November 2009 Archives

November 1, 2009

Many Miami Homeowners Choose Strategic Default and Foreclosure

Miami and South Florida has a new trend to add to record levels of foreclosures, delinquencies and loan losses. Many distressed homeowners are choosing strategic defaults or walkaways. Surprisingly, borrowers with good credit are more likely to walk away from home underwater than a subprime mortgage borrower.

A "strategic default'' occurs when a borrower abruptly and intentionally stops paying mortgage. Using a massive sample of 24 million individual credit files, researchers found homeowners with high credit scores are 50 percent more likely to walk away than lower-scoring mortgage borrowers. Many who chose a strategic default understand the consequences of what they're doing. They are clearly sophisticated. They usually are selective about payments they make. For instance, they often pay home equity lines until they bail on their first mortgage and many draw down more cash on the equity line.

Recently, the national credit bureau, Experian, identified the characteristics and debt management behavior of homeowners who bail out of their mortgages. They found 588,000 strategic defaults nationwide in 2008, more twice the number from 2007. Eighteen percent of all serious delinquencies lasting over 60 days are strategic defaults.

Strategic defaulters go from perfect payment histories to no payments at all. Most distressed borrowers try to keep paying their mortgage after they've fallen behind. They want to save their homes, not dump them.

If you are considering a strategic default, know your credit scores will be severely hit. Many see it as the only practical solution to deal with their negative equity. Strategic defaults are found everywhere that home values boomed and cratered since 2006. In Florida last year, the number of strategic defaults was 46 times higher than in 2005. In other parts of America, defaults were about 9 times higher in 2008 than in 2005.
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There are dangers in trying a strategic default without strong foreclosure defense counsel. You will lose points on your credit score and may ultimately get hit with a deficiency judgment. The best advice is to fight back against the bank to make sure they have reason to waive the deficiency and let you walk away.

Strategic default - 09_20_2009 -

November 1, 2009

Miami and South Florida ... A Warning About Foreclosure Deficiency Judgments

Good foreclosure defense lawyers in South Florida are warning clients about deficiency judgments. Whether you live in Ft. Lauderdale, Pinecrest, Miami Beach, Coconut Grove or Coral Gables, homeowners considering a strategic default should be mindful. The real danger in a foreclosure is that Miami Judges are granting deficiency judgments.

When a home is underwater or upside-down, a foreclosure sale price is far less than the loan balance. In Florida, lenders can apply to the Court for a deficiency judgment after a foreclosure up to five years later. The judgment amount is the difference between the loan and the market value of the home on the day it sold at a foreclosure auction.
Judgments are good for 20 years. Judgment holders can force people into court every year to disclose their finances. They can seize bank accounts, assets, garnish wages, even the family dog (its considered property under Florida law). ,

Quietly, many investors are buying up these deficiency judgments at pennies on the dollar. These investors tend to be very aggressive and look to recover a higher rate of return than the larger institution. They are willing to put the effort in," said Jeff Baum, formerly with SunTrust Bank's unit handling residential mortgage-backed securities.

Once a deficiency judgment is awarded, it is often sold to debt collectors. A bank will walk away rather than spend money to collect a debt that will force the borrower into bankruptcy. Many lenders are saying "So, why not sell it for 25 cents on the dollar?"

The best way a homeowner or borrower can protect themselves is hire strong foreclosure defense counsel to negotiate a waiver of the deficiency judgment.