Strategic Foreclosure And The Last Man On The Boat

Strategic Foreclosure

I think it’s time to talk about foreclosure in a raw, brutally honest way.  Yes there are many people who are devastated by foreclosure and losing their home.  That was mostly last year.  This year it seems that more and more people are walking away that could otherwise pay.  What is happening? The phrase comes to mind “Strategic Foreclosure”.  I have been hearing more and more about “Strategic foreclosure” lately and to some people it means buy a new home, then bail on the old one.   The lenders have caught on to this and have changed some of their guidelines to help stave off this problem.  I think of strategic foreclosure as someone who choses to foreclose on their home, because it seems like the best option.  Why would someone do this you ask?  Well there are many reasons.  One being it is severely over leveraged or “underwater” and doesn’t look like it will come back for many years.  One tool you may want to use is here.  This can help you decide if you are losing thousands of dollars by “owning”. The reason I put the word owning in ” ” is because if you have no equity it’s more like leasing for a real long time.   Another reason is that you could be clearly putting good money toward bad.  First thing that comes to mind is giving a homeless person cash when they have a bottle of jack in their hands.  Another reason is that the house has no equity and is unsell-able.  It’s been on the market and no one has made an offer.  You’ve lowered the price over and over and still… no buyer.  Another reason is that you simply cannot afford it.  Your income is not high enough to support the payments and your lifestyle.   Let’s face it, you signed a contract, but the contract has a loophole or an “out”.

I have an iPhone.  I used to be with Verizon wireless and had a 2 year contract with them.  When the iPhone came out, I chose to break my contract so that I could get an iPhone.  I payed a penalty when I did so, because that is what the contract said.  Did I feel bad for breaking the contract?  No. I didn’t think twice, other than I didn’t like what it did to my bank account.  I used to have a membership at LA Fitness.  I realized after several months of non-use, that I was wasting my money every month and that I could save money by working out at home.  The truth is, people break contracts every day, and when they do so, there is something in that contract that says what the penalty will be.  The same goes for foreclosure.  It may just come down to simply assessing your finances, talking it over with a trusted person that knows about the law and your rights and deciding if it makes business sense.   You may be the type of person who says… “I won’t walk away from my house because I am a man/woman of principle and would NEVER do that.  If that’s the case, then thats great, but then don’t complain about your decision. Stand by it and suffer the consequences as well.  If you bought a home for say $300,000 and it’s now worth $80,000.  If just about everyone on your street has either done a short sale or walked away.  If you are one of the last on the street and you’re trying to hold it together because of your decision not to move, then you better be prepared and willing to have your new neighbors be:

1. A family that makes significantly less income than you do.

2. Someone who is paying a mortgage that is less than half of what you are paying.

3. Someone who is excited about getting a house so cheap. Now yours is cheap to, but not to you.

4. Renters and people who don’t have roots or a desire to set down roots in the community.

5. A real estate investor that is taking advantage of the low price to buy, flip it and make a big profit.

If you are this person, and if things persist by getting worse, you may be the last man on the boat.

The Last Man On The Boat

When I started www.YouWalkAway.com almost 2 years ago, I didn’t think that it could get as bad as an entire neighborhood in new communities would be abandoned and have just a few people living there. Now in cities like Riverside and Miami there are entire buildings and entire communities with preposterous occupancy rates.  I mean, one family living in a condo tower in Ft. Meyers, FL? come on.

I recently received a call from a man who because of principle was the last person to go after his entire new community one by one either foreclosed or sold short.  He noticed that there began to be crime in his neighborhood and didn’t feel his kids were safe anymore.  After listing his home for months without success, he finally made the decision to strategically foreclose and let his house go.

I understand if you feel like you made a promise to pay that mortgage and you are going to stand by that promise.  That is admirable and noble.  But do you think it’s smart?  Do you think it’s responsible?  Don’t cut your nose off to spite your face.  Here’s some info thanks to Wikipedia

Ironically, the phrase ” Cut your nose off to spite your face” as understood today does not really apply to Saint Aebbe, since she did not cut off her nose in an effort literally to “spite her face”. The expression has since become a blanket term for (often stupid) self-destructive actions motivated purely by anger or desire for revenge. For example, if a man was angered by his wife, he might burn down their house to punish her; however, burning down her house would also mean burning down his, along with all their combustible personal possessions.

In this case it’s obviously not out of revenge, but it’s out of principle.  But it’s like saying I am not going to break a rental agreement on an apartment when you got a better job in another town because you signed something.  That is ridiculous.  In the contract it clearly states your penalty and guess what….so does your mortgage note.

If you want to stay, stay.  If you need to, have to or want to go, then go.  Don’t let a contract that clearly has an out stand in your way.  Of course, make sure you check and clearly understand what your implications legally and tax wise could potentially be.

If you have watched your neighbors jump out of the sinking boat and jump on to life rafts and it seems like your the last man on the boat.  Unless you put a big down payment down, have a 15 year mortgage on the house or a ridiculously low rate / payment, could it be time to join them.

Please understand that this is only my opinion and is in no way legal advice or foreclosure advice.