Bailing On Your Home That Is Underwater
The best way to explain bailing on your mortgage is by a case study example. Say you have a home that is underwater. Underwater in mortgage terms means that your mortgage is worth more than the value of your home. Let’s say that you do not want to keep your current home that is underwater and think of foreclosing, doing a deed in lieu, or short sale but do not want to wait three or more years to purchase a new home. So what you do is purchase a new home and tell your mortgage lender that you intend on moving to your new home purchase and rent out your existing home that is underwater. Once you close and move in to your new home, you bail on your own home and let it go into foreclosure. This is a classic example of bailing and bailing is one of the most common practices of mortgage fraud.
Justifying Bailing On Your Mortgage
Many homeowners justify bailing on their underwater mortgage because of the economy. They feel that they are victims of the real estate market and credit collapse of 2008 and realize that foreclosure and bankruptcy rates soared and their homes plummetting in value justifies them bailing on their mortgage. Extenuating circumstances such as having a loss of job, medical issues, and loss of business does justify bailing on your upside mortgage only if you can no longer afford it. However, if your home is upside down where the market value of your home is lower than your mortgage balance and you cannot sell your home since you have no equity, bailing on your current mortgage is not allowed and is considered mortgage fraud.
Refinancing And Bailing
Another common practice of bailing is when a homeowner refinances their home out of their name into the name of their spouse on a home that is underwater. The Home Affordable Refinance Program, also known as a HARP loan, is a government loan program where it enables a homeowner who owns a home that the market value is lower than the balance of their mortgage loan. This program will allow a homeowner that is underwater with their current mortgage loan refinance their mortgage loan but the homeowner will most likely be stuck with the home for many years ahead until market value goes back up. By refinancing their current mortgage loan just under one spouse’s name and not the other spouse, it will enable the spouse not on the loan to qualify for a mortgage loan if the underwater mortgaged home loan goes into foreclosure without having a waiting period. This is a classic example of bailing. Bailing is considered mortgage fraud.
By Gustan Cho