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When is it Worth Giving Up on a Property?

By: Nick Adama

One of the great benefits of a mortgage modification used to avoid a foreclosure is that it is a compromise between the mortgage company and the homeowners. The banks do not want to go through an expensive process of taking the property back just to see it sell for much less than it is valued, and the borrowers want to remain in their property if only they had a second chance after a hardship and a reasonably affordable monthly payment.

But this benefit of compromise can be a drawback if the property is too far underwater to make it worthwhile for either the owners or the lenders to meet in the middle. And with the sharp decrease in home values over the past few years, more homeowners are turning to strategic default as a way to avoid the eviction process or being forced to pay for a property that is too expensive and not worth anywhere near the principal balance owed on the loan.

Conventional wisdom would have us think that foreclosure is a last resort for borrowers who have come to the brink of financial disaster and can simply no longer afford to make payments. But in the current real estate climate, this is not always the case anymore. A growing number of borrowers are treating the loss of equity in their homes as a business decision and walking away, letting the bank have the property back.

With nearly a quarter of the American housing market going under, can anyone blame homeowners for deciding to default on their loans? While there are consequences for taking this action, such as foreclosure and a severely damaged credit score, they seem like better alternatives for many people than paying hundreds of thousands of dollars more than a property is worth over the period of fifteen or thirty years.

Even if mortgage modification could be an option for certain borrowers who have lost all of their equity due to a declining market, strategic default often occurs when the owners are not behind on monthly payments. And owners who have not become tardy in payments are usually not qualified for a modification program. The financial institutions banks are only willing to modify loans for those who are facing a financial hardship and have omitted several monthly mortgage bills.

This means that the lenders are mostly unwilling to negotiate with owners who are concerned about spending too much income in the future on a house that is not worth what they have agreed to pay on it. And the only consequence is a civil lawsuit resulting in the loss of the property and a poor credit record. Neither of these are quite as disturbing as dedicating the next few decades of one's life to spending hundreds of thousands of dollars more on a piece of real estate than it is worth.

Strategic default is an issue that can not be eradicated through increasing government programs to prop up home values or by financial institutions offering mortgage modifications to borrowers that do not dramatically reduce principal balances owed. People with no equity in their homes already feel they have no ownership – giving up the expensive monthly payment is often worth the bad credit. And bad credit only lasts for seven years, while a mortgage that can not be refinanced on a property that can not be sold will survive for decades.

Article Source: http://www.articlemarketing.org

Nick writes articles providing foreclosure help and solutions to homeonwers who are at risk of losing their homes. His sites examine many different solutions to saving a home, including extensive sections on how to qualify for a loan modification that will not almost certainly default. Visit his site now to discover more about how foreclosure works and why a mortgage modification will benefit you: www.foreclosurefish.com/

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