With almost 23% of the homes in a negative equity position nationwide, it leaves many homeowners that are not in a financial hardship wondering why they are paying on a home that is worth significantly less money than what is owed on it. Some homeowners are deciding to walk away from their homes.
When a homeowner makes a decision to stop paying their mortgage without a financial hardship and let the bank foreclose or do a strategic short sale, this is called a strategic default.
Traditionally in the past, most banks would not consider a short sale with out a financial hardship. Some lawyers are arguing that anyone who has negative equity of 30% or more on their home are in a financial hardship. This really leaves us thinking that a financial hardship can be very subjective. Furthermore when banks start walking away from foreclosure or foreclosed properties themselves, it makes homeowners wonder why they are way overpaying for a house that no longer has the equity in it. Following are articles about banks canceling foreclosures or walking away from homes they own.
NY Times article on banks canceling foreclosures
Chicago Tribune article on bank walk-aways
When you read this articles as an underwater homeowner, it makes you wonder why your not walking away. Let’s face it the banks are profit driven and if they are making a financial decision to just walk away, why wouldn’t homeowners. The question is why are the banks willing to not foreclose or walk away? The cost to foreclose and maintain the property or if the bank already owns the property the cost of maintaining it is greater than what the bank can sell it for.
So will the banks consider a strategic short sale? Some will and some won’t. If a bank thinks you will walk away from a home and you will let them foreclose, they may consider a strategic short sale a better option. In a foreclosure the banks will easily spend an additional $35,000 to $50,000 dollars in legal costs to foreclose and the cost of carrying a home.
It is a weighty decision for a homeowner to walk away from a home. Massachusetts as well as many other states is a “recourse” state. Meaning that the bank can take action to collect the difference that is owed between what the house is sold for and what is actually owed on the house. There are credit reporting ramifications, there can be tax ramifications as well as overall financial ramifications. It is a decision that should not be taken lightly. At the end of the day, regardless of the outcome you may decide a strategic short sale or a foreclosure may be right for you.
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This post was provided by Kevin Vitali of EXIT Group One Real Estate In Tewksbury MA. You can contact Kevin by email at kevin@kevinvitali.com or call 978-360-0422.
I pride myself in the quality of my work while helpingbuyers and sellers make dreams come true.
Real Estate Services in the northeast Massachusetts, around the Merrimack Valley, Southern New Hampshire including the towns of Andover, Billerica, Boxford, Chelmsford, Dracut, Georgetown, Groveland, Haverhill, Lawrence, Lowell, Merrimac, North Andover, Newbury, Newburyport, North Reading, Rowley, Tewksbury, Tyngsboro, Westford, Wilmington, West Newbury
