Negative Equity Does Not Justify Strategic Default

Real Estate Agent with Remax Excellence - Silver Spring, MD Maryland #318884

According to Zillow’s Negative Equity Report, about 15.7 million homeowners – or 31.4 percent – are underwater.  Of these homeowners, one out of every ten are delinquent on their mortgage – 10 percent of which are 90 days past due.

“While it was disappointing to see negative equity numbers remain so high, it is important to note that negative equity remains only a paper loss for the vast majority of underwater homeowners,” said Zillow Chief Economist Stan Humphries. “As home values slowly increase and these homeowners continue to pay down their principal, they will surface again.”

Unfortunately, some homeowners view negative equity as a reason to justify strategic default.  Strategic default happens when homeowners decide to stop paying their mortgage, even though they can afford it.  This leads to long-term negative consequences, especially with respect to the individual’s credit score. 

In a homeowners’ survey, similar to Zillow’s Home Price Expectation survey for June, 59 percent of respondents said they would not strategically default – 37 percent cited moral reasons, while 35 percent said that it wouldn’t make sense due to the fact that they planned to live in their home long term.

“These survey results suggest that economic and financial considerations are not the dominant drivers of behavior for even deeply underwater borrowers,” said founder of Pulsenomics, Terry Loebs.

For many underwater homeowners, a short sale may be the best option.  Homeowners should take every measure to avoid foreclosure, as the ramifications for this can be long-lasting and devastating.

To learn more about the short sale process, contact Emcee Arah and DeeCee Real Estate online or call 301.452.5252.  As a real estate professional who has earned the Certified Distressed Property Expert (CDPE) designation, Emcee and his team of professionals have made it their mission to know the best possible options available to distressed homeowners for both their present AND their future…and you can trust that your free consultation will be always be completely confidential. 


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Emcee M. Arah

Realtor w/Architectural Dimension, CRS, CDPE, CIAS
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