Why a strategic default is never strategic

joybender

JOY BENDER – San Diego short sale real estate agent Joy Bender has launched a campaign to educate high-end homeowners on the alternatives to strategic default.

A strategic default occurs when a homeowner, who can afford to make mortgage payments, proactively decides not to, in order to induce foreclosure, often because the mortgage balance is larger than the home is worth and the homeowner is considered “underwater” or “upside down”.

Bender says there is scant bail out relief for buyers who purchased luxury homes with jumbo or alternative loan products such as negative amortization and stated income.

Nearly 30 percent of all California homeowners are in the upside down equity position and an additional 4.6 percent at a near that negative equity position, says Bender, a short sale real estate agent affiliated with Trinity Homes and Investments in San Diego.

Many of these properties are vacation or investment properties.

“It is important for homeowners to realize a strategic default is never strategic,” Bender said. “However, a strategic short sale may be right for your situation.”

For example, if you owe $1.2 million on a property valued at $750,000 you are in a negative equity position by $450,000. When you calculate year after year hypothetical gains of 3 percent per year it will take over 10 years to break even.

Set to expire at the end of 2012, the Mortgage Forgiveness Debt Relief Act protects homeowners from tax liability in most cases. In the event of a short sale, the IRS considers the bank’s loss as income for the homeowner. They will issue you a 1099 for the difference in their loss. A homeowner could owe substantially to the IRS after December 31st, 2012.

“Homeowners need to make decisions today recognizing it could take 12 months or more to successfully complete a short sale. There is no more time to contemplate,” Bender indicates.

California laws SB931 and SB458 also allow you to walk away from both a first and second mortgage without taxes on the difference, making a strategic short sale a viable option.

“It is important that homeowners access their entire portfolio and their future financial goals,” Bender advises. “It’s also vital to consult with an attorney and tax adviser regarding potential recourse and tax liability.”

As a Certified Distressed Property Expert (CDPE) and short sale realtor in San Diego, Bender offers alternatives to strategic default in the form of a strategic short sale in San Diego.

Source: Joy Bender

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