Miami Foreclosure Lawyer Blog

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.

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 - MiamiHerald.com.pdf

Help from President Obama is on the way for homeowners facing foreclosure in Miami and South Florida. The Obama administration is fighting to get Banks and mortgage companies to act with urgency on loan modifications. Most recently, executives from 25 mortgage companies pledged to reach a new goal of about 500,000 loan modifications by Nov. 1, 2009. However, this falls far short of Obama's original goal of modifying loans for up to 4 million borrowers.

The plan is not without its problems. Many Miami and South Florida Homeowners and their attorneys complain the process of loan modifications is a bureaucratic nightmare. Many say the mortgage companies are doing things the plan plainly prohibits. Many borrowers are hit with upfront fees and given confusing information. There are long delays in the loan modification process which does not stop all lenders from moving forward with the foreclosure process in Court.

There are many reasons why this program is problematic. The loan servicers have hired thousands of new employees who must be trained on new operating procedures. Hundreds of investors have purchased the mortgage-backed securities and many have different rules on how to modify a loan. Not to mention the fact that thousands of borrowers call every day trying to modify their loans.

As of July 2009, the loan modification program has only about 200,000 borrowers enrolled. They were given trial modifications requiring they may timely payments for three months before a permanent modification is approved. The loan servicers are paid $4,500 for every modified loan once the homeowner makes on-time payments for three months. Almost 170,000 borrowers were denied a modification, but the Loan servicers refused to state why they denied the homeowner's application. That is another problem, that the reason for these decisions are not made public and there is no appeals process.

Obama tells mortgage firms to pick up pace - Jul. 28, 2009.pdf