Especially when the properties are underwater and they are trapped because they cannot qualify for a modification of their home. They are walking away in what is referred to as a “strategic default”.
A strategic default is what you do when you are financially solvent and the benefits of your mortgage are utterly non-existent.
Take for instance Gene Kessler, 67 who is a tech industry retiree in the process of walking away from the home he purchased for $166,000 in 2004 in a small town 75 miles southwest of Minneapolis.
The value of his home has nosedived to $111,000, taking Kessler’s $45,000 down payment with it. This has left him with a mortgage that’s more than the home is worth, so he stopped paying the loan six months ago, and estimates he’ll have to vacate by March 2012.
But here is the kicker, Kessler isn’t in financial trouble, and he could afford the monthly payments. He has no other debts and two pensions from former employers, as well as Social Security.
He also has a woodworking hobby, and runs a small business selling the artisan lamps he makes in galleries. He’s single now, and his two children are grown and gone.
“I was looking for a way to get back to a larger city, and this was the only way I could get out of this house,” says Kessler, who paid $800 to YouWalkAway.com to help guide him through the process known as strategic default.
He’s anticipating a move to a warmer climate and a more active art and dating scene in Santa Fe, N.M.
This is not to say that there are not risks involved with a move of this kind. Most states have recourse laws allowing a lender to come after you for the balance of a loan, once the property has been sold for less than what was originally owed.
Kessler used YouWalkAway.com to help him through the process. And it is a good thing, because there are now speculation firms forming that are purchasing the debt on walk away defaults for pennies on the dollar.
The gamble is that if the borrower did not use a service or a lawyer, they will be able to settle with the borrower for an amount that is less than what was owed, but still present a profit to the speculation firm.
This is classic chattel collections and it can be very powerful, especially if a deficiency judgment is filed when the borrower walks away.
It is not for the feint of heart, but I actually applaud Kessler. He made a business decision – no different from the banks who are foreclosing and who expect the losses to be mitigated on the backs of tax payers.
If you remove the fear of loss from an investor, read bank here, you will be the victim of perfidious acts that make Knotts Scary Farm look like a tour of Willie Wonka’s factory.
You must learn and understand the process so you are not a victim. If you do not take responsibility to learn it and engage with people who can help, you have no one to blame but yourself.
The other shoe is about to drop…and it’s bigger than Shaquille O’Neal’s.
Appraisal Source is a New York based residential real estate appraisal firm. Their highly-qualified appraisal staff provides independent residential real estate appraisals throughout Long Island and New York City.
Here’s the original article…The New Face of Foreclosure: Strategic Defaults