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Ever Heard of a Stratigic Default? This Should Interest AR Members

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Real Estate Broker/Owner with CREST "BACKYARD' HOMES, ON THE LEVEL General & Manufactured Home Contractor, TAG Real Estate Sales & Investments 521400, 1501015, 01795582
I just wanted to share this withe the AR community for those that don't subscribe to Realtor Magazine. I found it quite interesting that this seems to be the direction we're heading in in some states.





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Daily Real Estate News  |  December 18, 2009  |   Share
More Home Owners Walk Away
A growing number of home owners in Arizona, California, Florida, and Nevada—where prices have fallen the most—are walking away from their properties.

They are leaving the deal behind not because they can’t pay but because they don’t want to. A study by researchers at Northwestern University and the University of Chicago concludes that as many as 25 percent of defaults are driven by strategy, not necessity.

If many other people follow suit, “It’s going to be really difficult to prevent a cascade effect," says Paola Sapienza, a professor of finance at Northwestern.

Brent White, an associate law professor at the University of Arizona, points to actions by banks themselves to avoid staying in bad business deals as an example of why homeowners should make a decision "unclouded by unnecessary guilt or shame."

For instance, on Thursday, financial services firm Morgan Stanley announced that it is turning five San Francisco office buildings back over to its lender two years after it purchased them when the market was at its priciest. The buildings are estimated to be worth about half of what Morgan Stanley paid.

“This isn’t a default or foreclosure situation,” spokeswoman Alyson Barnes told Bloomberg News. “We are going to give them the properties to get out of the loan obligation.”

Morgan Stanley is apparently current on the loan, so this is what is known as a “strategic default.”

Some might ask: If strategic defaults are OK for banks, why aren’t they OK for ordinary homeowners?

Source: The Wall Street Journal, James R. Hagerty and Nick Timiraos (12/17/2009) and Bloomberg, Emily Friedlander (12/17/2009)

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John DL Arendsen, Broker, General & Manufactured Home Contractor and Dealer 

TAG Real Estate Sales & Investments

TAG (The Arendsen Group) Real Estate Sales & Investments is a full service, one-stop, turnkey, family owned and operated real estate brokerage, General Contractor, Manufactured Home Contractor, Developer, Investor, Property Manager, Interior Design, Engineering, architectural, Landscape design, Expert Witness, Consulting, Curative Title and Troubleshooting company with over 100 years of combined experience in the San Diego real estate sales, construction, design & development arena.

 

 

 

 

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Show All Comments
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

"Some might ask: If strategic defaults are OK for banks, why aren't they OK for ordinary homeowners?"

The bank expects to do future business with Morgan Stanley.  They don't with an individual home owner.

Or, they were suffieiently covered by the original down payment money.

Or, the fed got to the bank and persuaded them to take the property back.

Generally, the big guys will look out for each other.  They don't give a fig about the little guy.

Dec 21, 2009 02:15 AM
Andrew Monaghan
The Monaghan Group - Glendale, AZ
CRS, GRI, EPro Associate Broker

This is becoming more and more prevalent in our market, it has become a financial decision and people are looking at the numbers.

my home has dropped by 50%, it will take 10 years at normal appreciation to recover and my credit will return in approx 5 years.

Dec 21, 2009 02:28 AM
Lisa Walston
Atlas Property Group and Abbey Church Properties - Greenwood, IN

Whatever happened to personal responsibility and honor?

Dec 21, 2009 02:49 AM
John DL Arendsen
CREST "BACKYARD' HOMES, ON THE LEVEL General & Manufactured Home Contractor, TAG Real Estate Sales & Investments - Leucadia, CA
Crest Backyard Homes "ADU" dealer & RE Developer

Whew, how the world is changing. I've seen more s___t happen in the past two years than I have in the past 64.

Dec 21, 2009 07:15 AM
Tammy Lankford,
Lane Realty Eatonton, GA Lake Sinclair, Milledgeville, 706-485-9668 - Eatonton, GA
Broker GA Lake Sinclair/Eatonton/Milledgeville

I have seen more and more people doing this.  I can understand when there is an inability to continue to pay you cut your losses and move on, but when you have the ability to pay, but walk because your home isn't any long worth what you owe... I see it as just wrong.

Dec 21, 2009 08:45 AM
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