I had an interesting call yesterday regarding a situation facing many people in today's real estate market. This person has been trying to sell his home for over a year with no bites. I'm sure that sounds familiar to many. Because he needs things in a home that he didn't when he purchased his present home he wants to buy something bigger. The prices are so good in some areas he can get a bigger home for less than he spent to buy the one he's in now. So he came up with a plan. Purchase the bigger home then walk away from the old one. Now, because I have know idea of his financial situation I don't know if he'll even qualify. He is current on his present home and has excellent credit but no money down (I'm assuming).
He'll present his present home as a rental and once the new home has closed escrow he'll simply let the old one go back to the bank. But can he do this and what are the ramifications?
I hate questions like this because things are not always as they are represented to you...but in California when a home is foreclosed on the bank sells and has not recourse to approach the borrower for any differences in price between what the borrower owed and what the home sold for. This situation however, is different from many and to be honest I don't know if the situation changes the rules. One thing I do know is his credit will be ruined for years. But with the current state of many peoples finances, bad credit is going to be present everywhere and may start to be viewed differently with credit scores below 600 becoming a more acceptable score . Who knows?
Personally I think this is a moral dilemma rather than a financial one. After all, he can obviously afford his current payments, he just wants a bigger house at a better price and who doesn't? But most of us won't attempt this route in order to get what we want.
3 comments:
If the loan on his present house is the original purchase money loan then the bank cannot come back to him for any deficit at a foreclosure sale. But if he refinanced, then they can. One good reason for not refinancing...
Bruce
Broker
Thanks Bruce I didn't know that thanks for the info...you learn something new every day.
It's despicable that one would contemplate such a strategy when there is no financial hardship. Is it the bank's fault that home prices went down? People can not hold this person in contempt because they think the big-bad-bank is going to eat the loss, but the reality is that all honest consumers are going to have an increase cost of borrowing when frivolous people like this default.
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