Buy-And-Bail: A Dangerous Risk To Take
The way it works is you look for a house just like yours in the same neighborhood that is up for sale. Even if you step up a little bit you can get a bigger house for less than your current payments. Go through the home buying process just as you normally would, but don’t put your current house up for sale. When you are approved for your new mortgage, move into your new home and let the old home go to the bank. Sure, you’ll have a foreclosure on your credit report for 7 years, but you’ll have your mortgage payment, in some cases, cut in half.
This news story from the Wall Street Journal will fill in more details, but know that this track is fraught with difficulties. For starters, if you land in more financial trouble any time soon you will have a difficult time explaining to potential creditors why you bailed on your mortgage. And if you end up with two foreclosed properties on your credit report within 7 years then it will really hurt.
But you could also be sued in some states. The laws in every state are different and some states allow mortgage lenders to sue home owners for their assets if they bail out on a mortgage. If you are sued, you could lose your new house.
Another risk you take is being slapped with criminal charges of mortgage fraud, which is what some lenders are calling it. This is obviously a new phenomenon, but if the laws allow lenders to pursue criminal charges for fraud in your state and you are convicted on that count then you will have more problems than a mortgage on your hands. Is that likely? Not really, but it could happen and the laws are subject to change. There may not be anything on the books today that would allow that criminal charge to stick, but what about tomorrow or next week?
Homeowners who want out of their current mortgage because of the downturn in the market should wait it out if possible. Markets that go down go back up. It’s just a matter of time. But if you have a high tolerance for risk, well, it’s your decision.
