Your Mesa, Chandler, Gilbert  Arizona REALTOR®

Arizona Short Sales

Buying an Arizona Home

 Buy and Bail Strategic Foreclosure!

(when it makes sense)

July 2010: When is it right to Buy and Bail on your Arizona Home? Is it ever "right" to Buy and Bail. To the disagreement of many I say yes it can be right. There are times when it makes sense to Buy and Bail on your Arizona Property. The New York Times recently reported that the biggest defaulter's on mortgages are the rich. They simply see the home as an investment turned bad and walk away from it. I can understand the arguments for both sides on Buying and Bailing on your Arizona Home. For the longest time I was on the side of, "you got the loan, you are obligated to pay for it", until I had a close friend of mine in a situation with his home and mortgage.

This friend was retired Army Special Forces of 24 years of service. On top of his retirement checks he also held down a decent salary on a fulltime job. He had purchased an Arizona Home in 2005 (ouch) and his family loved the home. He was an extremely responsible consumer, excellent credit, and very big on doing the right thing. They purchased their home for $360K (conventional 80/20 30 year fixed loan) for a new 2700SqFt home on an oversized corner lot. They put many upgrades into the home (mostly their own labor) and completed the backyard of their Arizona Home with the thought of staying in the home for years and years. That was the plan until he asked me in 2009 to estimate the value of his Arizona Home. The estimated value in the early months of 2009 was around $160K. That's $200K in the hole. That meant they would live in the their Arizona Home for the remainder of their lives, probably never have the option of taking equity out of the home, and couldn't sale even if they wanted or needed to for quite some time. Even if they started seeing appreciations of 5% per year right now, it would take 25 years to break even on their $360K loan. That's just to break even.

With this news he began to do the right thing and contact his lender for help. With his lender he simply laid out the facts of his home value. They instructed him on a possible Arizona Short Sale and outlined the necessary requirements. With his income he did not qualify for a Short Sale, but he still asked for assistance. They asked for a letter of explanation for his situation (hardship) and they would review the possibility of a Loan Modification.

Fast forward a year and no progress was made on a loan modification. He followed up with his lender time after time over the course of almost a year. He continued to make responsible mortgage payments and was never late (which is more then likely why the lender seem to blow him off). At almost a year we again looked at the value of his Arizona Home. It was now worth an estimated $100K.

The best the lender could offer after almost a year (but wasn't approved) was modifying the loan terms, but not the principle. In the long run he would have actually ended up paying more for the entire loan than his original loan.

This of course was no help for his situation. At this point I advised him to speak the Arizona mortgage broker I recommend to clients. We discussed the Buy and Bail option. I advised him to get legal counsel from a Real Estate attorney and not to listen to me or the mortgage broker on taking such a step.   

So that's exactly what he did. He purchased a hour of legal counsel armed with all his mortgage paperwork and loan modification information. To summarize, the Real Estate attorney advised that since he had never taken equity out of his home and had a conventional loan he could actually Buy and Bail successfully if he could qualify.

That's when the mental struggle set in with actually going through with a Buy and Bail and walking away from his home and loan obligation. He did in fact qualify for a new loan, could buy a larger home, have a larger lot, live in a nicer area, and actually pay less per month than his current mortgage. With this financial sense in the forefront of his mind along with the legal advise, he went ahead with it and feels 100%, ok maybe 95%, confident for going through with his Buy and Bail.

He's missed a few payments on his original loan and continues to be honest with them about his situation. He doesn't qualify for a Short Sale according to the lender and they refused to work with him on a fair loan modification. His motivation was never to Buy and Bail, but given his situation and financial standing, he made a financial decision over a moral one. Or did he? Let me know your thoughts on MyBlog (link located under my photo in the left pane).