How do people buy a home after short sale or foreclosure?
Under current regulations, most folks have to wait awhile before they can purchase another residence.
There are circumstances that will allow immediate purchase after a short sale, and I will explain those in a bit.
For the rest of the population, there is a minimum two-year waiting period. Depending upon the circumstances, it could be seven years before a new mortgage will be granted.
Yes, I know. Last week you heard some guy at Starbucks bragging about how he just bought a bigger house for $350,000, and walked away from his old home that cost him $500,000.
And there you are, asking yourself, “How did he do that?” I will venture a guess. Our scone-scarfing friend utilized a strategy commonly known as “buy and bail,”and it goes something like this.
Marty Mocha was a conscientious borrower, paying his mortgage and other debts on time. He has steady employment and could qualify for the payments on another home while supporting the payments on the house he was living in.
Realizing that his $500,000 home is only worth $300,000 in the current market, he sees no reason why he shouldn’t buy himself a nicer home for less money.
Mocha scrapes up a down payment and gets approved for a new mortgage. He gets the keys to the new house, and immediately stops making payments on the home he used to live in.
That mortgage defaults, the lender forecloses, and life goes on. Of course, Mocha’s credit score goes in the tank.
As long as he doesn’t need to apply for credit until 2018, he won’t feel much pain — since his conscience is obviously seared.
Is this OK? Of course not, and any real estate professional who suggests this behavior is ignoring the ethics required to conduct business.
To her credit, Carolyn Metzker of Lyon Real Estate took the high road when quoted in the Auburn Journal on April 18.
She said that anyone thinking of default should consider the “accountability and responsibility they had when getting in to contract. Not only to purchase the property, but they signed a promissory note with the bank to pay the loan back.”
Fortunately, the majority of real estate agents agree with Metzker, and it’s this commitment to accountability that will bring us through our present trials.
I will close with this bit of hopeful news. The Federal Housing Administration will provide a mortgage to someone immediately after a short sale if: all debts have been paid on time for the last 12 months and the lender on the previous mortgage accepts the short sale proceeds as payment in full.
Further, the new home must be of lesser value and quality than the previous short sale home.
A purchase intended to take advantage of declining market values is not permitted, and some demonstrated hardship may be required by the underwriter — job loss or job relocation, for example.
David Ryland is with Big Valley
Mortgage in Roseville. He can be reached at dryland@apmortgage.com.
