In today’s uncertainhouse in a chain economy, it’s hard enough to worry about losing your home to foreclosure. But what about going to jail for trying to escape from your underwater home? There’s an escape route some homeowners are using called a “buy and bail” which allows homeowners out of their current mortgage and into a more affordable one! Sounds perfect, right? Unfortunately, it’s considered to be mortgage fraud and here are three reasons why buyers should beware.

Ready to run: A “buy and bail” is a process where a homeowner in a current mortgage buys a new home with the intention of bailing on the old home. Most are underwater in their current home and trying to obtain financing to purchase a new, less expensive property. Sometimes homebuyers falsify rental agreements to convince lenders their home is rented so they can get in another home before credit damage is done. It’s a bold attempt to escape payments on an underwater home but still ethically and legally wrong.

Lenders are cracking down: The practice of falsifying documents to obtain new housing has not gone unnoticed by lenders. And because the buy and bail scheme is happening more and more frequently, Fannie Mae and Freddie Mac, the two biggest U.S. mortgage-finance companies have upped the ante on their lending guidelines and standards to prevent mortgage fraud. In addition, if your previous lender finds out you used a false rental agreement, they can sue or have you arrested!

From homes to handcuffs: Maybe your realtor mislead you into believing home values would never drop. Or your lender didn’t clearly warn you about that adjustable interest loan, so you feel like you deserve another home. Either way, deliberate falsification of documents with intent to stop paying and lying on your loan application immediately puts you under the scope of the FBI. In fact, the FBI is currently investigating more than 50,000 cases of mortgage fraud that have lead to hundreds of arrests.

The bottom line is this: As tempting as a buy and bail may seem, avoid it or you may need to be bailed…out of jail!

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This is filed under Buying & Selling.

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