FHA Buy and Bail Rule

By
Mortgage and Lending NMLS 291249

FHA Buy and Bail Rule

Because of the recent increase in homeowners purchasing another home and claiming they will rent their existing home then allowing the existing home to go into foreclosure; a new term has emerged "Buy and Bail"

To halt Buy and Bail fraud FHA and Fannie Mae have enacted new rules.

CONVERTING AN EXISTING HOME TO A RENTAL
FHA now requires buyers who are legitimately purchasing a home and converting their existing home to a rental either qualify for both loans or have 25% equity in their present home.  Fannie Mae previously instituted their own Buy and Bail rule.

EXCEPTION:
Relocations: The home-buyer is relocating with a new employer, or being transferred by the current employer to an area not within reasonable and locally recognized commuting distance.  A properly executed lease agreement (i.e., a lease signed by the homebuyer and the lessee) of at least one year's duration after the loan is closed is required.  FHA recommends that underwriters also obtain evidence of the security deposit and/or evidence the first month's rent was paid to the homeowner.

Complete FHA Buy and Bail Mortgagee Letter

Click Market and Lending Updates for current rates and lending information.

Your FHA GuruBill Ladewig

800.664,SAVE (7283)

Bill@yourFhaGuru.com

 

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Rainmaker
246,143
Gena Riede
Real Estate Broker - Sacramento CA Real Estate (916) 417-2699
Riede Real Estate, Lic. 01310792

Bill, do you suppose the reason for this is due to homeowners buying another property since their property value is down and then dumping the 1st one?

September 23, 2008 10:22 PM
Rainer
122,136
Laurie Logan
South Central WI Real Estate
Prudential Community Realty, Broker Associate

Hey Bill,

Great info.  I guess that is why they call it the 'buy and bail' rule.  We seen folks try anything in this atmosphere, the powers that be need to put the breaks on a bit.

Thanks,  Laurie

September 23, 2008 10:59 PM
Rainmaker
596,619
Bill Ladewig
Experience Is Your Advantage

Gena, yes that is exactly what is happening.  Value of their present home is down, payments are difficult so another home is purchased lowering their payments while they still have good credit.  Sometimes, because values have declined, the next home is similar in size and location with a lower payment.

Once the new home has closed payments cease on the previous home and the lender must take back another another vacant shell.  Neighbors are left with a weedy, easily vandalized empty home that pushes their values further down the hill.  Our borrowers live happily ever-after with only a foreclosure against their credit for the next 10 years.  And, after all... foreclosures and bankruptcies don't carry much stigma anymore.

September 24, 2008 07:23 AM
Rainmaker
596,619
Bill Ladewig
Experience Is Your Advantage

Laurie, it looks like FHA and Fannie have figgured it out but, at the expense of litigimate transactions.  Many honest folk who wish to take advantage of declining values to build their future with rental properites are stopped cold.

September 24, 2008 07:32 AM
Rainmaker
62,904
Scott Mazza
Consumer's Title of Southern California

Hi Bill. thanks for this info. I am going to be doing a couple of breakfast meeting this morning and will mention it.

September 24, 2008 07:57 AM
Rainmaker
596,619
Bill Ladewig
Experience Is Your Advantage

Scott good luck with your breakfast meetings.  I publish a Market brief every week morning that may also help a little.  It is very brief and can be found at http://www.YourFhaGuru.com.

Bill

 

 

 

September 24, 2008 08:14 AM
Rainer
320,761
Chip Jefferson
Gibbs Realty and Auction Company

Great UW guidelines in my opinion. The practice of B&B is fraud and should be treated as such. Stuck? Im sorry but it doesn't give you the right to commit fraud.

August 08, 2009 03:03 PM
Rainer
26,373
Mike Wald
Mike Wald, Scottsdale, AZ, mortgage consultant, 480-241-2632

These rules at a minimum have been in place close to a year with almost all the lenders I deal with.

Nothing new here.

For the most part, client has to qualify making both payments, hasn't been an issue in AZ that much given the phenomenal buys that are out there.

August 08, 2009 03:05 PM
Rainmaker
713,359
Chuck Carstensen
Minnesota Real Estate Expert
RE/MAX Results

I did not know people were still doing this. I thought this was tough one to get away with now.

August 08, 2009 03:08 PM
Rainmaker
44,736
Diane & Bob Arenholz
Covering all of Westchester County, NY
William RAVEIS Realty

Great info!  Very informative

August 08, 2009 03:08 PM
Rainmaker
596,619
Bill Ladewig
Experience Is Your Advantage

Mike: you are correct, should have removed "NEW" when I updated one of my old blogs.

Chuck: They are still trying and it is almost impossible to get away with Buy and Bail fraud but yesterday I received another inquiry so I thought I would update this earlier blog.

Thanks Diane & Bob

August 08, 2009 03:16 PM
Ambassador
1,471,093
Renée Burrows
Las Vegas Real Estate Broker - www.urLVhome.com
Savvy Home Strategies Realty, LLC-REALTOR®-Estate-Probate

Bill:  I am STILL amazed when someone talks to me about buy and bail like they came up with it in their own little mind just recently.  I always let them know it is fraud and there has been safeguards in place for a while now!  Great re-post and reminder for all.

August 08, 2009 04:01 PM
Rainmaker
596,619
Bill Ladewig
Experience Is Your Advantage

Renee, there is no fraud anyone can conjure that has not been tried.. but they keep on trying so it leaves it up to us to just say NO.

August 08, 2009 04:08 PM
Rainmaker
122,067
Jim Valentine
RE/MAX Realty Affiliates

The temptation was great even for decent folks.  This makes it more difficult to buy an investment property, but does keep things on the up and up.  Nice post.

August 09, 2009 09:10 AM
Rainer
4,887
Tom Caulfield
First Financial Lending Corp.

Bill - Great info, if you have a few hours call me.  Come to Detroit, we live in this.

August 11, 2009 02:13 PM
Anonymous #16
Anonymous
Hugh Wolf

In a enviroment such that we find ourselves. The banks have rules that are only for their interest. They created this enviorment. They have recieved a bailout that they are now profiting from. As they hold the american public hostage at there will. There are ligitimate people wanting to capitalize on this market share right now and this just keeps the banks competition out! Wake up people! Thsi rule is for the banks protection. Not your financial security. You have a country in a defictit larger than ever before, trying to tell you how to manage your assets. Why dont read up on Mr.Andrew Cuomo and Mr Angelo Mozilo. All this talk about ethics! I sure you all think HVCC is a good rule too?

 

Hugh

August 31, 2009 08:08 AM
Rainmaker
596,619
Bill Ladewig
Experience Is Your Advantage

Hugh, I totally agree that Cuomo and Mozilo are severely ethics challenged and HVCC is poor rule that should be overturned however the Buy and Bail rule is a good one.  Buy and Bail is fraud and fraud must never be condoned.

August 31, 2009 08:17 AM
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Rainmaker
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Bill Ladewig

Experience Is Your Advantage
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