Easy on Those Strategic Defaults

Strategic defaults generally refer to walking away from a home that's underwater. Short sales and renegotiations are much less offensive to mortgage lenders, though they take a bit of work.

More info re. conforming loans (not jumbos): Fannie cracking down on walkaways | Inman News

Speak with an experienced Realtor and an experienced real estate attorney if you're considering any of these options. - David

The 60 Minutes Walkaway: Conscience and Consequences

Debt forgiveness has long been a taxable event.  But the taxability of purchase money mortgage debt forgiven by a lender was relaxed by the Bush Administration and has been further lessened under Obama.

Yet there are limits, and these should not be a surprise to anyone, including those who appeared over the weekend on 60 Minutes bragging about how they plan to walk away from their homes without remorse - - or even to continue living in their homes without paying their mortgages until lenders physically ousted them, just because they can.

A key exception to tax relief

Pursue short sale before deed-in-lieu | Inman News

Your home is underwater (vs. the mortgage, that is).  Why not just hand over the keys and the title deed to the bank and walk away?  Because the bank probably won't accept them.  Here's why:

Pursue short sale before deed-in-lieu | Inman News

-David

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Long commutes make risky borrowers, study says

How about those folks who buy a home far from their place of employment?  Could that be a predictor of their likelihood to repay their mortgages?

Long commutes make risky borrowers, study says

I think it could, because it may be an indication that they don't really want to live or work where they do, but are driven to do so by financial need.  Think "Riverside" or "Lancaster," and the concept makes more and more sense. - David

Will walking away from a mortgage go mainstream? - LA Times

As earlier reported, it's not my intention to endorse what are popularly being called "strategic defaults." Roger Lowenstein, a former editor of the Wall Street Journal's "Heard on the Street" column, writes about the topic at this link:

Will walking away from a mortgage go mainstream?

Certainly walking away from properties that are underwater on their mortgages will have a seriously detrimental effect on one's credit.  But the concept may deserve thought when a property is so far underwater as not to stand a reasonable chance of recovering that difference in value within a meaningful time horizon.  Food for careful thought; ground that should be treaded lightly. - David

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"Strategic Defaults" - Not a recommendation, but some are doing it

A number of homeowners underwater on their home mortgages are switchng to rentals by walking away.  I'm not recommending this! But here's what some are doing. - David

"Underwater and Not Walking Away" - Paper by Prof. Brent T. White

Recently published study by University of Arizona Professor Brent T. White (no relation) on reasons homeowners underwater on their equity often choose not to "walk away."  One reason: concern over personal shame.  Better reason: It's their home, not just an investment!  And of course, most quality real estate will appreciate over time.  If this is your situation, an important read. - David

Click here for abstract and to download.

Citation: White, Brent T., Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis (December 7, 2009). Arizona Legal Studies Discussion Paper No 09-35.