Buy a New Home and Bail on Old Mortgage?

Wednesday June 11, 2008

There's a new twist in the trend of walking away from mortgages. With the "buy-and-bail" technique, people buy a new home while planning to default on an existing mortgage.

Given recent softness in the real estate market, this allows you to purchase a discounted home and get rid of an expensive loan. Of course, there are consequences. First, it's probably illegal. In addition, your credit will suffer. It will take years before anybody else loans you money to buy a home.

If you hear somebody talk about this tactic, zoom out for a big picture view of the situation. Doing something for short-term relief today (when things are hopefully as ugly as they'll get) may mean you have to pay the price for 5 to 7 years. Because banks have only gotten more skittish about bad loans in the past year, we can't even know for sure what the consequences will be.