The wealthy are walking away

[n2doc]

Those who appear to have money are defaulting on their mortgages faster than any other group. Yes, we’ve written about this in the past – Los Altos Hills standing out for million dollar foreclosures and those who choose to walk away typically have higher credit and deeper pockets than most.

…the rate of default is one in seven for millionaire dollar plus mortgage holders while those with mortgages under this threshold is one in twelve.

And the trend is continuing as CNNMoney recently points out.

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%.

What still isn’t new is the fact that these million dollar defaulters are choosing to walk away and possibly recoup what they may have lost on their home with some free rent.

“In the lower-priced houses you’ll see more people defaulting because they can’t afford the payments and it’s a choice between feeding their family and paying the mortgage on a home that’s under water,” said Stuart Vener, a national real estate and mortgage expert with the Florida-based Wilshire Holding Group.

“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?” he said. In many cases, it often makes more financial sense to walk away.
…On average, it takes about 348 days for a foreclosure to be completed,… “They may get almost a year of free housing out of the deal.”

more
http://blog.sfgate.com/ontheblock/2012/02/24/the-wealthy-are-walking-away/

[Liberal_in_LA]

1. Yep. And the banks have figured out what type of person is likely to walk - someone with money

[Devil_Fish]

2. I an not shocked, nor do I blame them.

The banks pumped the bubble. When it poped, how can the buyer be blamed for excersizing their contract option of simply giving the house back to the bank. Not their falt that the house in now worth less then the bank is owed.

[gratuitous]

3. Ah, when rich people do it, it's "a business decision"

When po' folk do it, it's because they're deadbeats. Once again we see the application of a different standard based solely on a person's actual or perceived economic standing. I remember there's a word or a phrase for that, but I just can't bring it to mind. "Class" something or other. I used to hear it all the time during the Occupy demonstrations, but then it was because the aforementioned po' folk were the ones complaining about the system and the way it's rigged.

Dang! I wish I could remember.

[abelenkpe]

8. +1000 nt

[peacebird]

11. Exactly! When rich folks do it, it's smart. Poor folks? Deadbeats ripping off the banks.

[Hassin Bin Sober]

17. The GOP front-runner Mittens made a business out of breaking contracts..

... and running corporations through the bankruptcy courts.

How many mortgage loans and rental agreements did old Mittens stategically default on?

Behind all the "re-structurings" there has to be literally hundreds of burned creditors. Probably all public records for anyone who wants to look.

[B Calm]

22. BINGO!!

[dixiegrrrrl]

28. but..but..he's a "businessman"..don't ya get it???

It's...different....for people like him.

[Trillo]

19. That's about it! nt

[Sirveri]

21. You forgot to toss out the term 'Moral Hazard'.

Can't have that now, can't risk supporting that just to help the poor.

[handmade34]

29. uh...

double standards...
hypocrisy...
rich get richer, poor get poorer...
takes money to make money...
class system...
the American Dream?...
what? you talking about inequality? this is America, get used to it...
business sense?...
???
the poor are screwed...
....

[cyberpj]

4. Anyone know whether or not CA is a "deficiency" state? Most states have laws that

allow mortgage companies to come after you if/when you buy another residence.

[former9thward]

5. They don't have to wait for you to buy another residence.

They can go after your bank accounts, wage garnishments, assets, just like any other debt.

[cyberpj]

7. So 'foreclosure' doesn't affect the credit score of the wealthy? Or, I guess it doesn't matter

if you're THAT wealthy, huh?

[former9thward]

9. They have a score just like all of us.

It takes a hit but why do they care? They can just pay cash or use shell companies to buy what they want.

[Ruby the Liberal]

6. How many of these high end mortgages are held in

limited partnerships as opposed to borrower's name?

So they dissolve it, write off the loss and move on.

[xchrom]

10. Interesting question. Some % probably is. Nt

[Yo_Mama]

12. Purchase money mortgages = no deficiency judgments in CA

Of course if you cashed out you've got a potential judgment if you have the assets.

But in CA the lender has to pursue judicial foreclosure to get a deficiency judgment, which is uncommon. Of course if you have substantial other non-retirement assets and you cashed out to get the mortgage balance that high, a lender might decide pursuing judicial foreclosure was worth it, particularly if you are basically screwing the lender without an attempt to mitigate the loss.

A lot of people with close to million-dollar mortgages in CA aren't that wealthy, though. The funny-money mortgages allowed homeowners to cash out and really rack up the mortgage debt for things like college tuition - if you don't even have to pay the interest accruing on the mortgage for years, you could take out a pretty high mortgage in CA if your house had appreciated. Houses bought for 200 - 350K were out there with 800K - 1.2 mil mortgages based on appraised values which have tuned out to be ephemeral.

[AnotherMcIntosh]

14. Under the appropriate circumstances, Calif Statutes prohibit deficiency judgements.

See, generally, CCP 580b, 580d, and 580e.

There are exceptions, however.

[FarCenter]

15. CA, AZ, NV and FL are non-recourse states

They also have the highest rates of foreclosure and biggest drops in home value. They are the home of "jingle mail", where the owners mail the keys to the lender.

Other states where mortgages are discharged in bankruptcy have less of a problem. Homeowners are stuck with underwater mortgages with high interest rates unless they go bankrupt.

[nanabugg]

13. The rich are more likely to walk-out on all kinds of loan, from credit to mortgages.

I was familiar with our credit union in the late 90's. The highest percent of people who did not repay auto or personal loans were the folks at the top of the management chain, including many scientists. Yet the lower level workers had to almost sign away their birthright to get an unsecured loan. For most really working poor, their home is their greatest investment and mean to future security, therefore they will work two or three jobs if necessary to pay their mortgages. Of all the mortgage foreclosures I bet most had good paying jobs, fairly good credit scores, many assets. The working poor seldom file for bankruptcy because they can't afford the legal fees to do so. It's the so-called "middle" and upper classes that do this stuff regularly because they can...and a sizable number are repeat offenders.

[cyberpj]

16. "...and a sizable number are repeat offenders." (see Donald Trump) nt

[shcrane71]

27. The Omaha World Herald had a piece a couple years back where Buffet defended the little people

using the "moral hazard". I guess some less wealthy people listened to him. But you're absolutely right, for most Americans not having a mortgage payment in retirement will be about the only thing that keeps us from abject poverty.

[Trillo]

18. There is a clear regressiveness to this strategy.

If someone walks out on a high value mortgage, they may not have to pay $5000 per month, so that's $60K over one year, plenty for another place, if they can get another loan, or maybe they don't need a loan, and merely get one for the leverage it provides to their disposable. If a low-value mortgage exists, they may not have to pay $800-1200 per month, and only would be able to save, very roughly, $10K, which may not be enough for a new down payment, and they would also need a new loan.

Looking at those figures, I'm not at all sure it's in the poorer people's interest to not pay, but clearly it is for the wealthier folks' properties. So, once again, the system is rather clearly rigged to be more beneficial per owner for the wealthier to default, than the worker class, or even those that bought much more modest homes as a financial-survival strategy.

[R.Blue]

20. Getting away again?

All the more reason to support OWS as these incidents only fuels the cause against the 1%.

[sendero]

23. Depending on which state you live in.

.... you may or may not have the legal right to "walk away" with no recourse for the lender.

The banks created this mess and while yes, "walking away" is not good for the housing market in general, I for one would never blame someone for doing so.

Why? Because it isn't people who bought houses (nobody buys a house expecting it to lose 25% of its value over the next few years) that created this scenario. It was the BANKS in collusion with a totally ineffectual government.

If I were in that situation, money or not, I would WALK, just like a banker would and does.

[PotatoChip]

24. Yet, minorities and the poor are being blamed.

This is infuriating.

[sendero]

25. Blamed by liars..

... and liars believed by idiots.

As soon as someone mentions the CRA, you know they are a fucking moron.

[KharmaTrain]

26. Empty McMansions...

My cousins live in an area that was in the midst of "gentrifying" when the bubble burst. Prior to '07 realtors and contractors couldn't build enough of these monsters...putting them up as fast as they could in hopes of roping in more people with those attractive low adjustable rates. The municipalities were anxious, too, cause they hoped to see more property taxes from these big ticket homes. Instead the neighborhood is dotted with empty monsters or properties in various shades of halted construction. The result has been a neighborhood that has seen its property values fall due to all the vacant properties.