I have never really stated my position on strategic defaults but I actually do have a strong position in regards toit. I just never talk about it. I guess that makes me chicken.
However, today I am coming out of the closet.
The problem with Las Vegas & Strategic Defaults is that is all around me. Friends, Former Clients, Strangers Down the Street. Here I go being chicken again.
Even with being surrounded by the cavalier attitude that was portrayed last night on 60 minutes I have not become immune or changed my position on what is coined a "strategic default".
In fact, sometimes I am still out right shocked when it comes to the attitude.
Let's Talk Consequences
For the Homeowner:
Ruined Credit: Think again if you have the mindset that you will rent for half price of your mortgage payment. Posted rental rates are usually for people without pets and with solid credit, employment and rental history. Think you can buy a house in 3-5 years again? Go skip down to the "Greater Good" section of this post.
Tax Consequences: See a CPA to find out if your deficiency may have tax consequences.
Defiency Consequences: See an Attorney. Even though Nevada is a non-recourse state, they can still collect a deficiency.
Promissory Note: A promissory note was signed that has the home held as collateral. There was some talk in my SFR designation class about the theory of the promissory note being valid after the foreclosure. Just because the home is no longer collateral after the trustee's sale, the promissory note may still be valid. Again, you may want to see an Attorney on this matter. So, for example, you paid three years of your mortgage, the bank took back your home. Just because your home is gone, the promissory note may not be. SEE AN ATTORNEY FOR CLARIFICATION ON THIS MATTER!
For the Neighborhood & Community:
Foreclosure causes declines in prices and declines in the immediate community it results in.
For the Greater Good:
Mortgage Lending: Every time a homeowner gets foreclosed on, a new risk is assessed and mortgage underwriting guidelines change to try to beat that risk so another foreclosure doesn't happen in the future.
This means fewer and fewer buyers can borrow money which pushes prices downward further & the strategic default cycle continues.
Default ~> Foreclosure ~> New Lending Risk Profile ~> New Underwriting Guidelines ~> Less Buyers in the Pool ~> More Downward Pressure on Prices
"Wash, Rinse, Repeat" is what I am calling it.
It isn't pretty out there. I am seeing re-defaults from 2007 & 2008 and a even some from 2009 purchases. Now if you think you may be able to purchase a house 3-5 years after foreclosure with the underwriting guidelines continuing to get tougher and tougher. You may want to think again. I am surprised we still have mortgages today. You may want to save cash to purchase your next home if this continues.
Don't Get Me Wrong, I am Not Being Judgmental
I understand there is a personal breaking point and I was almost there once, myself. Without getting too personal we did have a major hit to our income three years ago. I am underwater and hanging in there.
Just Make Sure You Are Making the Right Choice...
Contact an Attorney, CPA and the Correct Professionals before making your decisions. They will look at your entire scenario and you need to make the decision from the advice given in regards to consequences.
Do Not Make Decisions from: Blog Posts, News Shows, Friends, Neighbors Down the Street or because it appears to be the "in" thing to do.
How's That For Trying to Remain "Neutral as Switzerland?"