Read here.
During the years that preluded The Great Depression my great-great-grandfather was the president of a national bank which was failing. As a result of the pressure, he took his own life.
Today, I have a number of friends who will chat about the properties that they've "let go" (they never seem to use the word foreclose) as passively as they recount what they ate for lunch.
Could you?
Would you?
Is there something morally reprehensible about "2010: The Year Of Strategic Default" to anyone else? Or should we take a more pragmatic approach to passing judgement? And what about the author's comment that, "Defaulting strategically can entice more walk-aways by buying all the major items they may need in the near future, such as a car or even a house, right before they take a hike..."
You're telling me that an acquaintance of mine who purchased an almost million dollar house using a down payment that he swiped from re-financing his current place -- right before foreclosing on it -- is the wise one? True, his credit is subpar for a few years, but he doesn't care. Why would he? He has everything that he needs.
So should we all just view this sort of thing as a sound, strategic business decision?
Excuse me while I pick my jaw up from off the floor.
Your thoughts...?
Keep in mind that we are not discussing foreclosure that is the result of job loss or tragedy. We're talking about "Strategic Default" specifically.
See Part 2 here.
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13 people chimed in:
Yeah, I have some friends who "walked away" too. It's crazy! They made it seem like it was no big deal. I don't think I could personally do it!
When someone passes away or loses their job it's a different story.
But to "strategically" put yourself in a foreclosure position because you feel like you shouldn't have purchased the home seems like bad karma to me.
Yeah, this is a tough one. On one hand, I really do think that a lot of people bought houses they couldn't afford and didn't put the right amount of thought and preparation into their decision. Buying property is a huge deal, and I just wish more people did their homework. It's frustrating to see people who can't make their mortgage payment, yet are not willing to adjust their lifestyle (like going out to eat, buying new cars, so on).
On the other hand, as you already mentioned, I feel sympathetic for people who have families to care for but have perhaps been laid off or fired and can't find another job. I'd love it if everyone was able to save up enough savings to cover those bad times, but I know it doesn't always work that way.
The whole "walking away" thing is kind of a new concept for me though. I always thought if you couldn't afford your place, you had no choice but to sell it, even if it means lowering the price so that you take a loss. What exactly happens when someone does this? Are they penalized somehow, or do they just lose the money that you have paid in so far?
You lose the money you put in if you foreclose, Kristi. However, many of these homeowners have already leveraged these properties out through different types of refinances allowing them to pull out massive amounts of equity that were inflated with recent market conditions. That money is not recovered by the banks.
Again, though, I'm not talking about people who've foreclosed as a result of job loss or tragedy.
It's not a black and white situation, which is part of what makes it so frustrating. I've had many conversations with my bestie about how the system should or could be fixed, only to have her respond, "but isn't it going to be the people with ill intentions who will find loopholes in those solutions, anyway?"
Which may be true.
The main problem that I find so disconcerting, is that there are a lot of homeowners who were really responsible who cannot sell or refinance now because so many people have CHOSEN to foreclose. Those homeowners are the people paying the price for Strategic Default. It's irresponsible, in my opinion -- it hurts neighbors and communities.
To see this attitude becoming part of the mainstream media is alarming to me... And I'm someone who normally has no problem keeping emotions at bay when it comes to business decisions...
It seems silly to me to foreclose on your home just because the current value is below what you bought it at. If you stick it out long enough, the value of the home should come back up and you'll at least come out even.
I really have an issue with the strategic foreclosure. I'm sorry, but if you bought a home that was overvalued, I don't think you should be able to just chuck it and buy a new place. And that goes for people who just don't do their homework in addition to those who are trying to play the real estate game. My inlaws overpaid on their house, and if she loses her job or something, they'll probably lose it. And this may sound really harsh, but I don't think they should be allowed to purchase another house immediately if that happens. They need to accept responsibility for their poor decision -- not having to do that previously is what got them there in the first place.
No, I couldn't do it! But I understand some people that do, I guess.
L, isn't it interesting that financial advisors have pressed this point so vehemently when it comes to the stock market, but are shockingly quiet on the real estate front?
Honestly.....people really need to sack up and take responsibility for their own bad decisions. Foreclosing is a cop out in most situations and like any other case where there is a loop hole, the government will catch wind of this and there will be penalties for those commiting this "strategic foreclosure". Those who were able to take advantage of the loop hole in 2009 should feel lucky, I have a feeling peopel who chose to do this in the future will pay a big price.
Kelly - I am tired of people just walking away because they are not fiscially responsible. I agree the situation is different if they have a loss, or lose their job, but if they bought a house they can't afford to begin with then walk away - why should I have to pay the price? I know of someone who bought a house they could not afford, did not pay their mortgage for almost a year, and then got their mortgage reduced, the loan locked at a great rate, and got to keep their house. We on the other hand pay our mortgage every month, on time, and we get no breaks. Meanwhile, our property value has decreased, we could not sell our house for even what we paid for it, and we can't reduce our loan, or refinance. It makes me pissed off.
Courtney, I think you make some good points. I'd really like to get into some of the "mortgage rate reduction programs", but that's an entirely different post.
I do think that the people who are responsible with their bills are the ones who are being squeezed the most right now -- and not just with home loans. Which, if you think about, is pretty scary.
5 years ago, i would have been appalled at the idea of someone "letting go" of their home. now, i realize what a sad and difficult thing it must be do to, and very often, done as a last resort.
however, i totally agree with the other comments about people getting in over their head, and almost getting "rewarded" with a year of no mortgage payments and then getting to refinance at a low interest rate.
that pisses me off too.
i hate it when the "good guy" gets the shaft.
I hear you, Autumn. Exactly.
I am underwater - at one point, it was probably 100K (mortgage minus house value). I never thought of walking away. *However*, my last house, which I managed to sell just in time for 505K, is now worth 250K. We were commuting 90 minutes each way. At that point, if I was still in that situation, I just might walk away because my credit score wouldn't be worth the living with that situation anymore.
So I guess it's really relative to the situation. Right now, yeah, I'm underwater, yeah, my husband's unemployed, but I'm just dealing with it.
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