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Buy and Bail – We should be seeing a stop to this greedy practice in Macomb County MI

November 29th, 2008 · 2 Comments · macomb county MI, macomb county mi real estate market, mortgages in michigan

A phenomena that those in the real estate industry
have witnessed for the past 2 years or so has been
brought to a halt.  Finally. It’s what I (and others)
termed “Buy and Bail”. In Macomb County some
of what I saw and heard of was nothing but greed.
Sure, home sellers tried to justify it with many
different reasons but the concept and results were
still the same:

It hurt whole neighborhoods and people living in those neighborhoods.

What is was Buy and Bail?   Here’s an example: Mr. Smith watched
the value of his home fall from $200,000 to $170,000.  He also realized
that his 1500 square foot ranch style home was awfully small in comparison
to those homes that he could now purchase for $200,000.  Mr. Smith
decides that his monthly mortgage payment of $1500 could be better put
to use in the now-valued $200,000 price range.  (He would have much
more home for the money).

Mr. Smith obtains a new mortgage on a new home – one now valued at
$200,000 and with much more room and more amenities than his current
home.   Once Mr. Smith is in his new home he walks away from his previous
home, and tells the bank “Tough.  Take it back.  It isn’t worth what I paid
for it.”

**Authors note: Unless I am sadly mistaken no where in the mortgage
documents or note that Mr. Smith signed at closing on his first home did
the words “I promise to pay only as long as the value increases on the
home” exist.**

How did this hurt everyone? That one voluntary (and greed based)
foreclosure hurt his entire neighborhood and the families surrounding
him.   Every home in that neighborhood was hurt by the lower than value
foreclosure sales price.  Every family found their own value on their home
lowered by Mr. Smiths greed.

It took a while, but thankfully Buy and Bail is history. Mortgage
companies have put into practice very strict rules regarding a purchase of a
2nd home while a person still has an outstanding mortgage on another home.

If you legitimately wish to purchase a 2nd home as an investment,
or are relocating to another area for personal reasons or a job
transfer you will still be able to obtain a mortgage.

Be prepared though for more thorough examining by your mortgage lender.  Be
thankful for the increased scrutiny
, it was put in place to try to stem the
rise in foreclosures and protect all of our families and neighborhoods.

~Kris Wales~  A Macomb County MI real estate agent

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2 responses so far ↓

  • 1 Lindsey // Mar 31, 2012 at 1:45 pm

    This buy and bail is not history. It still happens all of the time in Vegas. When are mortgage companies going to put the greed aside and get smart. I do not work in the industry but if I can figure it out why can’t any one else!

  • 2 Kris Wales // Apr 1, 2012 at 6:40 am

    Lindsey, here in Michigan it is still going on, but I’m hearing of it much less. Thankfully. Nevada is also a “recourse” state in which the lender can sue the note signer for the deficiency balance after foreclosure, but it appears the time frame for suing is much shorter. (The statue of limitations in Michigan is 6 years I think). People here tend to think twice about the “bailing” part as we are now starting to hear of those people being sued for the difference owed to the lender.

    Can the lenders stop all of it? No, but that can do their due diligence and make sure that a home buyer can afford both homes before they lend the money for the 2nd home purchase.

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