Wealthy Take to Strategic Defaults | Print |  E-mail
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Friday, 02 March 2012 16:38


Real Estate Reality

By Carl Medford, CRS
Special to the Forum

With foreclosures dipping and short sales on the rise, you’d think we’d finally come to a place where we might be able to start seeing the light at the end of the tunnel.

You’d be wrong. Especially when it comes to one segment of the market. The rich.


While we’ve all heard of recent spectacular jet-set financial meltdowns and resulting evictions, by-in-large, the wealthy have been immune from having their homes ripped out from underneath them. With high-end home values slipping, incomes lowering and adjustable interest rates spiking sharply upward, most financially elite have had other resources to stave off the repo man.


However, as long-term financial forecasts are pushing price recovery further into the future than originally anticipated, many owners of exclusive high-end dwellings are concluding that it’s in their best interest to walk away.


And they are beginning to do so in droves.


RealtyTrac* informs that, while the foreclosure market-share for homes $500,000 to $1,000,000 has dipped 21 percent since 2007, properties valued over a million have increased their share of the pie by 115 percent. Your castle worth $2,000,000 or more? Foreclosures of dwellings in this exclusive multi-million-dollar category have ramped up… by an astounding 273 percent.


Historically, banks have been willing to work with owners of high-end homes because of their other financial assets.


Additionally, banks have been reticent to take the hit on such large investments. It’s why we’ve not seen many mansions hit the auction blocks. However, with a housing recovery apparently years away, and homes worth much less than the paper securing them, many affluent owners have concluded that foreclosure is a feasible alternative.


Even though they may have the means to keep making the payments, they’re choosing to “strategically default” to get out from under what’s become a poor investment.


It’s akin to dumping a poorly performing stock portfolio — they cut their losses and move on. But unlike those at the bottom of the financial ladder who’ve been totally devastated by the financial implications of foreclosure, don’t expect to see high-end defaulters visiting local soup kitchens. They may get a hit to their credit rating, but, in many cases, they have the resources to carry on as if nothing happened.


Will it affect prices on the high end? Absolutely. In fact, there may be bargains to be found. Only one catch — only a few will actually be able to afford them.



*The most trusted source of foreclosure information — www.realtytrac.com.

Carl Medford is a licensed Realtor with Prudential California Realty in Castro Valley and a licensed general contractor. This article is sponsored by the Central County Marketing Association at www.ccmgtoday.com



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