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May
19

Strategic Default..Is it right for you?

By Kathryn Bovard

If you voluntarily walk away from a home does that make you a bad person or is it a smart business decision?

I recently had lunch with someone who I consider a very astute businessman who has business concerns all over the world.

Here is his scenario: home was purchased 3 years ago for $600,000 and his mortgage payments are about $4,500, including HOA, etc.  The home is now worth about $300,000 and he is planning on retiring in the next ten years. Now for a little forecasting. Let’s use a 5% appreciation each year for the next 10 years and the home would be worth in 10 years about $465,000.  Still considerably less than the original purchase price and not to mention the $540,000 in additional mortgage payments for the 10 years. Sounds like a no-brainer when you do the math but let’s look at the other issue.

Does a strategic default make you a “bad” person? Read the linked article from a University of Arizona Law Professor advising consumers to stop paying underwater mortgages. We have somehow bought into the myth that buying a home involves other intrinsic values when truly it is just a business decision. Sure your going to take a credit hit, but that is usually completely repairable after about two years.

The decision is yours to make, just make sure it’s a good business decision for you. And as always before you make your decision, always seek competent legal advice.

Related posts:

  1. Strategic Defaults in Las Vegas Real Estate Market
  2. Las Vegas Short Sale Time Frame

Categories : Short Sale Tips

Comments

  1. Tony Sena says:

    Does a strategic default make you a “bad” person?

    Not at all! If a person makes a decision to walk away because it makes the most financial sense for his/her family, than so be it. They’ll have to take their lumps and move on but I don’t think it makes them a good or bad person by choosing to default.

  2. ROSANNEMoses says:

    Houses are not cheap and not everyone can buy it. Nevertheless, mortgage loans was invented to aid people in such situations.

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  4. Abe Gorenflo says:

    I would always look at the overall picture when it comes to buying or renting any property.

  5. hey I like this post. I found it from doing a google search. This info will come in handy to me. I will check back soon to search the rest of your blog. thanks

  6. Ani says:

    This is a great question!

    We actually have a couple of stories in regards to “Strategic Default”. Here is an article, but feel free to search for more stories, views and opinions from our industry.

    http://www.dsnews.com/articles/survey-77-of-borrowers-would-not-strategically-default-if-underwater-2010-06-10

    You can also follow us:

    http://www.twitter.com/dsnewsdaily :: wwww.facebook.com/dsnewsdaily

  7. [...] selling their home. Although there are many things to consider, including the proverbial “does this make me a bad person question“, there are also 6 Important Documents that you will need to provide to your qualified short [...]

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