Strategic Default vs. Short Sale | Avoid Foreclosure | Brian Bean and Tim Hardin | Riverside Short Sale Agents | Riverside Real Estate

One-third of Americans justify strategic default

In the wake of plummeting home values and government bailouts, Americans are more open to simply walk away from their underwater mortgages.

Nearly one-third of Americans said homeowners should be allowed to strategically default without repercussions, according to a recent survey commissioned by ID Analytics.

Strategic default, in which a homeowner stops making their payment even though they have the ability to pay, is frowned upon by creditors but has seen a marked increase since 2008 when housing prices went into free-fall.

ID Analytics reported this week that 13 percent of those surveyed expect to strategically default on a home loan, while 17 percent said they know someone who already has. Thirty-two percent of respondents said they should be allowed to stop paying and face no consequences.

“What jumped out is how many Americans feel it is acceptable for homeowners to walk away from a mortgage and go into foreclosure,” John Zogby, senior analyst at JZ Analytics, which did the survey, said in a release. “If Americans carry on with that mindset, it will continue to cause problems as the economy undergoes a slow recovery.”

The survey offered telling reasons respondents justified strategic default:

CONSUMERS CONNED: The “mortgage market has been a scam for many years, built on false promises that took advantage of people that didn’t understand what was happening,” according to the survey.

CREDIT SCORES: Low credit scores have lost their stigma. More than one-third (36 percent) of those surveyed said damage to their FICO is now socially acceptable.

NEW CREDIT TACTICS: 17 percent of respondents said they would “exaggerate” to obtain new credit after their mortgage default.

The survey results are not surprising, considering the negative perception consumers have for big banks that received billions in assistance while homeowners endured frustrating and failed attempts to modify their loans while struggling to make payments on ballooning adjustable-rate mortgages.

And though the American attitude of “I pay my bills” is still the moral imperative of two-thirds of Americans, an increasing number of those willing to walk away could have a major impact on the fragile economic recovery, and everyone’s home values.

MAKING INFORMED CHOICES

But simply walking away and letting a home go to foreclosure may not be the best option for homeowners who want to get back into the housing market before prices skyrocket.

Here are a few alternatives to foreclosure:

LOAN MOD: The most common loan modification available today simply reduces the interest rate and perhaps recasts the payoff period to a longer payback.

Despite what you may have been told by friends, family or neighbors, a loan mod that reduces the loan balance is unlikely for all but a few homeowners. Most will still owe the full balance on their loan, later opting for a short sale when they realize just how long it will take to reach break-even.

SHORT SALE: This option, in which a home is sold for less than the mortgage balance and the bank agrees to discount the payoff, has become the dominant type of sale in the Inland Empire.

A short sale allows a homeowner to escape a financial nightmare on their own terms, is less damaging to a consumer’s credit history, and it allows them to return to the housing market as a buyer more quickly, presumably before home prices again shoot through the roof.

Short sales in recent years have lost their stigma as hundreds of thousands of homeowners have used it as the best solution to avoid foreclosure. Banks responded by creating massive departments and streamlining the process. Why? Because they net 12 percent to 25 percent more money in a short sale than a foreclosure.

Is it any wonder why banks prefer a short sale over foreclosure?

LEASE-BACK: This year, some homeowners are opting for a short sale in which they can stay in the home and perhaps even repurchase the property three years later.

The Short Sale Lease-Back Program, which was introduced earlier this year, has become a popular option, though not everyone can qualify.

In the program, the homeowner completes a short sale to a qualified non-profit organization with the intent to lease the home for three years and then buy it back at a predetermined price, presumably less than they currently owe on the home.

Candidates must have sufficient income to pay fair-market rent and many parties must say “yes” to the deal.

Any of these solutions can be more advantageous for a homeowner than simply walking away from a home. Want to know if you qualify for any of these programs? Call us today at 951-778-9700 to make an appointment for an interview.

(Brian Bean and Timothy Hardin are Default Advocates and owners of Dream Big Real Estate. They can be reached directly at Brian@DreamBigRealEstate.com or 951-778-9700.)

Brian Bean and Timothy Hardin

Licensed Default Advocates

DRE Lic #01889132

Info@DreamBigRealEstate.com

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Strategic Default vs. Short Sale | Avoid Foreclosure | Brian Bean & Tim Hardin | Riverside Short Sale | Riverside Real Estate

Labels: Foreclosure, Mortgage Forgiveness Debt Relief, Riverside Short Sale Agents, Short Sale Lease Back, Short Sales

# posted by Scott Chappell and Brian Bean @ 5:51 PM