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.
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