Many homeowners who anticipate being faced with foreclosure in the near future are being tempted by the 'buy a new one before you lose the old one" proposal. The idea is to use a good credit rating to finance a new house so that you have a home when you lose your current one. It sounds tempting but can be very dangerous.
Lenders look upon this scheme as being a fraudulent act on the part of the borrower. In many states they can sue for assets, including the new house, if this action on the part of the home owner comes to light. Here in California it is not so easy for the lenders to sue those who walk away from their mortgages, but the fact of having used a line of credit or refinancing under these conditions is grounds for a lawsuit. Any misrepresentation on a loan application can also be construed as fraud on the part of the borrower and invite legal action.
One of the most common tricks used in this kind of scheme is to produce a rental agreement so that the rental income can be shown to cover the mortgage payments. But once the new financing has been approved, the homeowner abandons the old property without renting it.
Many real estate agents find nothing wrong in this kind of transaction and help struggling home owners to work out this kind of buy and abandon plan. While this may be a legal gray area, the fact remains that buying a home under false pretenses is a crime. And lenders are not fools who will quietly sit back and be left holding the baby.
Stay away from any such schemes.