Buy and Bail
July 26th, 2008 Categories: Uncategorized
What is “BUY AND BAIL”
“Buy and Bail” is a term used to describe homeowners (usually heavily upside down) who go out and buy a new home at today’s value, then once closed, they either try and short sale their home or foreclose on it. This is happening a lot right now.
Most people are getting qualified by renting their home to reduce their debt-to-income ratio. Then they would just stop making payments, collect rent (if the rental contract was even real in the first place), and let the home go. So the tenants will be booted 6 months later and the community has one more repo on the block. Is this right? I am not here to judge…People will do what they want to do. Can I help them purchase another home if I know this? No, I can’t.
I do know that the lenders are aware of this and HUD has already made it difficult for people to do this in AZ. For example, in order for your home rental to count, your home has to have at least 30% equity…Ha, who has that in AZ that bought in the past 3 years. Or, they must qualify for both homes without the rent. Some people do make good wages and can pull this off, but not many.
Not everyone is doing this by the way. Some people are actually renting their home and trying to beat this slump and will duke it out until values come up. Good Luck on that! I recently did some math for a client in Surprise Farms. If they were to rent until the market brought them back up to their original note, they would have to rent for 9.5 years. And …And, they would be $1,000 negative cash flow at that. WOW..
Crazy days here in AZ real estate ……
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