Property Grunt

Monday, May 10, 2010

Walking Tall?

I wonder what Buford Pusser would say.

Strategic Default: Walking Away from Mortgage

Watch CBS News Videos Online

This has been going on for quite awhile. I am not surprised.

People were basically emotionally hijacked when they jumped into the real estate market. They did not take a hard look at their finances and the repercussions of the deals they were making. They just wanted a house at any cost. A lot of these people who are leaving can afford to stay in their homes, but after doing the math, they realize they owe more money on the mortgage while the value of their house is declining. So they turn in the keys and walk.

If you think about it, what keeps people paying their mortgage? Besides needing a place to live, it is protecting their credit and their sense of honor.

But consumers are no longer feeling emotionally attached to their homes and to their obligations. Wall Street and Corporate America has shown that walking away is the cost of doing business. And those people sleep pretty well at night.

The purpose of business is making a profit. If it is not making a profit, you either figure out a way to make a profit or cut your losses.

All these people are doing is taking a page from the same book that Tishman Speyers read in the Stuy town deal. There is no money in this deal for them, so they are pulling out of the deal.

Of course these their credit is going to be mangled beyond recognition but they figure that the money they save will make up for that and time will heal their credit. And as long they have a non-recourse mortgage, they should be alright.

However, this is just a further indication of how f**ked up the housing and credit markets will be in the near future. The foreclosure process is not the most efficient of procedures and there will be a lot of low hanging fruit in our future.

And with the relative ease of how one can walk away, lenders will definitely go back to the drawing board on figuring out how to increase the pain of owners who walk even though they have the money to pay their mortgage. I predict non-recourse clauses will either be stricken or be made extremely expensive to install.

Despite the fact that Federal programs to modify mortgages have pretty much failed. The Federal government will no doubt dump more cash into this money pit. And where do you think they will get that money? Here's a hint. Look in the mirror.

I believe in free will. Take whatever actions you want but be ready to accept the consequences. For those of you who decide to walk. Just remember, no one put a gun to your head to buy that house. And if you think you are going to walk away scott free with just a black mark on your credit report, you are going to still have to pay for it one way or another. In Manhattan, if a landlord sees a foreclosure on a credit report, they won;t even return your phone call. And if they decide to take you on as a tenant, you are going to have pony up a lot more to stick around. The result will be that any type of transaction that requires a credit report is going to amount to a considerable expense for someone has taken a strategic foreclosure. Of course there will a huge growth in services that repair credit.

Strategic foreclosures are not something be to taken lightly. If you live in an area that is recovering and has everything you need, you might want to consider sticking around.