Buying a house while walking away from another

[cypher1]

I keep hearing stories from friends of friends about someone they know who walked away from their home, to buy another house within that window. I know I'm missing something for details of purchasing, but how is that possible if you're underwater on your mortgage, and somehow able to purchase another? Is this common? I'm not referring to myself, but just curious how it works. I also realize there is a difference between a short sale, and "walking away" from your home, thus having various negative ramifications on your credit down the road.

[Joan.of.the.Arch]

Maybe they are keeping up on their mortgage until after they seek financing for the other house and make the purchase. Then they ignore the mortgage on the first one.

[tripods68]

I have known several coworkers, friends, and relative that have done this....

[disneysteve]

Maybe they are keeping up on their mortgage until after they seek financing for the other house and make the purchase. Then they ignore the mortgage on the first one.

Exactly. Get the new mortgage before you trash your credit by defaulting on your existing loan. Sneaky, immoral and ought to be illegal, but it can be done.

[MonkeyMama]

I am not clear on how this works either. If you already can't afford your first mortgage, how in the heck do you get approved for a second one, with stricter lender standards at current?

We had to jump through a few hoops to own two houses when lending practices were very loose. So, I just don't get it. Everyone I know who has lost a home to foreclosure (many) could in no way shape or form qualify for a new mortgage, before they defaulted. They are mostly moving in with family members or renting. (I am sure they found applied for rentals before they defaulted.)

[cypher1]

Maybe they are keeping up on their mortgage until after they seek financing for the other house and make the purchase. Then they ignore the mortgage on the first one.

That must be it. Of course I'm not going to ask them directly, it just baffled me. Earlier I was wondering if that process of deed in lieu of foreclosure was related. But after reading up on it, I knew I was missing something. I also agree it ought to be illegal. But even if they or someone does that, gets their new home, but defaults on their previous loan, couldn't the bank still go after them? I suppose that may vary also by state.

[cypher1]

I am not clear on how this works either. If you already can't afford your first mortgage, how in the heck do you get approved for a second one, with stricter lender standards at current?

That pretty much sums up what I've been thinking.

[disneysteve]

I am not clear on how this works either. If you already can't afford your first mortgage, how in the heck do you get approved for a second one, with stricter lender standards at current?

Many people who are defaulting on their loans and "walking away" CAN afford the payments but have just decided to stop paying because the value of the home has fallen. They apparently feel that since the home is no longer worth what they paid for it, they shouldn't have to continue paying.

[tripods68]

As I understand it. They secure another home, while continue to pay for the 1st home(to void negative credit). Once they close 'escrow' the 2nd, then they stop paying mortgage on the 1st.

The new loan req won't allow you to do this now. Now you must qualify based on two mortgages while keeping below 36% debt-to-income ratio.

[Snodog]

Get the loan and buy the 2nd home first then walk away. Or else they just pay cash for the 2nd home.

[MonkeyMama]

The new loan req won't allow you to do this now. Now you must qualify based on two mortgages while keeping below 36% debt-to-income ratio.

Exactly. So, you are saying this was done before lending standards tightened?

I don't know hardly anyone who can afford their first home in the first place - just my skew from the area I live in. So I really don't know anyone underwater who could qualify for two mortgages. (I know no one in a position to pay cash for a home!) So we are talking about much more well off people strategically defaulting, then.

[littleroc02us]

Like my drill instructor always said in the Marines, "There will always be that 10% that causes most of trouble".

[Snodog]

I know no one in a position to pay cash for a home!

Me either! But the're out there.

So we are talking about much more well off people strategically defaulting, then...

Exactly.

[Hector]

How does defaulting work?

I buy second house and defaults to first one. Which means, I have money in the bank. Wouldn't first mortgage company try to get money from me?