James Surowiecki is a writer for the highly regarded financial publication The New Yorker.  He was interviewed on CNBC's Squawk Box this morning, and he feels that more people need to consider strategic default as a solution to their underwater home loans.  He cites the fact that American Airlines is strategically defaulting on their debt as support for his position.

Mr. Surowiecki may be a thoughtful writer, and he may be on to something with his comparison of Joe Sixpack to American Airlines.  He may however be comparing apples to oranges, and I don't think it's possible to get orange juice by squeezing apples. In the interview, one of his main points was that you probably won't be the object of any type of collection action after the foreclosure, at least if you live in a non-recourse state.  This sounds to me like barber shop legal advice, and it's probably a good thing that Mr. Surowiecki does not need a license to write stuff.  What happens to licensed real estate professionals when thay give legal advice?  At the minimum, they become unlicensed real estate professionals.

The comparison of a person to a corporation is perhaps a little unrealistic.  If I own a corporation and it defaults on its debt and goes bankrupt, I can simply create another corporation and start over.  Try that with a human who has destroyed his credit through strategic default.  Let's see, Joe just walked away from his home and he is in financial distress.  Let's just wipe him out and create a new Joe.  Of course it's not that simple, and the old Joe may not be happy about being removed from this planet.  The old Joe needs to go through years of poor credit history and slowly rebuild his credibility with lenders. 

If you're considering walking away from your home because the debt level is too high, you need to get some professional advice before making your decision.  While The New Yorker may be a nice magazine, you should probably seek advice from other sources.  If you're having serious financial problems, you need qualified legal and financial advice from real experts.  While not cheap, qualified advice could help you avoid disaster.

E.J. "Mike" Carlier  Lakeville, MN

Keller Williams Preferred Realty 

612-916-3033

http://www.prettygoodhomes.com

 
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5 Comments on Another "Expert" advises strategic default

DEC
19
2011
11 Featured Posts Outside Blog

Hi Mike-

Interesting post.  Surowiecki is a smart guy - Wisdom of Crowds is a favorite of mine.  After reading your blog post, I read his article at the New Yorker (http://www.newyorker.com/talk/financial/2011/12/19/111219ta_talk_surowiecki).  I didn't see th Squawk Box snippet but found the print article compelling but hardly inflammatory.  I think as Realtors we tend to hide behind the 'giving legal advice' curtain.  Simply by telling buyers "now is a good time to buy" is of a type of legal advice.  We need to be aware of strategies that can best meet our clients' needs and share them freely but with prudence and documentation that demonstrates they need to find "expert" assistance.  To simply avoid a discussion about the dangers and benefits of strategic default is a complete disservice and truly relegates us to "sales people" rather than "professional consultants".  We can't have it both ways and expect the public to have respect for what we do.
11:06am • #1
385,382 Points 8 Featured Posts Called Shot Master

Chris, we are licensed to represent and assist buyers and sellers in real estate transactions.  What in the scope of our license requires or even allows us to give advice and information to people about a legal maneuver to avoid paying a debt? Yes, we need to be able to explain and implement strategies that meet our clients' needs, but only to the extent that they are buying and selling real estate. 

I guess that any advice could broadly be considered legal advice, but advice about how to avoid paying a debt seems a bit more flagrant.  I think Surowiecki, by urging underwater homeowners to walk away, and by explaining how and why the walkaway will probably not get caught  was functioning as something more than just a writer.  Once again, he can probably get away with it and licensed real estate professionals can't. 

 
11:36am • #2
523,394 Points 10 Featured Posts Outside Blog Called Shot Master

Bravo.  This is spot on.  Realtors, I know from experience, are not attorneys.  And, as in your comment, they can only advise about real estate transactions and nothing more.  
2:22pm • #3
262,293 Points Called Shot Master

Many people walked away thinking that they would roll right into another home in no time.  many got stung with higher interest rates on their current debts.   When these peiople decide to quit this bull thing may have a chance to get better.
8:27pm • #4
DEC
20
2011
385,382 Points 8 Featured Posts Called Shot Master

Ron, although most are not attorneys, many are part time agents with day jobs.  The ones who are attorneys would probably never give legal advice without sending a hefty bill.

Vern, unintended consequences of an unintended duration can be the result of following what looks like legal advice from a writer.

 
11:01am • #5


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