Eventually, everyone is going to stop paying on depreciating assets. From MSN:
“Increasingly, homeowners with good credit and no late payments are making what appears to be a strategic decision to walk away when their home’s value falls below what’s owed.
“The American consumer has had a long-held taboo against walking away from the home, and this crisis seems to be eroding that,” concludes a report on research by Experian, the credit agency, and Oliver Wyman, a management consultant company.”
The article goes on to talk about how wealthy people are more likely to strategically stop paying their mortgage and walk away or do a short sale.
“Strategic defaulters stand out among the 14 million to 15 million “underwater” mortgages, the researchers said, because they:
- Pay all their bills consistently and on time until abruptly stopping mortgage payments with no attempt to get current again.
- Keep current on other debts after defaulting on the mortgage.
- Keep up payments on home equity lines of credit, sometimes drawing out cash, before defaulting on both the first mortgage and credit line. “
Instead of looking at foreclosure or a short sale with negative connotations, they are being used as financial strategies. Cut your losses and move on.
The consequences discussed mainly revolve around your credit score. But here is my question, how much should someone be willing to pay to keep their credit score? If you did a short sale and saved $150k and the months of missed payments, is that worth 250 points? Put it the other way, would you pay $150k for a 250 point increase in your credit score?
Theoretically, someone could quit making payments now (in order to get a quicker short sale), rent for the next two years until the short sale is removed from their credit report, and buy again at substantially lower prices. Of course, missing payments and strategically short selling your home or doing a loan modification is not preferred, but it’s the banks who wont approve the deals otherwise.
If you want help coming up with a game plan, please don’t hesitate to give me a call. We can sit down and see if a loan modification or a short sale is right for you. (480) 389-5199
Keller Williams Arizona Realty