Yesterday's Wall Street Journal highlights three major developers - Macerich, Vornado Realty Trust and Simon Property Group - that have recently decided to "walk-Away" and default on their mortgages.
More and more commercial real-estate companies are doing what many underwater homeowners would like to do: Walk away from mortgages on properties that are now worth substantially less than they paid for them.
When companies do this, no one seems to give it a second thought --it's looked at as "smart business."
However, when ordinary homeowners think about doing it, it's more than a business contract; it's a social contract, in which homeowners have a "moral obligation" to pay.
It's ridiculous. A residential mortgage is no different than a corporate mortgage. If corporations are allowed to walk away from mortgage obligations without feeling shame and guilt, then individuals should be able to do so, too.
The contract homeowners sign when they take out a mortgage spells out exactly what happens if the homeowner stops making payments on the loan. The lender has the right to foreclose on the house, taking the homeowner's down payment and possibly other costly improvements with it. In addition, the borrower's credit rating will usually get destroyed, and, in Florida, the lender can come after their other assets to recoup what they've lost. Those are big penalties. They provide a major incentive for the borrower to continue making his or payments. And that's why the lender, a corporation, put them in the contract.
The truth of the matter is that the lender voluntarily entered into the contract (your mortgage) and did so because it thought it was a smart business decision. The fact that it actually turned out to be a lousy business decision is not the homeowner's fault. It's the lender's fault. And the borrower, who is already feeling plenty of pain, should not have to bear the burden of guilt and shame on top of everything else.
Thinking about walking away from your mortgage?
Here's what you should consider;
- More than 49% of Florida's homeowners' are "underwater" with no sign of reaching the bottom in home values. Home values continue to show a dramatic decline; Port St. Lucie values have dropped 79%, the Cape Coral/Fort Myers area almost 76% and the Miami-Fort Lauderdale area continues to decline at a rate of 15.2 percent year-over-year, and are not yet showing signs of reaching a bottom in property values, with high inventory levels still proving to be a challenge.
- Is the amount you owe on your mortgage more than the amount your house is worth? If the current value is less than you owe the bank, you're "underwater".
- What is the cost for you to rent a similar home?
- How long do you intend to stay in the home?
- Estimated average of appreciation or depreciation your home is likely to experience over that period of time.
The main downside to a foreclosure is bad credit. Buying a home or a car is probably out of the question for a couple of years, but if you have a good credit rating (above 660) within a few years after a foreclosure, according to
a recent paper by Brent White, a University of Arizona real estate expert
. You might be even able to qualify for a federally-insured FHA loan to purchase another home in as little as three years. Technically the bad credit could last as long as seven years.
But before you even consider walking away, make sure you're on sound legal ground.
While it is a challenging decision to make, a strategic default can be the best financial decision given a certain set of circumstances. Before making the decision to do a strategic default, it is critical that you have a thorough credit, financial, and legal analysis performed, to ensure that it is the best option.
At the Carman Law Firm, P.A. we believe it is our responsibility to provide you the tools necessary to assess your situation and make a decision that is best for your future. Upon retaining our team, we will set up a plan that includes asset protection, reducing or eliminating any deficiency on the property and repairing your credit report to boost your credit rating as quickly as possible.
Seeking the advice of an experienced Florida foreclosure defense and real estate attorney is the best option to protect your rights and the long-term financial well-being of you and your family.
Contact the Carman Law Firm today. Call us today at (561) 392-7031 for a FREE initial consultation to discuss your rights and options.