher with anyone who deliberately walks away from a loan they can afford -- and the more assets you have, the more likely they are to drag you into a lengthy and costly lawsuit.

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