Raleigh Real Estate Group

It seems that although the Government has put a law in place to help Americans keep their home by filing for a loan modification they left one of the most important factors out of the equation, THE LOAN PRINCIPLE! In a loan modification the banks are only looking at adjusting your monthly payments. They are not forgiving any of the principle balance regardless of how much your property value has decreased. In most cases the banks are adding on fees to the principle amount. This is why some borrowers have decided to dismiss the hectic loan modification process and take matters into their own hands.

The "Strategic Default" is a term I came across from an article I was reading on the foreclosure crisis. Apparently some homeowners have decided that it is better to walk away from their homes from a financial viewpoint. The example they gave in this article was amazing and I must admit, that in some cases walking away does make financial sense but what about moral sense?

Let us say you bought a home in 2005 when home prices were moderately high. Now that same home has gone down in value by 40% but your principle balance does not reflect that. Do you still have the obligation to the bank to pay what you originally agreed to pay? The borrowers that walk away say, "no." Their opinion is the real estate market was inflated with dishonest values making their loan principle invalid. Do you agree?

The borrowers that choose to walk away assume some very negative consequences. In most cases their credit profile will show a foreclosure and their scores tank. They are subject to being sued and having judgments against them. They are in most cases forced to become renters. Now their bad credit scores are under scrutiny and evaluated before they can get utilities, insurance and a host of other services. Will walking away really be worth it in the end?


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