Scary New Strategy

The first time I heard about this strategy I thought surely this must be an anomaly.  Nobody would intentionally set out with such a plan, surely it must be criminal or at the very least fraudulent.

Then after pondering the pros and cons, the different ways a person could actually pull it off and the resultant ramifications, I thought:  Why not? 

Let’s use Harry Homeowner to illustrate the strategy. 

Suppose Harry Homeowner, after diligently keeping up with the news, his neighbors, his friendly Realtor, etc., realizes that he too is upside down in his house.  Like millions of other Americans, he owes more in mortgage debt than his house is worth.  As he tries to calculate how long he would have to keep pouring money (mortgage payments) into this property he  realizes that his home is no longer an asset and that there is no relief – he will lose thousands & thousands of dollars by hanging onto this house.

So Harry decides to go house hunting.  Given the market, he has many houses to choose from many at significant discounts.  Harry finds a home that suits the needs of him and his family and enters into a purchase agreement.  Since Harry has been faithful to his current mortgage payments, his credit is good, and with his stable income, Harry is approved for a mortgage for his new home.

After Harry moves in his new home, he stops making payments on his old house.  He hires a Realtor to put his old home on the market, since it is upside down it becomes a short sale candidate.   Someone else will come along, like Harry’s old house, and buy it at a discount.

Harry will recover from the damage to his credit report in a relatively short time as his new mortgage and other debts are paid on time.  

The End (kinda).

I’m neither endorsing nor encouraging this strategy.   But I do see homeowners finding solutions on their own when lenders are turning a deaf ear to their plight.  I see homeowners willing to take the risk and live with bad credit rather than continue to spend good money on a losing property. 

What’s next?

 

Tags: Behind in Payments, Foreclosure, short sale