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Strategic Defaults

For the last few months, I have been discussing that more and more homeowners are actually ‘strategically’ defaulting on their mortgages. By that I mean that some homeowners that have the financilal capability to pay mortgage have just decided not to.

Northwestern University teamed up with the University of Chicago to study this situation. They came to the conclusion that as many as 25% of all foreclosures are strategic.

Now, in a paper released last week, Brent White,a professor at the University of Arizona’s James E. Rogers College of Law, is actually suggesting that it makes no since not to walk away! In his extensive report he saids:

“Home owners should be walking away in droves…The real mystery is not why large numbers of home owners are walking away, but why, given the percentage of underwater mortgages, more home owners are not.”

Ladies and Gentlemen,
I am NOT suggesting that we support the professors arguements. I am just letting everyone know that the whole issue of foreclosures and ‘short sales’ will be with us for a some time to come.

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1 reply
  1. Phil Tesoriero
    Phil Tesoriero says:

    Wow what a scary commentary. As real estate professionals its important to remember the definition of a short sale when you encounter a client who is “Strategically ” defaulting on their loan. Banks basically and generally speaking have 2 criteria to define an acceptable short sale 1. The market value is LESS than the UPB(unpaid balance) of the existing loan 2.The borrower can demonstrate the “ INABILITY TO PAY” that loan..(also considered in the loan modification process as well)
    Please be careful of dealing with people who have questionable motives. More and more everyday we see real estate people on the 6 o’clock news being marched off to prison for fraudulent activity. Don’t be one of them. I qualify my sellers (and share it in class) in one of 3 categories,1 ethical 2. Scared 3. Scammers. by asking a few simple questions you can determine where your seller falls .I have no problem working with 1 and 2 ..but the people who fall into 3, I run not walk away from.
    Be careful and aware of who you are dealing with. I guess it can be easy to ignore sometimes, but I want to be part of the solution not encourage the problem.


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