Million Dollar Homes in Foreclosure

Barry Ripp — Fri, 24 Feb 2012 18:23:00 +0000

Five years after the housing bubble burst, America’s wealthiest families are now losing their homes to foreclosure at a faster rate than the rest of the country — and many of them are doing so voluntarily.
Last year over 36,000 homes valued at $1 million or more were foreclosed on, or at least in default, according to data compiled by RealtyTrac, which tracks foreclosures. While that’s still a low percentage of all foreclosures, it is growing.
Out of all foreclosure activity, the share of foreclosures on properties valued at $1 million or more has risen by 115% since 2007 while the share of multi-million dollar foreclosures — or homes valued at more than $2 million — jumped by 273%. Meanwhile, the share of foreclosures on mid-range properties valued between $500,000 and $1 million fell by 21%.
Lenders are typically more willing to work with homeowners that have other resources. But with a recovery in the housing market still years away, foreclosure has turned out to be a worthwhile option after all. Saddled with bloated mortgages after a long run up in property values, many high-end homeowners have chosen to pursue a “strategic default.” Even though they can afford the monthly mortgage payments, they still decide to walk away from their home because they owe more on the property than it is worth.
In million-dollar homes, you’re looking at people who can afford it, but they have to make a business decision: Does it make sense to make payments on a mortgage when the home is worth less than they owe. In many cases, it often makes more financial sense to walk away.
This information obtained by the Calif. Asso. of Realtors, courtesy of CNN Money, Feb 23, 2012.

Rich Americans: ‘Take My Mansion, Please’ (huffingtonpost.com)
The Morality of Walking Away from a Home Loan (loans.org)
Foreclosure Filings Down 19 Percent In One Year (clewismortgage.wordpress.com)

Talking Points

Skand Mittal — Mon, 06 Feb 2012 03:07:00 +0000

1. As the housing market continues to struggle for stabilization, many homeowners are turning to strategic default. Almost 11 million homes are now underwater, according to Corelogic. Around 3.5 million homeowners are behind in their payments and another 1.5 million homes are already in the foreclosure process, according to RealtyTrac.
2. Aside from the moral quandary of whether strategic default is the right decision, there also are other factors to consider.
3. borrowers’ credit scores will take a hit. According to FICO, someone with a 680 credit score would see their score decline anywhere between 85-100 points after a strategic default, and someone with a 780 credit score could lose 140-160 points.
4. Borrowers who are considering strategically defaulting on a house should look at it as a last resort, not a first option. Financial troubles could be eliminated by refinancing, especially if the Obama administration’s program is implemented.
5. Each state has its own rules and regulations regarding foreclosures, which affect both the length of the process and what the borrower could be liable for in the end.

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Million Dollar Homes in Foreclosure

Talking Points