Disclaimer: Keep in mind while you read this post that I am referring to people that can afford their mortgage payments, they just don’t like that their homes are underwater, so they choose to walk away.
In a previous post, I discussed a home in our neighborhood that was basically abandoned by the previous owners. (They up and moved out of state, leaving the home to languish. They were not in any financial distress by any means.)
In a nutshell, the home was put on the market in August of 2011 for $299,000 and when I last looked about 6 weeks ago, it was being offered as a short sale for $235,000. I then noticed a lot of activity going on at the house, and I found out the house did indeed sell in February of 2012- for $208,000.
I have to say, that sale price is not good for anyone that is putting their house up for sale in the neighborhood, or wants to refinance.
At this point, I do not know if the new owners plan on staying in the house or flipping it. For the sake of home prices, I hope it is a flip so that a new sale price can go on the record.
Strategic Defaults Do NOT Just Affect The Bank And The Homeowner
Now, I know that a lot of people feel that ‘strategically defaulting’ is perfectly A-OK because a mortgage is an agreement between a homeowner and the lending financial institution. When the bank loans money, they assume a certain level of risk. If a homeowner decides to walk away (or in the case of my neighbor, run away) from their mortgage commitment, the bank has to suck it up because no contract is air tight and risk free.
However, as a homeowner, I don’t want to have to suck it up when I can’t refinance because my home’s value is now too low because of the ridiculous price this home sold at. (In reality, I don’t need to refinance, I already did that.)
I wonder though. These strategic defaulters justify their actions by pinning it on it just being a broken contract between themselves and the bank. Well, there are a lot of other people involved too, the defaulters just don’t see it. What would be great is if each person that defaulted was forced to go to the closing of every house in the neighborhood that was affected by their bargain-basement priced home. There could be an original sale price based on factors that do not include the defaulter’s home. Then another price could be assigned factoring in the low price of the defaulter’s home. I would like the defaulters to sit and face those sellers and see how much money they are truly costing other people.
Anyway, I don’t plan on moving or refinancing, so my neighbor’s house will not impact me. However, I feel bad for all the people in the neighborhood that it will affect, and it makes me angry.
(Keep in mind, I do recognize there are two parts to the equation. For every unhappy seller, there is a very happy buyer, which very well could justify the defaulter’s actions. However, I think it would be very difficult to watch your (former) neighbors lose money.)
What do you think? Do you think it is easier for people to walk away from their mortgage because they don’t actually SEE the financial impact on the neighborhood?