Million-dollar homes more likely to remain in default
Homeowners across the country are finding themselves in an impossible predicament. If a home was purchased prior to the housing market crash, its value has inevitably tumbled right along with the market. The recession means that millions of homeowners are finding themselves unable to make high monthly mortgage payments. Yet homeowners who have less equity in a home than what they owe on its mortgage are unable to sell, and cannot relieve themselves of the monthly obligation, often leading to default, foreclosure, and bankruptcy.
For owners of million-dollar homes, the difference between the amount owed and a home’s value is generally larger, and the market for the home’s sale generally smaller. This means that many wealthy homeowners are being forced to make tough decisions regarding their financial future.
Some are choosing to default on their home strategically, considering it a mere business decision, says homeowner Darren Thomas. “People like myself, business people, are [saying] it is silly to throw good money after bad,” he said, adding that he has not made a payment on his $1.3 million townhome in two years. “The loss is not mine. The loss is the banks.”
According to realtor Chad Ruyle, wealthy homeowners such as Thomas are generally able to default and remain in their homes for many months, if not years. This is because banks are slow to begin foreclosure proceedings on pricier homes, not wanting to take on a risky investment. “Banks are less willing to take those homes back because they are harder to move on the market, harder to sell and much more of an up-keep,” he said. As a result, Ruyle says, it is often much less costly and time-consuming to just allow the homeowner to remain in the home, even when they are no longer making those big mortgage payments.
In addition, says realtor Rob Magnotta, a foreclosure in a swanky area can do much damage to home values throughout the neighborhood, which banks have a vested interest in protecting. “An empty $2 million home hurts the inventory around it,” he said.
Source: CBS, “Even More Millionaires Defaulting on Mortgages“, John Blackstone, 30 January 2011
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