ABCNews says that more and more people who are facing foreclosure are just buying cheaper homes and then just walking away from their original mortgage. It only works for people who can afford the down payment on a new home and carry both mortgages until they're in the new home, but for some people whose payments are about to balloon, it's the most attractive option out there right now.
From ABCNews:
Eble owes $334,000 on his first house, which is now worth only $219,000 and is still dropping in value. He has an adjustable rate mortgage that has doubled to more than $4,000 a month, more than Eble can afford to pay.
So before the bank forecloses on his first house he is taking advantage of falling real estate prices to buy a new home for $285,000, with a fixed rate mortgage he can afford. Once inside the new home, he can either sell the first property for a huge loss to the bank or walk away completely and let it slip into foreclosure.
This exit strategy only helps homeowners who can afford the down payment on the second home as well as carry both mortgages until they are in their new home.
Like Jim Eble, homeowner Kim Hinske just bought a new home — for $280,000 — as a way to get out of an expensive mortgage.
"Yes, it's a scary thing, but I know that my family's taken care of 'cause we have another house, a bigger house and a mortgage that's less," Hinske said.
ABCNews says that the practice is prompting lenders to improse more strict guidelines for approving a second mortgage. A spokesperson from RealtyTrac, the firm that compiles foreclosure statistics, says that the trend is caused by desperation on the part of both borrowers and lenders.
"Desperate people do desperate things and again, we're at a point now where the relationships between the borrowers and lenders really seem to have devolved into a survival of the fittest mode," said Rich Sharga, a spokesman for RealtyTrac, an online marketplace for homes in foreclosure.
In Foreclosure? Buy a Second Home [ABCNews]
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