Foreclosures by choice, not necessity

The Raleigh/Durham/Chapel Hill market is not exactly plagued with foreclosure.  Undoubtedly there are more foreclosures and short sales now but for the most part, people can get their properties sold if they make the right decisions.  That is, to let go of the idea of getting all you can and selling as is.  The market is too competitive for that but preserving your credit should be a priority. 

I know two people who recently let a property go into default.  In both instances, the owners could afford to pay their mortgage but made a decision to allow the foreclosure.  They walked away from what they felt was a bad investment.  There is a term called “group think” that I believe can identify this phenomenen.  Meaning that being part of a group makes the behavior ok, to say, well all of them are doing it so why can’t I.  In the two instances I mentioned, one is a divorce situation and the other was a kiddie condo that lost equity.  Neither home was particularly expensive.

I read an interesting article that spelled this out statistically in a way that was enlightening.  Researchers found that one in four foreclosures were strategic.  The main factors in the default were the degree that the homeowner was upside down (owed more than the home value) and moral considerations.  The least likely to default demographic was well educated buyers in the Northeast and West and home owners below the age of 35 or over 65.

If you are upside down in your mortgage, there are plenty of alternatives that will preserve your credit.  There is no reason to quit paying your mortgage if you can afford it.  Explore refiancing options and if you need to move and can’t sell your home, consider renting it.  The important thing is to be proactive and seek out a solution.