Strategic Default Has a Hidden Cost You Might Not Be Willing to Pay
Credit.com | December 2, 2013 | link
If you’re one of the 28 percent of U.S. homeowners with a mortgage that’s higher than your house is currently worth, is it time to toss the keys to your lender and walk away?
According to Zillow’s third quarter Negative Equity Report, some 14 million people combine to owe an estimated $1 trillion more on their mortgages than their homes would sell for in today’s depressed real estate market. Perhaps that helps explain why a recent JZ Analytics survey estimated that 32 percent of all adults in the U.S. (nearly 68 million people) say that they would be comfortable with the notion of strategic default.
Homeowners who tactically elect to default on their mortgage obligations aren’t typically short on cash, nor are they in financial distress. Rather, they have the means to make their monthly payments but choose not to do so for a couple reasons: Their mortgage loans are underwater and they happen to live in states that have enacted so-called anti-deficiency legislation.
The concept behind these laws is fairly straightforward: to protect against or limit the extent to which lenders are able to pursue hardship-experiencing consumers for the difference between what their foreclosed-upon houses ultimately sell for and the unpaid loan balances. The laws vary from state to state and are focused on first mortgage loans for primary residences as opposed to second mortgages (homeowners’ equity lines of credit and loans) and financing for vacation houses and investment properties.