Buy a new cheaper house, Forclose or Short sale the old house....?

Question

I know a lot of people who does this... I want to know what will be the consequences aside from the 1099C at the end of the year and a bad credit for 7 years.

1. They choose a new cheaper house. They get approved for 30 years fixed.

2. On the same month, they will get the car that they really like so they won't need their credit for the next 7 years.

3. They will let go (forclose or short sale) of their existing old expensive house.

4. Given: They have enough income to pay the old expensive house but choose to stay in a cheaper house. But it would be more convenient for them if they pay cheaper mortgage.

What will happen?

They won't be able to afford paying for both houses. They are getting the new house so that they won't have to pay for the old expensive one. If they do a short sale after purchasing the new house, life would still be good, right?

Would it be easy for them to ask the lender to agree for a short sale after they bought a new cheaper house?

FYI, They can't sell the current home at the same price they bought it due to the market condition. The house value is low right now.

Answer 1

No, no no no no no! If they have enough income to pay the mortgage on the more expensive home they should SELL the more expensive home and THEN buy the cheaper home. There's no good reason to allow your home to go into foreclosure if you are able to make the payments, that will just destroy your credit for no reason. First put the current home on the market and then buy a cheaper one once the first one goes into escrow, and coordinate the closing dates so you don't have to find somewhere else to live inbetween.

Answer 2

yes i have seen this done, but remember its a long 7 years and lives do change, jobs change, auto are in accidents and break down. so why would someone do this to themselves. nothing will happen other than it will show for a long time on your credit report if you dont do bankruptcy, and lenders even after 7 years will still think twice about offering you the best rates be it for a mortgage or a new car. insurance on homes and cars will be at a premium because the insurance companies have access to this information and will classify u as a high risk, think twice before taking this course of action especially if you can afford to make the payments on the first house. If i were u i would sell it if at all possible, lease purchase it or some other scenario before letting the bank take it in foreclosure

Answer 3

The problem lies here. You must have sufficient income and credit to qualify for a NEW mortgage while still holding the existing one. Do remember that any lender expects that you will keep BOTH properties, so they want you to be able to pay for both. And, of course, when they get that new car or cars, the lenders will look at them holding TWO mortgages and wonder if they can afford ANY car at all.

Now, if they have passed THOSE hurdles, they can allow the foreclosure and expect the lender to take a look at their financial situation. If they have sufficient income and assets to handle all of the above, the lender will probably sue for the deficiency amount, since they stand a good chance of getting it.

After ALL that, their credit is still ruined for seven or more years.

Answer 4

Not good. It is as much a scam as any other way to try to get more for less and be irresponsible. 7 years of not needing credit is the clue here. . . that means your credit is damaged. It doesn't reset to to "excellent" at the end of the 7 years. . ..it takes you proving you are responsible to show slow and gradual increase in score. Excellent is what you are shooting for, and you don't get that with scams, but with responsible diligent deals.