Short Sales And “Strategic Defaults” – Does It Make Sense For You?
May 5, 2010 by admin · Leave a Comment
| Let’s remember that short sales are real estate transactions that involve a homeowner selling their home for less than what is owed on their mortgage. Any time a property owner doesn’t pay their mortgage, they are defaulting on their mortgage obligations. “Strategic Defaults” are decided or chosen. Conversely, most defaults are not chosen but are a result of the property owner(s) being unable to continue paying their mortgage.
These strategic defaults are on the rise. For homeowners who can still afford their mortgage payments – who have not suffered a financial hardship – they are walking away from their mortgage obligations due to the decline in property values. |
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Why Strategically Default?
These homeowners are getting out looking to capitalize on purchasing a new home, at a less cost. Data suggests that if a homeowner who is “underwater” on their home value, can sell their home short and still get a mortgage to buy another home, the odds of them walking away strategically increase 29% (so 1 in 3 owners who are gainfully employed and can afford their mortgage, are walking away from their current homes and selling their home via a short sale).
Now of course I am not advocating this strategy in any way and I highly recommend the services of a qualified attorney to assist any homeowner who is in danger of not performing on their mortgage contract. However, for example, if you purchased a home in 2006 for $650,000 and today that home is worth $450,000, you have much to reconsider on continuing to pay your current mortgage.
For the purposes of not advocating for people to strategically default, I won’t go any further other than to say, there are many variables in this example above that are very real and really important to consider.
Of course, one of the major deterrents to strategic default is the damage to credit that occurs when mortgage payments are not made. However, recent studies by Morgan Stanley showed that an increasing number of borrowers are considering this exit strategy.
Should you have any questions about how I can help you sell your home via a short sale, please call me at (631)831-9048.
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By Thomas McGiveron, LSA
