In 2010, John Adams walked away from his Castle Rock house and its $435,000 mortgage. The 49-year-old software architect left the keys in a kitchen drawer and moved his family of five to a less expensive rental.
Another Coloradan who defaulted was a Boulder County mail carrier with three children under the age of 5. He rents now, saving $250 a month.
Both men owed more on their homes than they were worth, and they feared they would be indebted the rest of their lives.
They had much in common with 12,000 Coloradans whose homes are in foreclosure. But unlike many, they made a plan and voluntarily walked away from their mortgages. They asked their lenders for lower payments, and when their lenders refused — in part because both men still had jobs and were healthy — the men stopped payments.
Most officials condemn these so-called strategic defaulters — homeowners who technically can afford to make payments but opt not to. "Any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator — and one who is not honoring his obligation," said former Treasury Secretary Henry Paulson Jr.
But Paulson had it backwards.
Wall Street bankers, not homeowners, failed to honor their obligations. Bankers took excessive risks, designed loans to generate the greatest number of fees for themselves, pushed no-down and predatory loans on unqualified and financially illiterate customers, and paid lip service to modifications.
When housing collapsed, bankers took $175 billion in taxpayer bailouts and, to show their gratitude, promptly handed out $33 billion in performance bonuses to their executives.
The question is not why homeowners are strategically defaulting. It's why more aren't... the right way that is. Make your default "strategic" not disastrous.
• • •
Many are financially astute, such as the oilman who can easily afford the payments on his Vail vacation condo but makes a business decision to bail.
Others paid $400,000 for their home six years ago, but today see their neighbor's identical house sell for $200,000. They buy it, halving their payments, and dump their old house.
"Buy and bail" is considered mortgage fraud, but it's unclear how often charges are pursued.
Then there are the types like the mail carrier and the software architect: They borrowed too much, and when real estate tanked, they were trapped.
Defaulting used to be considered shameful. But today, when homes have lost one-third of their value, one-fifth are underwater, and 2 million are in foreclosure, choices are narrowed.
Still, the social stigma remains strong, says Brent T. White, a University of Arizona law professor who urges more upside-down homeowners to consider walking away. White believes lenders often exploit defaulters' guilt and exaggerate its impact on their credit worthiness. A defaulter's credit does suffer, but typically if he pays his other bills, his good credit rebounds within two years, White says.
"Homeowners should be walking away in droves," White has said.
"Lenders, with the government and media's help, have shamed and scared these homeowners into holding on — into scraping together to pay their underwater mortgages, even when it means sacrificing their retirement security, not being able to pay or save for their children's college education, or scrimping on the basic necessities such as clothes and food," White told Arizona Republic website readers.
Others agree that lenders exploit borrowers' financial naivete, and argue banks are well protected.
“Well the bank set the terms, and the bank also set the provisions for what happens if somebody does stop paying. Let's take a look at this. What that contract actually says is, number one, If the homeowner continues to make the payments, the bank will leave the homeowner alone. It also has provisions in there that say, if the homeowner doesn't make the payments, the bank has recourse. That recourse is the bank gets to take the house.” says Eric Brown of Mortgage Relief Solutions, which has helped clients strategically default ( the right way) since 2003.
“It's just a contract. You didn't sit across the table from your banker and look him in the eye and he said, You're going to pay me right? You didn't do that. Did you? In some cases, it makes good business sense to walk away from a bad investment -- just like the banks do all the time." says Brown.
We feel there is a better way to "break the contract" by letting us take over the property to avoid possible foreclosure, instead of you just walking away and foreclosing for sure. If you were going to walk away any way then what have you got to lose by turning the property over to us, Mortgage Relief Solutions and possibly gaining?
Lenders don't see it that way. Universal Lending's Peter Lansing, past president of Colorado Mortgage Lenders Association, calls strategic default by anyone not in severe financial trouble "a scheme to screw banks."
"You made a promise to pay, and you can pay . . . . If Americans decide they don't have to pay debts anymore, what happens to those investors who want to loan you money? What happens to our moral compass?"
But Lansing feels sympathy for those who lose homes because of unemployment, health issues or divorce. "We [lenders] made loans under terms we should not have. We all admit that."
• • •
John Adams' situation was complicated. In 2007, he put $21,750 down on a $435,000 home in Castle Rock. He was also heavily invested in real estate.
When housing crashed, his three rentals needed repairs, and one went vacant. He couldn't find buyers. Then he lost $150,000 in three real estate investment clubs, which he now describes as Ponzi schemes. "I would agree 100 percent that I was overextended," Adams says.
His salary was $100,000, but Adams didn't see how he could recover. His balloon payment was due in four years, "and all my retirement seed money was gone. I have three kids to raise."
Adams went to his lender, but the bank "was very aggressive. They had no intention of working with me on a loan modification. They would pop by the house to work me over, and then give me a lecture. They told my wife they would hunt us down to the ends of the earth."
Adams contacted a company that takes over houses for homeowners like him who need or want to walk away, which helped him negotiate his default. Still, it took an emotional toll.
"All my life I thought anyone who defaults is a deadbeat. . . . Now I'm a deadbeat."
Like Adams, the mail carrier is not proud of defaulting, and would talk to me only if he remained anonymous. He also is bitter about being rejected for a short sale, a modification, and the Home Affordable Modification Program on his condo, which he bought for $165,000 and was recently valued at $110,000. His $53,000-$55,000 salary was considered too high.
"The bank just would not work with us. We turned our back on the bank because the bank turned its back on us."
• • •
A lot of people feel conned. Economists and government leaders were all saying there is no question that a home is one of the soundest investments you could make. [But] the American Dream turned into a nightmare.
Indeed, millions of Americans will never recover. The crisis cost middle-class Americans $7.38 trillion — as much as half their wealth tied to their homes.
In a recent Vanity Fair article, economist Joseph Stiglitz writes the richest 1 percent of Americans receive nearly a quarter of the nation's income. The top 1 percent control 40 percent of the wealth. The middle class, in the meantime, has gotten poorer.
The housing meltdown further widened that frightening wealth gap.
The crisis had many contributors: consumers over-borrowed, regulators fell down, and two presidents rescued bankers, then failed to hold them accountable.
But by far the greatest sins were Wall Street's, and if more mortgage holders start strategically defaulting, the banking industry has only itself to blame. Understand this: if you're considering "strategic default" (allowing your home to be foreclosed, even if you can actually afford the payments), there's a lot for you to think about and to an increasing number of financially savvy people, "default" is no longer a dirty word. Strategic default is increasing in usage among financially savvy people, and exactly what they're doing to make sure that the consequences of strategic default don't cause huge problems for years to come, making default Strategic not disastrous.
Lenders Can And Do Sue Foreclosed Home Owners For Their Foreclosure Losses, Despite "Protection" From State Laws...
Many people facing foreclosure - particularly those considering 'strategic default' - think that their state has a law that will prevent their lender from suing them to make up for the lender's losses in a foreclosure. But the truth is very different from that::
-- Just think about it... if your house is foreclosed and the lender sells it at auction for substantially less than you owed them, who takes that loss? The lender does... and more and more, they are doing everything the law allows to collect that money, including suing their foreclosure victims --
It's true that about 1/2 of the states in America have some sort of law on the books that purports to protect home owners from lenders who want to sue them for foreclosure losses. So right there, 1/2 of America is standing completely exposed.
But what about the other half... do these laws actually protect foreclosed home owners from lender lawsuits? I've got some bad news for you: In nearly every case, there are some very substantial and broad exceptions to these laws that make them nearly worthless to most people. (This is particularly true for 'strategic defaulters'... lenders really dislike these people quite profoundly.)
If you're considering strategic default, just simply walking away (unfortunately the way people think it should be done), or if you're facing a forced foreclosure, you need to understand the risk you face after the foreclosure.
We provide a clear and reliable strategy that will enable you to "Strategically Default" a better way. If you "strategically default" the wrong way, you're really doing nothing more than extending the problem for many years into the future. But with the proper preparation, structuring and strategy, you can get the most out of the decisions you choose to make.
We feel there is a better way to "break the contract" by letting us take over the property to avoid possible foreclosure, instead of you just walking away and foreclosing for sure. Which is what most home owners do for a so called "strategic default" usually resulting in nothing but a complete financial horror story.
Again, you can do what many homeowners are doing to get immediate financial relief: "Strategically Default". If done the wrong way however, by simply walking away and consciously/voluntarily foreclosing it can turn out to be the most disatrous choice you have ever made financially.
If you were going to walk away any way then what have you got to lose by turning the property over to us, Mortgage Relief Solutions and possibly gaining? Don’t just walk away… walk away right. We help make your default "Strategic"...not disastrous.