Some friends of friends recently made the decision to strategically default on the mortgages that they owed on two homes. House prices in the area have dropped significantly from the bubble era peak levels that were reached 3 years ago. Unfortunately, that is when these folks bought a couple these properties (they didn’t use us!). One was a primary residence and the other an investment property but they were both wildly overpriced when the couple purchased them. Now that they are sharply underwater on both homes with mortgages well above the current post-bubble values, they have decided to simply walk away. The couple has actually just purchased another home that is a well priced foreclosure to fix up and move into with the plan being to let the bank take back the other two properties while they walk away from the bad investment decision and the losses.
What this couple doesn’t quite realize is that banks have the right to pursue deficiency judgments against borrowers when the sale price of a home doesn’t satisfy the mortgage balance outstanding. In fact, banks have FOUR YEARS to pursue the money owed them. While I don’t have much sympathy for the lenders that made these ill-advised loans, the borrower shouldn’t expect to be able to simply walk away with only a dinged credit report and a somewhat damaged ego. Recent reports indicate that collection agencies will be contacting those who strategically default (a default by choice rather than by necessity) and the nightmare will return. If someone you know is considering just walking away from a mortgage loan even though assets exist to make the payments, tell them it isn’t that simple. Banks are under ever increasing financial pressure and will pursue ALL potential sources of revenue recovery. If the “turnip” has blood after all, it will be squeezed.
Short sales and foreclosures are sadly now commonplace in our Gatlinburg area real estate market with some of these being strategic defaults. With 8 new foreclosure properties assigned to me last week the supply is being re-stocked just about as fast as we sell them. Although I have 82 sales in 2010 closed or pending we have nearly 100 properties that we are already, or will soon be, marketing. The banks are eager to sell these properties quickly and are willing to take substantial losses which can be your gain. For a free current list of all area bank owned properties offered by members of our Great Smoky Mountain Association of Realtors (ours and other firm’s listings), please click here.