Million-Dollar Home Defaults: Just What the Doctor Ordered
"We were putting money into something which was not going to get us anywhere," Junaid Nazeer said. The Nazeers' house about 25 miles north of Chicago had dropped in value from about $1.4 million when they had it built two years ago to about $850,000 today. "We tried to work with Bank of America, but they would not consider a principal reduction. While our conscious did not permit us to default on a loan, people we knew convinced us this was a business decision."
Today the Nazeers are clients of You Walk Away, which is helping them through the process of strategic default. They are part of a growing crowd of people who paid more than $1 million for their homes and now deciding to walk away. "Our clients include celebrities, pro hockey players and pro-ball players," says You Walk Away CEO Jon Maddux.
Maddux finds that high-end clients typically wait longer for default notices and "the process moves at a much slower pace." Banks don't want to pay the "higher taxes, maintenance and upkeep to mortgages for a longer time period.
Based on experiences of others the Nazeers know, they expect to be in their home for at least 18 more months. By then his wife will have finished her internship. They will move sooner than that if his wife gets her next job in another location. They are waiting for her to find a job before moving. Nazeer is a project manager and can base himself anywhere in the country. He travels when needed to job sites or works remotely.
RealtyTrac has found the number of defaults on million dollar plus homes has jumped dramatically in the past few years. In 2007 just 16,748 homeowners with homes worth over $1 million had received some type of foreclosure notice. By 2009, that number had jumped to 73,272. In 2010, the number will likely be about the same as 2009. By October 2010, the total was already 57,459. In 2007, high-end defaults represented only 1.21 percent of all defaults. But by the end of 2009 that number doubled to 2.53 percent. That's still a small percentage of the total defaults in 2009 of 3,170,915.
CBS reported that one in seven homeowners with loans over $1 million are facing foreclosure, while the number among homeowners with lower priced homes is one in 12. Maddux was not surprised to hear that number and expects the turnaround to take even longer at the top. He lives in the Nashville area where he says Realtors have told him there is currently a 20-year supply of high-end homes on the market.
Maddux thinks the high end market took longer to show problems because people had more in savings to pay the bills before defaulting. He says, "reality is just now setting in that their personal salary setbacks are permanent." Most are having to take jobs at much lower salaries than they had before.
Lita Epstein has written more than 25 books including The Complete Idiot's Guide to Personal Bankruptcy and The Complete Idiot's Guide to Improving Your Credit Score.
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