Profile picture for cat seeker

Why not buy a house and then foreclose on my under the water condo?

We bought a condo in 2005 for 500K. Now similar condos in the building go for 270K (foreclosures and sort sales). In addition, the builder is being sued by the HOA, so all sales must be cash only. In other words, it's hopeless. To make mather even wors, we cannot even rent our condo out as the HOA doesn't allow it.

We have money. Why not buy a nice house first, then transfer the house deed to my family, then foreclose our condo?
  • April 25 2010 - San Jose
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Answers (6)

The underwriters watch out for potential 'strategic foreclosures' when approving new purchase loans.
One thing they will require is that you have to qualify for the payment for the loan (+tax/ins) on the new home as well as the payment (+HOA/tax) on the condo.

This might be tough to do?

  • April 25 2010
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That foreclosure will still haunt you and cost you more in intrest rates on insurance, car loans, credit cards, etc...for the next 7 years. So many things are using credit score. That foreclosure will take you down to the 400's pretty quick.

So many banks would rather take the hit on the loan vs getting the property back. By the time you live there for free until you have to leave, they spend atty fees, time off the market, using an agent and all the normal fees to sell, and probably sell at or below what you could sell it for right now especially if it is in decent shape....they will come out ahead to work with you. We are aware of "Short Sale Specialists" all over the country. You will want to make sure whoever you deal with KNOWS the process.

  • April 25 2010
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Profile picture for shasta_steve

Well "kornteam" is pretty typical of my agents who just want scare the hell out of you and try and make some money doing it.  Nice to know he is a "short sale specialist".  That is not going to help you much in your current situation.

Like Mark said you would have to qualify for two mortgages and you can not count any money you may get from renting out your current house.  If you can qualify it may be a great deal financially if you can live without out much credit for a couple of years. 

Now look in California there is not much they can do to you as long as you have not taken a second out on your house.  The bank basically gets the house and you get bad credit.  If you condo was never refinanced or had a second taken out then it is non recourse and all they can do is take the condo.  You just have to ask yourself how much your credit is worth.  Is it worth the 150 to 200k you are underwater and will be for years?   Is it worth paying the $1500 a month or more extra every month on the mortgage?  Can you handle living with very little credit for a few years?   Weigh the positives and negatives and treat it as a business decision the same way the banks do.  

  • April 26 2010
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Profile picture for wetdawgs
The fun part about your proposal of "buy and dump" is that you must be able to qualify for both mortgages before you can buy the new place, and chances are good the underwriters would be highly suspicious of your intentions.

While CA is a non-recourse state for your primary residence, if you chose to foreclose after you've moved elsewhere, suddenly it isn't your primary residence and therefore, your assets may be in danger.



  • April 26 2010
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Profile picture for shasta_steve

From what I have seen the same people who helped write all these crazy mortgages are more than happy to help you out.  If you go and buy the exact same house sometimes the underwriters will ask a question but if you have any type of reason generally it is not a problem.  I have seen three with the people I work with and no one had any problems at all getting a new mortgage.    Going from a condo to a house would be easy. 

A primary residence has absolutley no bearing on if the loan is recourse or non-recourse.  It only matters what the loan was when you first got it.  Taxes are handled differently but in a non-recourse loan the banks only option is to take the house and they have no debt to forgive so you will not have any taxes to worry about. It is possible that you could end up paying a small amount of capitol gains but highly unlikely unless you have a zero down or negitive am loan.  Now if you refinanced or took a second then you have some different rules to worry about. 

  • April 26 2010
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Profile picture for noregretshere!

Why not?  Because of people like you we are in this mess.  All of us honest hard working people end up paying for this in the end!!!!!!!!

  • April 26 2010
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