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Strategic Foreclosure

Guest post by: James Dicks

Article Overview: James Dicks examines the current state of the U.S. housing market.

Strategic Foreclosure

As 2011 approaches, some predict that by the end of that year 48 percent of the nearly 50 million mortgages will be underwater. WOW! That's a lot. We are all affected by this whether we rent or own, want to own or know someone who does own a home. The effects are far and wide.

What do you do if you are upside down on your property and the bank is running you around and around? You know...asking you to send in the same documents over and over again. Well you can do a Strategic Foreclosure.

What is a Strategic Foreclosure? Another word for tell the bank come get my property and you are tired of their crap. You have to take a step back first and decide where your moral compass sits. What is the right thing to do, make your payments, as promised? Sure financial responsibility is admirable, but it is hard to maintain that kind of thinking when the very financial institutions you owe money have little to NO financial responsibility. What happened to lead by example?

Hire an attorney and it will take one to three years for a foreclosure to happen.Now think for a moment about your situation. If you do what all the big corporations do, you put business first. If that is the case, you may want to consider a business decision on your biggest investment, your home. I can better explain this with an example, which happens to be a real life example from someone I know.

Okay, you buy a modest home in 2006, 4 bedrooms two baths, two-car garage about 1600 square feet, relatively new. You pay $225,000.00 put in about$30,000.00 in upgrades. All of a sudden the market starts to pull back, and it did. Next thing you know you are paying way more than you can rent the property for, the house across the street just sold for $112,000 and there are ten more on the street for the same price. What do you do?

Well, you first try and call the bank to see if you can get approved for one of the many home mortgage modification plans. But you are not so lucky since you don't meet any of the requirements, and it wasn't from a lack of trying. You were told "sorry" so many times you quit counting. Now all of a sudden your job has reduced your hours and pay. You are lucky enough to still have a job but nonetheless, you are now struggling to make your mortgage payment. You decide enough is enough and can't make your current mortgage payment. One month turns into three and so on. You are still trying hard to get a modification but to no avail.

Finally you are making headway with the bank and you believe you can see a light is at the end of the tunnel you think, the bank says "no problem, we will lower your payment and you can keep making payments on your original note." WOW, thanks but no thanks, don't do me any favors! But why say that?

Let's look at why.

Even if they lowered your principal you are wasting your time as far as a business decision is concerned. The house is only worth what someone is willing to pay, and right now that's $112,000.

So you walk away from this house, the one you owe $260,000 on. You live in it for say 3 years total before it is foreclosed on. Yes, your credit will be affected, you will have a foreclosure, along with about 50 percent of the other Americans out there that owned a home and experienced a foreclosure. But you are better off saving your money and renting at a price you can afford for the next few years. Get your feet back under you and then buy when the job and the housing market has improved a bit.

If you end up buying a home similar to yours, let's say the one next door, for say $112,000 in the next five to seven year, it will probably be back to the levels you currently owe - $260,000.

So, a sound business decision encourages you to walk away, make a deal with bank, turn over the house and owe nothing. Save a little money, put down 20% on a new house in two years. Even if your credit is affected you can do a rent to own or a lease purchase. After 12 months of good payments, you can refinance it as your primary residence.

The $112,000 house you will buy for $120,000. You put down $10,000.00 and owe $110,000 over the next six years. Your house goes up in value to say $200,000 and your mortgage goes down to say $95,000.00 and you have $105,000.00 in equity. Meaning if you stayed in the old house that you owed $260,000, it is now worth $200,000.00 and your mortgage is down to $230,000.00 give or take. Which scenario, as a business decision, seems better, upside down or positive?

You have to weigh the pros and cons the decision to be moral and ethical make your payments or make a sound business decision and be ahead financially. Only you can make that decision. I will tell you that the banks and big companies make these decisions every day and they always choose the business decision. That's not a reason to condone it, but a reason to seriously sit down and consider your choices.

One thing is for sure, the real estate market will come back, until then look for the opportunities they are always present.

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Article Tags: business, economy, education, expenses, financial growth, financial responsibility, goals, government, housing, interest, james dicks, mortgage, real estate, success, unemployed



Related Forum Posts
Re: Hi All, - Welcome Aaron!! what type of Real Estate investing do you specialize in? in Toronto I am involved in purchasing properties at wholesale prices prior to the owners going into Foreclosure.
Different Hats - CEO Sales & Marketing & Leadership Development Company Strategic Vision 10 Alliances & Growth Strategies 10 Hiring & Managing People 8 Mentoring 8-9 Strategic Planning for Clients 10 Execution of Marketing Campaigns 9-10 (i have great people who do the nitty gritty) Financial Management 9 Bookkeeping 3 (outsourced as I really hate the fine details like GST0 Administrative Follow Up 6-7 (again have great staff) Writing & Publishing 9 (getting better all the time!) Speaking 10 (so I have been told) Self Promotion 9-10 Web development & Promotion 6-7 (learning more and have brought on players who are 10+) Babysitting Employees (1 - wont do it, that's why I work so hard to hire and motivate the people I have) Great topic Kevin!! Jude
Craigslist/Kijiji Sales - Would like to know who on this forum is having any success with generating business through Craigslist or Kijiji by posting ads there? What kind of business do you run and what do your ads state? I've been using the sites to generate leads for Foreclosure properties and I've been having some success. One of my Business Coaching client is a software developer and he's been having a lot of success with Craigslist - almost $7000/month. what's your view on it ?
Re: Essential Leadership skills - Vision Values Mission Strategic Thinking Decision Making Communication Team Bonding People Development Coaching / Mentoring / Guiding / Grooming Presentation Thanks Robert
Do you believe in "Mantra" or "Mission Statem - In the Strategic Management course I'm currently taking, my group and I were supposed to come up with an improved mission statement for the organization we're analyzing or explain why the existing one doesn't need to be revised. However, business expert and author, Guy Kawasaki says "Forget mission statements; they're long, boring, and irrelevant. No one can ever remember them-much less implement them. Instead, take your meaning and make a mantra out of it. This will set your entire team on the right course" ("The Art of the Start" 3). Which do you use for your own businesses: Mantra, Mission Statements or neither? Thanks


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