I despise being a fool, I mean customer.
When it comes to strategic mortgage default, finance institutions and politicians and even ministers implore you to pay your mortgage no matter what.
Your kids need books for school? Pay your mortgage first. Mother-in-law sick? Pay your mortgage. Home valued at $100,000 less than you owe on the mortgage, give up your summer vacation, eat cat food, and pay it anyway.
Foreclosure is dreadful for youMajor employers frequently check credit scores prior to making a hiring decision. If you need to borrow money, a foreclosure is a huge red flag. Major apartment complexes, and even some low rent ones, will deny you a rental unit or charge more if your credit is blemished by a foreclosure.
Why do financial institutions and owners fail to pay loans when the underlying asset (commercial property, for instance) is valued at 25% less than the amount owed on the loan?
Good business.
When it comes to mortgages higher than market value of the home (house is worth less than what is due on the loan), our tribe numbers 11 million families in the U.S. alone.
Over 5 million of us are over 25% underwater.
Real estate professionals estimate that it will take about 14 years for California homes to attain 2007 values. How many people even stay in the same house for 7 years, much less 14.
People are angry. financial institutions accepted applications from mortgage brokers they knew or should have known were fraudulent. Sound banking and fiscal principles were ignored. Middle class people were coaxed into taking on more house and debt than they could afford.
Your banker made a business decision when he granted the loan. He knew the risks and rewards (interest/profits).
Just what is a strategic mortgage default? Simply put, you have enough income or resources to pay your mortgage each month but you choose not to do so.
Leaving your home is not an easy choice. You have to suffer foreclosure proceedings and eventual eviction, voluntary or not. You have to find a new house to live. Moving is a inconvenience, but is it any less trouble than giving the financial institutions hundreds of thousands of extra dollars for a house not worth the amount owed.
More than one-third of all foreclosures are now due to strategic mortgage default. With prime ARMs due to reset in late 2010, strategic mortgage defaults should rise.
Bear in mind, it’s a house, a piece of real estate property. Don’t obsess over bricks and mortar. It’s people that count – your spouse, your children, your extended family.
If it is in your family’s best advantage to strategically default, get geared up:
- if you intend to relocate to an apartment, find one at this time before your credit takes a whack
- if you care to submit an application for a new job, do so right away
- if you need a new car, buy it now
If you are ready to deploy the strategic mortgage default approach, check with your local attorney at law to see if you live in a recourse or non-recourse state. If the mortgage lender can file a deficiency judgment against you for their deficits, you need to be advised on all possibilities open to you – up to and including liquidation.
Consult your attorney. Consult your accountant. Determine your best strategy and strike.
Strategic default may be your best strategy for navigating the housing crisis. For more contrarian/alternative financial strategies, visit Burn Down the
Freaking Mission.
Charles Lamm is a retired attorney now serving as a legal/technical consultant for Accessible Communication for the Deaf (ACD) in South Florida.
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