Broker Outpost debate.is it fraud?

[Dee Dee]

Anyone seeing this type of scenario in their areas?

http://forum.brokeroutpost.com/loans/forum/2/192289.htm

I got an agreement of sale today from a realtor looking for a prequal on a shortsale , the buyer lives next door , he has a current mortgage for $800,000 on a home he purchase in 2005 with no money down , the home he has under contact is right across the street from his present home , the offer is for $500,000 and it looks like the bank will accept it

The borrower plans to buy it as a primary , once he moves in , they will stop making payments on the $800,000 loan that they have with CW
He qualifies full doc and has a 770 FICO , he figues letting his credit tank is not a big deal when he is lowering his mortgage debt by $300,000 .

I told him the new bank may deny the deal based on occupancy , tried to convince him to go NOO but he does not want the higher rate .

What do you think ? anyone had this scenario yet , I sure it will be happening more and more especially in CA and FL

 

[Restrain]

Saw it big time in the early 80's in the oil-patch and the late 80's-early 90's up here in Dallas. Nothing fraudulent about it. He can qualify, he's not hiding anything. He can't sell his other house, and knows it, so he's taking action to reduce his overhead and payments. Yes, he'll have a foreclosure on his credit. A lot of others will as well. In the late 80's around here, virtually everyone had a bankruptcy on their record. Just became a fact of lfe and the lenders all knew it. Life went on, and it will here, too.

 

[John Hassler]

Anyone seeing this type of scenario in their areas?

Yup. I posted a similar scenario here a month ago about someone in my office complex doing the same thing. While I find it morally wrong, the lenders set the stage for this type of action by making/pushing high LTV loans and thus limiting the downside to the borrower of a ding on their credit (using the judicial foreclosure process which is slow & costly to get a deficiency judgment is very rare in CA).

 

[Couch Potato]

Yup. I posted a similiar scenerio here a month ago about someone in my office complex doing the same thing. While I find it morally wrong, the lenders set the stage for this type of action by making/pushing high LTV loans and thus limiting the downside to the borrower of a ding on their credit (using the judicial foreclosure process which is slow & costly to get a deciciency judgement is very rare in CA).

It's been more than 10 years since I lived in CA, but I know the laws there used to not allow a deficiency judgment when only a first mortgage existed. A home owner could drop off the keys and that was the end of it, except for the foreclosure on the credit record.

As long as the guy is honest about his intentions and stays within the law, it's his choice to make. What he might should try first is to talk to his current mortgage company. Seems like they would be better off working a friendly foreclosure where the guy stays in the house he is in now, but his loan is reduced by $300k. If enough people were to start house hoping and allowing foreclosures, you know the banks would introduce just such a program to cut their losses.

 

[Lloyd Bonafide]

If I understand this right, someone bought a house several years ago for $800,000, with a 100% loan, and the house is now worth $500,000, (and probably dropping). If it is a non-recourse loan, then the owner can walk away from the property, and the lender can not come after them for the difference, and can't give them a 1099 for their loss.

I think we are going to see situations like this happen with more frequency. In this case, I think most rational people would walk away, whether they buy the house across the street, or rent a house across town. Maybe the owner of the house across the street can buy their house next year for $500,000, after it becomes an REO. It may not be morally correct, but I don't see this as fraud. The lender that made the 100% loan took all of the risk - the homeowner had none of their money at risk. If they can buy the house across the street for $500,000 before their credit goes bad, why not do it? They will be $300,000 ahead.

If they did not have a 100% purchase loan, let's say they did a cash-out refi several years ago, the lender will come after them for the loss.

If they are trying to get a new owner-occupied loan on the 500K purchase, what will they tell the new lender when the lender asks them what they are doing with their existing house? Would any lender give them a new loan if they told them they are going to walk away from the first house? Maybe they will tell the new lender that they are going to use the first house as a rental. Then they could put a renter in the house, stop making payments, and let the lender foreclose in 6 months.

I'm not saying that this is right, but I think it will happen a lot in the next several years.

 

[Terrel L. Shields]

It may not be morally correct, but I don't see this as fraud. The lender that made the 100% loan took all of the risk - the homeowner had none of their money at risk.

20 YEARS ago Dr. Graaskamp described high LTV loans as the equivalent of hedges (true hedge straddles, not these so called "Hedge" funds) In other words, what you invest (downpayment, closing costs, payments, etc.) is all you risk. If the market rises, you sell and take the profit. If the market falls, you let the lender suck it up..A true straddle.

The lenders can blame themselves for making this so tempting.

 

[John Hassler]

It's been more than 10 years since I lived in CA, but I know the laws there used to not allow a deficiency judgment when only a first mortgage existed. A home owner could drop off the keys and that was the end of it, except for the foreclosure on the credit record.

I should have paid more attention to the OP in my first response. Your on the right path here. In CA the lender of purchase money financing (1st, 2nd, 3rd, etc.) can not pursue a judicial foreclosure which is the only way to obtain a deficiency judgment. This limitation is only applicable to the purchase money lender(s). In theory, a non-purchase money junior lien holder could bring the senior debt current and start a judicial foreclosure to pursue a deficiency judgment for the aggregate amount. In reality you almost never see this happen as is rarely economically feasible.

 

[murray stroupe]

Re ; Countrywide Financial loan

It's been more than 10 years since I lived in CA, but I know the laws there used to not allow a deficiency judgment when only a first mortgage existed. A home owner could drop off the keys and that was the end of it, except for the foreclosure on the credit record.

As long as the guy is honest about his intentions and stays within the law, it's his choice to make. What he might should try first is to talk to his current mortgage company. Seems like they would be better off working a friendly foreclosure where the guy stays in the house he is in now, but his loan is reduced by $300k. If enough people were to start house hoping and allowing foreclosures, you know the banks would introduce just such a program to cut their losses.

===============
Agree;
try to work with CFC

May be able to rework something;
& CFC is still running a combo loan, if ads are correct.

Working with them could save moving next door expense, moving hassle......

 

[Lloyd Bonafide]

If the homeowner has good credit, and is current on his payment, I don't think Countrywide is going to help him in any way, just because the value of his home has dropped by $300,000.