Strategic Foreclosure

A new term has emerged in the ever changing real estate world. Just as none of us knew what a "short sale" was 4 years ago or a "flipper" 9 years ago, we now have chance to expand our vocabulary and incorporate "strategic foreclosure". A strategic foreclosure is when a property owner has the ability to pay their mortgage but chooses not to. This group now accounts for about one in every four foreclosures. This has created an ethical discussion for those involved.

You borrowed the money, you owe the money. Why should you not pay it back? Yes the property you own dropped below what you borrowed. The same house in your neighborhood can be bought for a fraction of what you owe. You think, just walk away from it and let the bank take the loss, but if the property had gone up in value would you be trying to give money back to the bank? I don't think so, that was not the deal. The loan was not contingent on property values staying up. If you loaned money to a friend and he lost it wouldn't you still expect him to pay it back?

On the other hand weren't the banks greedy making all the loans they could, encouraging you to lie about your income, the "no documentation liar loan"? Any one with a pulse could borrow half a million dollars. The bankers were receiving huge bonuses and the federal government was encouraging it all. You have a little savings for retirement or the kid's college fund. Now, throw it all away to support Wall Street? Didn't the banks know that they were taking a gamble making all these high risk loans? It was a calculated business decision based on the value of your real estate. They calculated wrong. You don't pay, they foreclose. It is all spelled out plain and simple in the mortgage documents.

Interesting question let me know what you think.

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