Underwater – Is Strategic Default the only way out!
Underwater Is Strategic Default the only way out!
He owns a successful company and she has a sales job taking home a six-figure salary, yet they are in foreclosure.
But unlike countless other Americans faced with losing their homes, this couple could make the $6,800 monthly mortgage on their waterfront property in Boca Raton that they bought for $805,000 in 2005.
They crunched the numbers and between the outstanding amount on their first mortgage and the outstanding amount on their second mortgage they were so underwater they would never realize the equity, not in their lifetime anyway.
His business was declining; her company was feeling the effects of the economy and was about to lay-off people. And to add to it all of their investments had plummeted along with their home. It simply made no financial sense to continue to hang on to their grossly underwater home. Knowing that they had to get out from under they consulted with my office. My recommendation was to have my office work with their banks to get them out from under. Soon thereafter they retained my office and stopped paying their mortgage.
It is commonly referred to as Strategic Default; borrowers who currently have enough money to make their mortgage payments, but owe so much on the home that is now worth so little, that they decide to get out from under before it's too late!
It is not an easy decision and it is not the negative impact it has on their credit score that troubles most strategic defaulters. It is the ethical dilemma of refusing to repay a loan when they are able to and worrying about what the neighbors will think.
How widespread are Strategic Defaults?
Although the exact number is not known, more than half the homeowners in a study conducted by the Federal Reserve Board walked away when they owed twice what their home was worth. I'm quite sure that if one was to do a study of homeowners that owe twice what their homes are worth in South Florida, it would be at least 40%
Most feel that it is an awful thing to do but in the business world, Strategic Default is a common tactic, considered by the business world as a savvy move for financially troubled companies. However, consumers have been intimidated into believing that it's not honorable to do. I say, why should it be any different for consumers?
Morgan Stanley walked away from a $1.5 billion mortgage on five buildings in San Francisco despite their record-breaking profits in 2009. Real estate giant Tishman Speyer Properties strategically defaulted on $4.4 billion in loans on two housing developments in New York after the properties lost $2.2 billion in value. The company had billions of dollars in assets, including Rockefeller Center and the Chrysler Building, which it could have leveraged to meet its loan obligations.
Even the Mortgage Bankers Association, whose president had the nerve to chastise homeowners who strategically defaulted, dumped its Washington headquarters in a short sale. After working out a deal with its lender, the MBA sold the building for $41.3 million last year. In 2007, the group purchased it for $79 million.
It's not wrong, although most homeowners are emotionally attached to their property; a house is still an investment and should be treated as such. I don't understand why anyone would be asked to make a decision on this investment any differently than you would on any other. And why should a homeowner have to be held to a higher ethical standard?
In many strategic default cases, the moral imperative is self-imposed. Among the many arguments such as walking away from a mortgage will depreciate your neighbors' property values. And if all underwater homeowners walked away, the housing market would crash. Hello it's already crashed
After my office settled the matter for the couple I make reference to in this article they liquidated some of their assets and bought a new home just a few blocks away identical to their old one and for less than half of what they had owed. And by doing so, they walked away from more than $800,000.00 in debt.
When it was all over they realized that they had made one of the best financial decisions of their lives.
Even if you know that you don't want to keep your house, or you believe that the lender is going to work with you to modify your loan, there are many, many situations and consequences that you haven't considered.
While every person's situation is unique, it is universal that no harm can come from educating yourself, and nothing good can come from waiting.
More important than the will to win is the will to prepare - Charlie Munger
Now is the time to insulate yourself from the disaster of negative equity, you must act quickly to preserve your financial future.
It's time to start accepting that deflated assets will not miraculously re-inflate themselves.
The sooner you accept it, the faster you will act, and move beyond the crisis so that you can start living life again.
Consulting with an experienced attorney is the first step to begin restoring the financial security for you and your family.
What most people still don't get is that this remains a complex anddifficult situation to be in, and having experienced legal representation is exactly what you need.
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