CNNMoney reports there is an increasing number of homeowners who are tired of watching their home’s continuous devaluing and are choosing to walk away from their home. This is known as a “strategic default”.
Fannie May confirms 27% of homeowners are willing to strategically default, which is up from 15% last year. According to a 2010 report from Morgan Stanley, they estimated that last year approximately 200,000 or 12 % of the mortgages from last year were voluntary.
Some of the homeowners willing to take this new strategy to avoid their financial obligations are not what we would typically think of as “dead beats”. Peter Ticktin, a Florida-based attorney, whose firm is handling 3,000 foreclosures adds, “Because they borrowed money and stopped paying their loans, you would think they’re deadbeats — but it’s not like that.”
According to other analysts and creditors, the homeowners have fairly high FICO scores. Some of the examples in the CNNMonoey article included homeowners who had purchased multiple houses and investment properties. One buyer purchased a condo and a house, bother which substantially depreciated in value.
The investor claimed that by defaulting on his property and taking the temporary credit hit he could eliminate his financial burdens and still get a nice three-bedroom home in town for about $1,000 a month, which was less than half what he was paying for his mortgages.
Mark Fleming, chief economist for CoreLogic, claims that “strategic default can be a financially sophisticated thing to do.” Many homeowners are not looking at a mortgage contract as a financial obligation or moral commitment but are taking a much more ruthless financial approach to the situation.
Some homeowners are attempting to overcome what they consider “the sanctity of debt repayment”. While some homeowners admit they have some feeling of guilt, they think the end justifies the means because they have a family to support.
Proponents of the idea of strategic defaulting claim that part of the problem was created not by the homeowners but buy the banks and mortgage companies who loaned money to homeowners who should never have been allowed to purchase homes. This potentially risky and unethical lending practice, not only forced home prices up, but eventually led to the housing crash as more and more of the risk mortgages went into default.
University of Arizona law professor Brent White adds, “There’s a sense that the banks don’t follow the ‘rules,’ but somehow the little guy is supposed to — more and more people are saying ‘enough is enough’ and walking away.”
Opponents of the strategy argue that homeowners have a moral responsibility to meet their contractual obligations, if possible. Do some homeowners face a severe financial crisis which forces them into a mortgage default? Yes, but voluntarily walking away is breaking a contractual obligation and is morally unethical.
Many homeowners have varying opinions, but I have always found it helpful, when deciding about an ethical dilemma, to consider what would happen if everyone chose to do what you were considering. What if everyone walks away from their contractual obligation to pay their debts? What happens to our housing market or the chance that America will have an economic recovery? I can give you a simple answer; things do not get better.
Filing for Bankruptcy Protection
There is a legal process to protect your home. It is called bankruptcy. If you choose to file for bankruptcy protection you may have the option to keep your home and stave off foreclosure. If you are facing a severe financial crisis and you need help, contact a bankruptcy lawyer.
Bankruptcy lawyers understand bankruptcy law and can help you make the right decisions for your family. Do not file for bankruptcy without first evaluating all of your financial options. Bankruptcy is a serious financial decision and can have long-term financial consequences for your family.
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