M sent me this link with with subject line, "A new low for Realtors". I’ve got to agree. This post Tips for buying another home before yours goes into foreclosure was written by Kathy Neilson. Neilson describes herself like this on her blog:
A real estate professional skipping along on the rosey [sic] streets of real estate city, humming a sweet tune and enjoying the sunny Southern California weather.
Here’s what she says it takes to pull this off:
If you are considering purchasing another home then letting your present home go into foreclosure here are some tips that will save you trouble later down the line as well as help the transaction run smoothly.
1. You need an excellent lender who can structure your new loan properly; after all there will be questions by the new lender.
2. You need an excellent real estate agent (like me) who knows how to structure this deal. Your real estate agent also needs to know how to find the right home. This may seem strange but not all homes will help the transaction and some actually will hurt your chances of qualifying.
3. There are no longer 100% loans so you will need a down payment. If you don’t have a down payment there are other alternatives but again your agent must be aware of these other options and how to implement them.
4. Once your real estate agent has located a likely home you’ll have to qualify for a new mortgage, so you can’t have any mortgage lates and you’ll have to have sufficient income to qualify for your existing mortgage and the new one. This is where a savvy lender is most important.
[I believe this agent and I have different definitions of "excellent" and "savvy".]
Neilson is obviously directing her pitch to borrowers without late payments, who can qualify for two mortgages, and who have money in the bank. Why should borrowers like that walk away from their mortgages?
Neilson describes the downside to this plan:
You will have a bunch of late payments and a foreclosure that will take your credit from the 700s to the 400s within a few months but consider this…you have a home and a new mortgage. If you have any credit cards or car payments these regular and on time payments will help you recover your credit score much more quickly. The new mortgage will have the biggest impact on your credit though. By making your new mortgage payments on time you are raising your credit scores monthly and if you don’t plan on using new credit for a few years then your credit score should have little to no affect of your life.
Now this all may sound too good to be true….
No it doesn’t sound "good" to me at all. Neilson might be skipping and humming, but her advice makes me want to go reach for the Pepto Bismol.
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It is sickening that RA will stoop this low to sell a house. I use to think car salesman were the slimiest, but now I think RA have far surpassed them.
The industry calls this “intentional foreclosure.”
You scoop up an REO deal – better and cheaper than your own, and while your credit is still good – and then let your old, underwater home slide into foreclosure and become the lender’s problem.
It’s all the rage in Sacramento.
http://tinyurl.com/2wdgxk
Of course, she fails to mention that many jobs will run credit checks as a part of the background check nowadays. How do we think a potential employer would perceive an “intentional foreclosure”?
Methinks not good – this seems even worse than simply being unable to pay. Someone who does not feel morally bound to honor their agreements may not be the employee of choice for any job where they are exposed to confidential information, etc… or any job where they are not watched 24×7 for that matter… I guess maybe sales, where you may actually WANT borderline personalities…
And another thought: See http://en.wikipedia.org/wiki/Tortious_interference
Deliberately inducing another person to breach a contract is an actionable tort, and I wonder if what the agent is doing here could get her successfully sued by the original lender. Heck, why is any lender willing to do business with this person? If I saw this agent on a deal, knowing this practice, I would decline to do the app – she is bad for business and could involve everyone in litigation.
Jim-
I had wondered about that. While Jim Cramer encouraged buyers to “Walk away”, at least he’s not providing a “how to” service.
Igor says “immoral”.
Given the mindset of people who bought these overpriced houses to begin with, I can see the logic making sense. You’re talking about people who don’t understand money – it was easy to get no matter what I did, why would that change now?
You look at your house and see your neighbor selling the same model for $200,000 less than you bought yours for. You obviously can’t sell yours, but why not buy his and just foreclose on the one you’ve got? Your monthly payments are lower and you’re out nothing. What’s a credit score used for, it hasn’t even been mentioned for years..
And I do have to wonder – what happens if we end up with, say, 30% of the population with ruined credit? Would you just be viewed as one of those poor fools who got taking in by the real estate collapse, rather than someone who can’t be trusted with a loan? Would a low credit score actually affect you?
Well, as an employer, I would probably prefer to hire people who are smart enough not to have been “taken,” (AKA, people who got greedy and stupid), but I may be in the minority here…
I have a feeling this REALTOR won’t get many takers on this scheme. According to a knowledgeable friend of mine, it would only work for a person whose credit is squeaky clean, and who has a down payment in hand and can qualify for a mortgage on a second home. Now how many of those type folks are going to want to walk away from their first home and mortgage?
“The Lender may have questions”
Yeah, starting with “How did you get past security?”
I just bought a house (a small one in Durham, NC for a lowball price), so I’m remembering a little asset disclosure form that asks if YOU OWN ANY OTHER HOMES…what lender is going to approve you when you disclose your other house?
Ummm, none?
and the last bullet would be…
5. List this new home as another primary residence to ensure lower rates. After all, it’ll only be a lie for a few months…
I have a feeling this REALTOR won’t get many takers on this scheme.
I agree, but only because people won’t meet #3, ability to put money down on the new house.
The same people who are “walking away” from their high dollar homes, are also walking away from their high dollar car loans. It never ceases to amaze me that people who paid too much for their house, then took out that big HELOC, and spent it all on high dollar cars and crap they really didn’t need, are getting into a newer less expensive house and a less expensive new car before they default and literally laughing about it. What scum…
Too true Speedy, and even those who committed blatant mortgage fraud and are now walking away with hundreds of thousands of dollars in stolen cash will not be prosecuted. Instead, our tax dollars will go to bail out the banks, funding the lifestyles of the now rich and felonious.
This makes those of us who have been honest and paid our bills and taxes over the past years, suckers – straight up rubes. The U.S. government officially supports and chooses to benefit the fraudsters over those of us who paid our bills, saved, and lived responsibly.
To anyone who ever says again that anyone should pay their “fair share” of taxes, I say, screw you, the government’s official policy is to take from me to give to people who are criminals. The “fair share” is now zero.
Here’s how they will do it:
Keep up with your payments while you find a house.
Go to a new home builder. Talk them into covering all the costs – because they need to sell these things so badly that they will do anyhing to move a home.
Work with them to have the Nehemia Program provide the down payment (read: you don’t need any money in the bank) for the 3% FHA requires.
Tell the lender that you plan to rent your home out. You can impute 75% of the market rent for the home against the monthly mortgage amount.
Qualify for the new loan with a 5/1 Option ARM and do it all again in 7 years when your foreclosure is gone from your credit history.
this makes me sick!
Looks like to me most of you don’t get it. The banks, Mortgage co, Credit card co.Loan co, federal and state taxes, don’t give a crap about us. They have been ripping us off for years, When they do business right they make tons of money, when they don’t do business right they make tons of money, they get cought and go upside down. So our taxes bells them out, they now even make more money do they help us, nooooo they screw us even more, rase credit card rates. Like me excellent credit, no lates, house is upside down, I have money will they help me with my house? Noooo. If I can buy another house before I’m foreclosed on, you bet I am. The whole of the real estate market is out to get every dime they can. I need to be bailed out for once in my life, I have done every thing right. You think they care, if you do then you have lost it. Get real its time to fight back. If the government just stayed out of it, let the car cos., the banks, and the mortgage co fall on there —– the middle and low income could provel for once and possibly get ahead. Most of you need to think and look at the whole picture. I know can’t spell or type. Wake up.