CNN Money reports that Realty Trac is showing over 36o00 homes valued at $1 million or more were foreclosed or served with a notice of default. This is a 115% increase in this market segment while the percentage of homes in the $500,000 to $1 million range has fallen by 21%. These, the article reports, are “strategic defaults” by homeowners whose homes have negative equity.
While the downsides of such a strategy need to be carefully considered, including the inevitable damage to credit, the fact is that in many states, including New Jersey the judicial foreclosure process is so slow that homeowners can enjoy substantial “free rent” before having to move, and the risks of personal liability, while present, are low. (In New Jersey, a first mortgage lender on a typical home mortgage must complete the foreclosure sale and has 3 months to file suit against the borrower personally). For many people, this may be a worthwile alternative to bankruptcy that allows distressed homeowners to regain their financial balance and re-take control over their lives.
This strategy should not be pursued except after receiving competent legal and tax advice.
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