Strategic Default..Is it right for you?
ByIf 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.
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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.
Nice blog.
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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I would always look at the overall picture when it comes to buying or renting any property.
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
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
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