Strategic Default: Would Half of Homeowners Walk Away?

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While there may be signs that the housing market is mounting a comeback, homeowners hit hardest by the real estate meltdown aren't growing any more patient, a new poll suggests.

An online poll conducted by real estate website HousingPredictor found that nearly half of of those who responded said that they would walk away from their mortgage obligations if home prices continue to slide. The poll, which drew more than 1,000 responses from visitors to HousingPredictor's forecasting website, is unscientific, but it does seem to reflect changing attitudes toward strategic default.

An identical poll conducted in March 2010 by HousingPredictor found that 32 percent of respondents said that they would pursue strategic default if prices continued to drop. In HousingPredictor's most recent poll that number ticked up to 47 percent, suggesting that a wider swath of beleaguered homeowners -- or at least homeowners who visit HousingPredictor -- are willing to ditch their loans.

In 2009, a national survey conducted by Reecon Advisors found that just one in 10 homeowners would probably choose to default on a home if its mortgage was significantly higher than the home was worth. But attitudes may have changed over the last few years, with strategic default shedding some of its stigma as many homeowners grow frustrated with falling home prices and revelations of bank malfeasance.

"Back in 2008 people were very emotional, very scared, in disbelief or denial," Jon Maddux, co-founder of YouWalkAway, told DailyFinance last fall. "Now they are simply fed up. It's a very calculated, black-and-white business decision. People feel very relieved."

Foreclosure Tips - Walking Away From the Property



















A recent prediction by Fitch Ratings would seem to suggest that such a cynical outlook among borrowers' would be unlikely to change anytime soon. The agency recently released a report that forecasts that home prices will drop another 9.1 percent before leveling out. That would leave even more Americans underwater, and perhaps even more open to pursuing strategic default.

The Price of Walking Away

While walking away from a loan may seem like the best route for a homeowner navigating the rocky terrain of today's economic landscape, homeowners should think twice about choosing the path of strategic default, some experts say.

Before the housing meltdown, a 30-day late payment often dinged a homeowner's credit score by only about 30 to 40 points, lending manager Glamis Haro told AOL Real Estate. But as of last sprin, that number is now closer to 100 points, Haro said. And if a bank forecloses on a home, its former owner may have to wait up to seven years before being eligible for a mortgage again.

What's more, in most states banks may sue a delinquent homeowner for the "deficiency," or the amount that the homeowner owes on a loan after the home sells.

If an underwater homeowner is set on getting out from under a loan, the borrower may want to consider opting for a "short sale." While the option may not release a borrower from liability for a deficiency altogether, it reduces a deficiency amount and limits damage to the borrower's credit score.

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Strategic Default: Would Half of Homeowners Walk Away?

Location: Trenton, N.J. 
Average Foreclosure Discount: 67.8 percent

Price: $198,500
Beds/Baths: 3/2
Sq. Ft.: N/A

Trenton ranks No. 1 on RealtyTrac's list of cities with the steepest foreclosure discounts. This single-family, whose price was slashed recently, represents one of the killer deals you can find in the city. 

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Dating back to the 1960s, this Cape Cod-style home offers three bedrooms and two baths. Judging by the average foreclosure discount of New Jersey, the home could be running as much as $150,000 below market value. 

Location: Atlanta 
Average Foreclosure Discount: 49.67 percent

Price: $3.75 million
Beds/Baths: 7/10
Sq. Ft.: 22,000

Foreclosed homes in Atlanta are selling for a staggering 50 percent off, according to data from RealtyTrac. This vacant Mediterranean mansion offers a rather excessive four kitchens along with amenities that include a home theater, pool, spa, steam room and elevator. 

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With its gleaming double staircase, the foyer's richly finished, sparkling-clean interior contrasts with the scene at many foreclosed homes, which often show neglect. 

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At a whopping 22,000 square feet, the home's cavernous interior is distinctly palatial.

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Location: Houston
Average Foreclosure Discount: 48.14 percent

Price: $4.29 million
Beds/Baths: 5/9
Sq. Ft.: 12,129

It may be hard to believe that $4.29 million is a below-market price, but given that this stucco Mediterranean is bank-owned and Houston's foreclosure discount approaches 50 percent, odds are that the home could be quite a deal for a well-heeled buyer. 

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The home has a stone exterior and tile roof, along with a courtyard, pool and outdoor kitchen. The interior stretches 12,129 square feet. 

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After weaving around columns and through arched doorways, you reach the home's library or its fully-contained suite, accessible through its own entrance. 

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Location: St. Louis
Average Foreclosure Discount: 54.61 percent

Price: $89,900
Beds/Baths: 3/2
Sq. Ft.: 1,342

This brick-built home, which dates back to 1930, probably hit the market at a reduced price to begin with, but now is running even lower, having just undergone a price cut. The home offers stained-glass windows and wood flooring along with a spruced-up kitchen. 

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Pictured here is the home's updated kitchen. The residence is even more of a deal if you factor in its purported HomePath Mortgage status. That means if you've got the right credit, you could snatch it for as little as 3 percent down. 

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Location: Lansing, Mich. 
Average Foreclosure Discount: 44.31 percent

Price: $124,900
Beds/Baths: N/A
Sq. Ft.: 2,228

Squeezed into a condo community, this historic home stands out in the neighborhood because of its stately portico. The home has a long residential tradition, but could go commercial if the buyer so chooses: The house can serve as an office, according to the listing. 

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The home's portico gives it a tinge of the pastoral era in which it was built. The classic was constructed in 1855. 

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Location: Grand Rapids, Mich. 
Average Foreclosure Discount: 43.45 percent

Price: $289,900
Beds/Baths: 4/4
Sq. Ft.: 4,339

You get a lot of bang for your buck if you buy  this four-bedroom contemporary. Located on a cul-de-sac, the home spans a generous 4,339 feet and offers a three-car garage. At under $300,000, that makes it an affordable luxury residence.  

See more foreclosed homes in Grand Rapids, Mich. 

Along with its expansive interior, the home also boasts its own heated greenhouse, along with a theater and office. 

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Location: Flint, Mich. 
Average Foreclosure Discount: 21.55 percent

Price: $109,600
Beds/Baths: 4/3
Sq. Ft.: N/A

Purchase a foreclosed home in Flint and you're likely to enjoy the benefit of more than 20 percent off. While the city's foreclosure inventory doesn't offer deals quite as striking as those found in some other cities wracked by the housing crisis, the town's average foreclosed-home price still falls far, far below the national median (which hovers above $200,000). Flint's average foreclosed-home price is just $60,578. This well-landscaped home demonstrates how far just $110,000 gets you. 

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The home may be a bit bare-bones now, but as the listing asserts, the home has "lots of potential." It comes with a pool, a deck and a two-car garage. 

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Location: Tampa, Fla. 
Average Foreclosure Discount: 24.97 percent

Price: $143,900
Beds/Baths: 6/4
Sq. Ft.: 2,920

At just $49 per square foot, this cheery home in Tampa, Fla., a city that took has taken a real shellacking from the housing crisis, offers of six bedrooms. 

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The bank-owned property spans nearly 3,000 square feet and boasts a well-equipped kitchen with cherry-stained cabinetry and marble countertops. 

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Location: Easton, Pa. 
Average Foreclosure Discount: 41.17 percent

Price: $29,900
Beds/Baths: 3/1
Sq. Ft.: 1,556

Alright! A listing description that levels with you. "This is a property that needs some work," it states. The home is not without its virtues, however: It offers ample space, three bedrooms and an attic. Furthermore, buyers can acquire 3 percent buyer's assistance if they make an offer by the 31st of this month. 

See more foreclosed homes in Easton, Pa.

One thing buyers should watch out for if they think about shelling out for these digs is that, as with many other foreclosures, there is no seller disclosure for buyers interested in this home. That means, unless you pay for a thorough inspection, you could discover hidden flaws after purchasing the place. 

See other foreclosed homes in Easton, Pa. 

Location: Chattanooga, Tenn. 
Average Foreclosure Discount: 40.39 percent

Price: $129,000
Beds/Baths: 3/2
Sq. Ft.: 1,456

This staid but cozy home is running for $129,000, about $40,000 over the average foreclosed home price in Chattanooga. The home offers a nice porch and decently finished interior. 

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Pictured here is the home's open dining-kitchen area. The place seems to be in pretty good shape for a foreclosed home. Many fall into poor condition, succumbing to insect infestations or other symptoms of neglect. 

See more foreclosed homes in Chattanooga, Tenn.

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Foreclosure Starts and Sales Spiked in January, Report Says

Millionaire Foreclosures on the Rise

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