This is a question a lot of people ask themselves or their lending advisors. The answer is No. This is fraud plain and simple. Also a lender on a new loan will require you to qualify to carry the full obligations (including mortgage payment, taxes, insurance) of both properties to qualify—you can’t claim your existing home will be a rental property unless you show a signed lease agreement along with proof that first month’s rent plus any deposits called for by the lease have cleared your bank and that the cleared check(s) match the name on the lease agreement. Even if you did get away with such a fraud scheme, then your existing property went into foreclosure, you’d then be subject possible fraud investigations and resulting credit issues that could haunt you down the road.
Not the answer that severely-underwater homeowners want to hear, and this is the purpose of government-backed loan modification programs—to adjust payments, loan balances, rates, or all of the above to help you. The issue many are having is that their existing loans don’t qualify for these programs, which creates a seemingly no-win situation. The approach if the government programs don’t work is to seek out an attorney to help you pursue a loan modification with your existing loan servicer. Here’s more on this walk-away trend from The Economist:
House prices in America have fallen so far that as many as one in five households have mortgage debt greater than the value of their homes. In a few states, borrowers are not liable for the shortfall between an unpaid loan and the resale value of the home it is secured upon. Even where borrowers are on the hook, lenders often find it too costly to pursue unpaid debts. So some homeowners may be tempted to default and escape the burden of negative equity.
How widespread is this practice? New research* based on a survey of 1,000 homeowners suggests that one in four mortgage defaults are “strategic”—by people who could meet their payments but who choose not to. The main drivers of strategic default are the scale of negative equity, and moral and social considerations. Few would opt to renege on their mortgage if the equity gap were below 10% of their home’s value, the authors find, partly because of the costs of moving. But one in six would bail out if loans were underwater by a half.
Four-fifths think strategic default is wrong. Those in the unethical minority are four times more likely to renege on loans (allowing for other influences) when their negative equity reaches $50,000. But morality has its price. When the equity gap reaches $100,000, “immoral” homeowners are only twice as keen to walk away from their debts as “moral” ones. People under 35 or over 65 are less likely to believe that default is wrong. So are the well-educated.
Anger about bail-outs of banks or carmakers does not weaken the moral barrier to default. But people who live in neighbourhoods where home repossessions are frequent are more likely to welsh on loans. Homeowners who know someone who has defaulted strategically are 82% more likely to say they would do so, too. The likelihood of strategic default rises more quickly once the rate of local home foreclosures reaches a critical level. That hints at a vicious cycle of foreclosures that both depress home prices and weaken the social and economic barriers to further defaults. To break the cycle, policymakers need to address the problem of negative equity, not just unaffordable interest payments.