With 1 in 4 American homes underwater and an estimated 1.7 million in foreclosure proceedings, strategically defaulting is becoming a more popular option for borrowers. However, Strategic defaults also come with a slew of personal and legal ramifications. Attorney at Law, Laura I. Shidlovitsky discusses the unglamorous side of foreclosing and what you can do before deciding to foreclose.
On average, it takes over one year for a homeowner to be evicted from their house once they stop paying their mortgage, according to a recent report by the New York Times. With close to 25% of homeowners owing more than their homes are worth, strategically defaulting may seem like a great way to live rent-free for a year. But, what are the legal ramifications of doing so?
Defaulting is stressful, but defaulting is not a walk in the park either. In addition to your credit score taking a nosedive, you’ll receive a slew of calls, visits, and correspondence by collection agencies, and in some cases, you may even be shunned by your neighbors for being responsible for a drop in neighborhood housing prices. Shidlovitsky. In certain states, like California, a short sale on your home might result in taxable state income, not to mention potential personal liability charges from the foreclosure proceedings. In other words, you might lose more than just your home.
A lot of discussion in the news on strategically defaulting has revolved around the morality of doing so. When asked whether strategically defaulting was morally acceptable, Attorney Shidlovitsky said it depends. âWhile, I am by no means, an expert on moral authority, I do believe that strategic defaults are wrong under some circumstances. For instance, borrowers who stop paying their mortgage and use those funds for personal items, like expensive dinners or trips to Disneyland, are doing a disservice to the rest of the society. It is not completely ethical to have your neighbors or the remaining tax payers carry the burden of oneâs irresponsibility”. If you are a borrower who did not overextend yourself in obtaining the mortgage in the first place, and are currently in financial distress due to something out of your control, like unexpectedly losing a job or being diagnosed with a serious medical condition, and need the money for those expenses, then defaulting is a morally acceptable option.
Moral or not, what can financially distressed borrowers do? Shidlovitsky, Is that homeowners still have several options besides foreclosing and being proactive can really pay off. As soon as you experience hardship, contact your lender to explore options, such as FHA refinancing. Try to sell your property. If that doesn’t work, you can do what is called deed in lieu of foreclosure where you turn your keys in to the lender and walk away. While some of these options may still impact your credit score, it is not as bad as the decline caused by a forced sale. Shidlovitsky’s other suggestions? Watch out for modification scam artists who charge high fees and guarantee modification and/or a stay of foreclosure proceedings, and don’t make any upfront payments, unless it is to an attorney, for loan modifications.
Laura I. Shidlovitsky, Esq., owner and founder of the Law Offices of Laura I. Shidlovitsky, is a very creative and personable Attorney at Law who tailors her legal counsel to meet the unique needs of her clients in all aspects of commercial and real estate transactions and negotiations. She has extensive experience representing individuals and publicly traded corporations in a variety of industries, including metals distribution, commercial real estate, healthcare, pharmaceuticals, restaurant, media and entertainment, transportation, and consulting. Ms. Shidlovitsky is also an active member in many professional organizations, including the LACBA Business and Corporate and Real Property Sections, the ABA Business and Litigation Sections, the National Association of Professional Women, and the Century City Chamber of Commerce.
To find out more about what to consider when facing a foreclosure or to interview Laura I. Shidlovitsky, Esq., please call (310) 684-3843.
Posted On: Los Angeles, CA August 25, 2010