This is a great article below on Strategic Defaults- I was listening in on a webinar conference with the Vice President, Portfolio Retention, REO and Short Sales for Western US at Bank of America Home Loans...He made a comment about how people who bought their home at or near the peak will most likely see the value back in their home somewhere around the year 2030–And if that seems like a long time, that’s because it is.. Now that is a pretty bold statement and we hope that’s not the case. Banks for years have used Strategic Defaults with plenty of money to spare but if a homeowner is sitting in a bad assest they are frowned upon. As I have represented many people short selling their homes there is always some pride that is lost- Somebody please tell me when a bank is defaulting, do they feel bad or is it just a smart business decision? Read more below..
Joshua Groesbeck 208-353-7131 or josh@homeswithjosh.com
A growing number of home owners whose homes have dropped drastically in value are deciding to stop paying their mortgage and walk away from the property, even though they can afford to keep making the payments–a move known as strategic default.
The exact number of strategic defaults is unknown. A study conducted by the Federal Reserve Board showed that half of home owners who walked away from their home owed twice what their house was worth.
From celebrities to prominent business people to the average home owner, strategic default is a growing option more home owners are taking. For example, Morgan Stanley walked away last year from a $1.5 billion mortgage on five buildings in San Francisco despite record-breaking profits in 2009.
For some, strategic default has spurred a debate over ethics.
“Most people considering strategic default come to me and want my permission,” says Ronald Kaniuk, a foreclosure defense lawyer. “People who cannot pay their mortgage are apologetic. For people who can afford their mortgage or can just barely afford their mortgage and see it as a losing investment, they want absolution.”
But the stigma attached to strategic defaults is influenced by how many other people are doing it, says Luigi Zingales, an economist and professor at the University of Chicago’s Booth School of Business.
“Once you think it’s socially acceptable, it becomes easier to do,” Zingales says. But Zingales cautions home owners that strategic defaults hamper neighbors’ property values and can affect the home owner’s credit scores. Plus it can become a question of ethics–they are breaking a commitment they made to pay back the mortgage.
Source: “Some Homeowners who can Afford the Mortgage Still Default as a Strategy,” The Palm Beach Post (Feb. 27, 2011
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