What Does it Mean to Buy and Bail? ôBuying and bailingö refers to the act of buying a second property and allowing a first home to fall into foreclosure. Homeowners who purchase second properties in this scenario are typically ôupside downö on their primary residence, meaning they owe more on their first home than it is worth in the current market. It’s likely that they had an adjustable rate mortgage and their monthly mortgage payment grew to a payment they could no longer afford. For some, an easy solution appears to be buying a second property at a depressed price with a fixed rate mortgage in order to lower their monthly mortgage payments. At the same time, they let their first home fall into foreclosure û hence the term buying and bailing.

You may wonder why a lender would loan someone money for a second property when they are already having difficulty making the mortgage payments on their first home. Typically, the buying and bailing homeowners will state in their loan applications that they intend to rent out the first property, but it should be noted that lying on a loan application constitutes fraud. Fanny M’ and Freddy Mac have instituted rules to curb the practice, but it continues. In addition to fraud, homeowners could get themselves into deep water when dealing with foreclosure and second properties.

Things to Consider About Foreclosure and Second Properties There are two different scenarios that can occur with foreclosures and second properties. The first is the buy and bail situation explained above where the homeowner buys a second property and allows the home that has been his primary residence to go into foreclosure. The second is where a homeowner has a second property, perhaps a vacation home, and allows that second property to go into foreclosure.

When a home goes into foreclosure it will be auctioned off û usually for a much lower amount than what is actually owed on the property. The difference between the amount owed and the amount received at auction is called a ôdeficiency balance.ö

How the settlement of the deficiency balance will be handled varies greatly depending on where you live and your state’s laws regarding foreclosure and the enforcement of deficiency balances. In about two-thirds of U.S. states, deficiency balances are treated like all other unsecured debts, and lenders may pursue a borrower after foreclosure by seeking a deficiency judgment. This allows a lien on the second property for the amount still owed on a previous mortgage. In states such as California and Arizona there are restrictions on lenders, and they may not have that option if the original home was a primary residence.

If you have a vacation home that goes into foreclosure, and end up owing a deficiency balance after foreclosure on that second property, the lender may file a lawsuit against you to collect the debt. This could result in garnishment of your wages, levies on your bank accounts, and/or liens placed on your property, including your primary residence, depending on your state’s laws relating to the enforcement of judgments.

After foreclosure, the lender, otherwise known as the judgment creditor, may be able to force the sale of your primary residence to obtain the money needed to pay off its judgment depending on the state in which you live. Judgment creditors are more likely to pursue a forced sale of your property if you have a lot of equity in your home. Therefore, if you have a substantial amount of equity in your primary residence, you may want to think long and hard before allowing a foreclosure on your second property. A consultation with an attorney specializing in real estate law is advisable before deciding to let a foreclosure on a second property to occur.

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In August 2011 they accounted for 39.7% of short sales, the lowest ever recorded by the survey, which began in mid-2008.

At the end of the day, protect yourself, protect your buyer and be sure to engage a qualified Real Estate Attorney to perform an independent title examination any time the seller offers to provide title insurance because insurable title does not necessarily mean marketable title.

Let’s consider the situation in which a family earns $60,000, which is about the national average. They are renting at $1000 per month. They are considering buying a home that requires them to take out a mortgage of $170,000, which would be fairly close to the current national median home price.

At the current rate of 4.8 percent on a 30-year fixed rate mortgage, the monthly mortgage payment would be …(drum roll) … $891 per month. That’s not all. A measurable portion of the monthly mortgage payment is actually goes towards principal reduction on the loan balance, which in essence is a forced-disciplined savings imposed on the home buyer.

That’s still not all. A fixed rate mortgage means the monthly payment is fixed and will not rise for the term of the mortgage. In this example, a person theoretically could be paying $891 in mortgage in the year 2041. What would be the cost of living at that time? Food price? Gasoline price? Also rent?

If rent was to rise by 3 percent a year, starting with the base $1000, the monthly rent will be $1344 in 10 years, $1806 in 20 years, and $2427 in 30 years. If rent was to rise by 5 percent, then it goes to $1628 in 10 years, $2526 in 20 years, and $4321 in 30 years. If monetary policy were to get of control, with too much money printing and inflation rose by 10 percent per year, then the rent becomes $2593 in 10 years, $6727 in 20 years, and $17,444 per month in 30 years. Many economists are expecting 3% to 5% annual rent growth over the next two years based on recent falling trends in apartment vacancy rates.

When rents rise, there is also a tendency for home prices to rise. If home values were to rise 5 percent (under rent growth assumption of the same) then the home value would rise to $178,500, translating into a gain of $8,500 in housing equity in the first year. Subsequent cumulative gains over several years would be sizable, if the yearly 5 percent increases could be sustained. Nationally the annual average home price increases have been at around 4 to 6 percent each year. Even if by some strange event home value was not to increase one cent over the next 30 years, the home would be owned free-and-clear by the 30th year. (Or much sooner if the family makes additional principal payments).

Even as the housing slump drags on, and it seems there are far more houses than anybody wants to buy, a new analysis warns that the Washington area doesn’t have nearly enough housing for the wave of new workers who will arrive in coming decades.

Researchers at George Mason University say the area is projected to add more than a million new jobs by 2030. With that growth comes a vexing problem: How do you house those new workers in ways that are both affordable and don’t worsen the soul-crushing commutes that already plague the region’s residents?

The study found that local communities have yet to plan adequately for the looming demand, leaving open the possibility of a housing shortfall that could detract from the region’s economy, lower the overall quality of life and drive away employers and employees.

“If businesses find they can’t have their workers live near where they can work, they’re going to go somewhere else. And the workers themselves might also go somewhere else,” said Lisa A. Sturtevant, an assistant professor at George Mason’s school of public policy, who co-authored the study with Stephen S. Fuller, director of the university’s Center for Regional Analysis.

Their research showed that the Washington area, defined by 22 counties and cities, is expected to add 1.05 million jobs through 2030. More than a third of those jobs will be in the professional and technical sector, but significant growth also is expected in administrative, service and health-related jobs that often pay lower wages. If those numbers hold true, that boom will require as many as 731,457 additional housing units to house workers in the jurisdictions where they work, the study found.

That means the region would need to produce about 38,000 new housing units per year, “an annual pace of construction never before seen in the region and below what local jurisdictions have accounted for in their comprehensive plans,” the study concludes. Data show that over the past 19 years, the region has averaged 28,600 building permits a year; last year about 15,000 building permits were issued in the region.

In addition, much of the new housing needs to be multi-family units (to make efficient use of available land) and affordable rentals (to put it within reach of younger workers and those with lower salaries), George Mason’s researchers argue.

Fuller recently presented some of the findings to the Montgomery County Council, part of an effort to get local officials focusing more on meeting the long-term housing demands facing their jurisdictions. The study had nearly a dozen individual and corporate sponsors, including Bank of America and the 2030 Group, an association of local business leaders focused on regional long-term economic and population issues.

“He was very provocative,” said County Council president Valerie Ervin. “I knew we were not where we should be, but I didn’t know the extent to which that was a problem. . . . It’s an absolutely huge issue for the county.”

Like other counties, Montgomery has been exploring ways to create more walkable, denser developments out of once suburban areas. One example is an effort underway to redevelop the White Flint area of Rockville with a mixture of retail, office and residential space. Much the same idea is unfolding in Fairfax County with the massive transformation of Tysons Corner.

Forecasts show the majority of the job growth is likely to occur in Northern Virginia, particularly in Fairfax and Loudoun counties. In Maryland, much of the new housing demand is coming in Montgomery County. In the District, the study suggests that more than 120,000 new units will be needed to house more than 150,000 new workers.

Sturtevant said that failure to adequately bulk up the region’s housing stock could hinder the local economy over time. Already, she said, the Washington area has more “in-commuters” — workers who venture in from other areas such as Baltimore and Maryland’s Eastern Shore — than anywhere else in the country.

Some of that boils down to choice, with people preferring to live outside of urban areas or closer to family members. But much of the explanation comes from the fact that many workers can’t afford the higher rents and home prices closer to the city, leaving them instead to face long commutes that tax the region’s infrastructure and take money away from the local economy.

The result: More than 4 percent of the Washington region’s economic activity, or about $18 billion annually, gets transferred out of the region, Sturtevant said.

She said it’s not practical, or perhaps even possible, to merely build the number of roads and other infrastructure additions it would take just to keep congestion at current levels as the population rises.

Rather, she said officials must seek out a smarter approach to growth, finding ways to house more employees closer to where they work and closer to transit systems, or else risk losing employers and employees to other cities with shorter commutes and a more appealing quality of life.

“It’s going to require a lot more creative thinking,” said Conrad Egan, former chairman of the Fairfax County Redevelopment and Housing Authority. “If we’re going to grow jobs as predicted and match them up with the availability of land and transportation opportunities, we’re going to have to fundamentally rethink a lot of the assumptions upon which we’ve been operating. . . . It’s a wakeup call to the leaders of today so they can put in place policies and strategies to support the leaders of tomorrow, who are going to be dealing with these challenges.”

If commutes grow too onerous or housing remains too scarce or expensive, Sturtevant said, companies that traditionally have flocked to the Washington area for its wealth of highly-educated workers could turn elsewhere, as could road-weary workers themselves.

“I don’t know where it is, but we’ve got to be close” to the tipping point, Sturtevant said. “Atlanta, Houston, Dallas — they are catching up to us, and they may be more attractive places [over time] because the quality of life is better.”

So far, companies have continued to seek out the Washington area and its desirable workforce. Large U.S. employers such as Volkswagen, Hilton and Northrop Grumman have settled in Northern Virginia in recent years.

The growth projections, based on models from the economic and financial forecasting firm IHS Global Insight, are inherently inexact given current conditions. Sturtevant said the latest predictions include 500,000 fewer jobs in the region by 2030 than were forecast before the financial crisis. The deep reductions to federal spending under consideration on Capitol Hill could further alter the projections, particularly if the Defense Department sees steep cuts.

“There is significant uncertainty about the jobs numbers, which determines everything else. When it comes to housing, there have been lots of changing demographics,” said Stewart Schwartz, executive director of the Washington-based Coalition for Smarter Growth. But he said there is clear demand for housing in the city and close-in suburbs as well as new momentum for efforts to ramp up development near Metro stations in such places as Prince George’s County and in other nearby corridors.

“Thinking about the future and how we design communities has changed significantly,” said Schwartz, who advocates finding ways to maximize the capacity of mass-transit systems. “There’s no longer an assumption that we will just keep spreading out.”

Whatever the precise numbers, it seems clear that the Washington region will become a more crowded place in the decades to come. Accommodating that growth in a smart and and comprehensive way seems critical to maintaining the region’s place as one of the most attractive economies in the country, but it won’t happen on its own.

“The new workforce is coming whether we like it or not. So our policies are going to have to reflect that,” said Ervin, the Montgomery council president. “We’ve got to get a lot more work done here.”

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