When The American Dream Becomes A Nightmare

According to Wikipedia, “A strategic default is the decision by a borrower to stop making payments (i.e., to default) on a debt despite having the financial ability to make the payments.” That is, a strategic default is a carefully considered business and investment strategy.

Florida Realtors and homeowners have become all too familiar with foreclosures. Very few  Realtors are proficient at negotiating a Florida short sale in order to avoid a bank foreclosure. Almost none of them understand a strategic default. This term didn’t even exist just a few years ago. Specialists exist today in Strategic Default Florida, Strategic Default California, Strategic Default Arizona, as well as in a few other states where hom values have fallen dramatically.

Homeowners who owe more on a property than the property is currently worth are said to be upside down or underwater in that property. When a borrower in a non-recourse state doesn’t pay their property loan, the lender can recover title to the property through foreclosure, but has no recourse to obtain a judgment for any remaining balance owed. Laws in recourse states permit a lender to obtain a court judgment against the borrower’s personal assets.

In these recourse states–such as in Florida–if a property cannot be sold for an amount sufficient to pay off the entre indebtedness, lenders are quick to file suits for deficiency judgments against property owners. Once a judgment is obtained, the borrower’s remaining assets that are not adequately protected are typically seized and liquidated by the judgment holder.

Thousands of Florida homeowners have over-leveraged their investments today, and many of their properties are underwater in relation to the amounts owed on them. Lenders typically resist all negotiations that provide less than full payment of the entire balance of principle and interest owed.

Individuals with few personal assets often seek protection through bankruptcy. They can simply walk away from their mortgages and start over. Over-leveraged individuals with significant assets, however, are denied this option. Even though their property has declined significantly in value, should they default on their loan, their lender will almost certainly obtain a deficiency judgment and seize their other assets of value.

A few knowledgeable attorneys and CPAs have specialized for years in asset protection. Such specialists understand the law and how to apply it for the full benefit of their wealthy clients. Reputable asset-protection advisors do nothing against the law. As a comparison, any good tax attorney or CPA understands tax law, and knows how to work within its confines to structure investments and business transactions that legally save on taxes for their clients. Similarly, asset-protection specialists know how to structure legal entities and business transactions that legally benefit their clients in a variety of situations. Today’s depressed and over-leveraged real estate market is a prime example of one desperate situation where experience and professional expertise is crucial.

Strategic Default Florida Group consults with individuals who possess significant assets, and who owe more on a real property than the property is currently worth. It’s estimated that fewer than 2% of practicing attorneys and ½ of 1% of active Realtors truly understand how to properly negotiate or structure the sale of a property for these individuals. Properly negotiate means that the lender 1) Accepts less than the full amount owed, 2) Cancels the mortgage obligation as “debt satisfied,” and 3) Agrees in writing not to pursue legal action against the borrower’s remaining assets.

When properly negotiated and structured, such an agreement is a win-win situation for all parties. A strategic default Florida transaction protects the remaining assets of the borrower(s,) while providing the lender with an amount that represents the true current market value of the property. This arrangement preserves the remaining assets for the borrower’s family, while delivering funds in a timely manner to the lender, and at considerably less expense than might otherwise be possible. The impact is also far less negative on the borrower’s credit score than suffering a foreclosure or subsequent deficiency judgment.

A transaction of this nature in our state is known as a strategic default Florida. The borrower with assets makes a strategic business decision to transfer ownership of the property for its current value, which may be significantly less than the amount borrowed against the property. Once made aware that the borrower’s remaining assets are not available for seizure, the lender quickly recognizes the advantage of agreeing to a rapid “Florida short sale” of the subject property for its actual value. This avoids the lender’s holding the property in inventory for some future appreciation that may or may not occur.

The difference between 1) the value of the property at the time of foreclosure or short sale, and 2) the amount of the note (assuming the note is larger) is considered by the IRS as “debt forgiven.” This entire amount may be considered income subject to federal income tax. For a short period ending at the end of December 2012–due to the Mortgage Forgiveness Debt Relief Act of 2007–this “phantom income” will not be subject to tax on primary residences.

Unless the end date of this Debt Relief Act is extended, upside-down homeowners who sell or have a property foreclosed after December, 2012 will be liable for income tax on any “forgiven” debt. This amount is also treated as ordinary income–not capital gains.

Can you imagine losing several thousand–perhaps hundreds of thousands of dollars–along with having your home seized by the bank, and then wind up owing the IRS thousands of dollars more in taxes on top of everything else?

The window of opportunity to avoid this nightmarish scenario is rapidly closing. Since negotiations with lenders and short sales often require several months, it would seem prudent to get things underway as quickly as possible. Delaying a decision until the last minute can result in serious and very expensive consequences.

1) Would you purchase this same property today for the amount currently owed on it?

From a business viewpoint, an investment in a home is not unlike an investment in stocks, bonds, or mutual funds. Would you feel some sense of moral obligation to hold onto one of these investments while watching its value precipitously decline? If you make a bad investiment, cut your losses as soon as possible and sell. You can easily rent until the market recovers, and then buy another home–or theoretically the same one–for its true market value.

2) Who’s interest do you choose to protect–your family’s, or that of some huge lending institution?

Remember that your lender drew up the contract that you both signed.This contract spelled out the exact steps to be followed if you defaulted on your payments. Lenders, plus their teams of CPAs and attorneys calculated this risk and incorporated it into the interest rates that you and other borrowers were charged. This was a financial transaction, not a marriage, lifetime emotional commitment, or honor-bound pledge. No one forced the lender to sign that contract. Indeed, they designed it to protect their interests, not yours.

Rest assured that lenders don’t hesitate to exercise their right to take a person’s home if it’s in their best interest to do so. Concerns of morality or social responsibility are not part of the equation. You took a risk as well as the lender. When lenders suffer a loss, they turn to the federal government for a bailout. Where do you turn? Who protects you?

3) Does it make you feel like a bad person to consider walking away from your mortgage?

Bank officers and payment clerks often attempt to make you feel like some sort of criminal or immoral deadbeat when you fall behind or stop making your mortgage payments. Why? Because they want your money. Period! And yet banks walk away from huge investment properties all the time if it serves them to do so. This is the nature of their business and they understand how the system works! It’s to their advantage if you do NOT understand how the system works.

Law Professor Brent White of the University of Arizona wrote a brilliant paper entitled, THE MORALITY OF STRATEGIC DEFAULT. Following a careful analysis of the situation, he says,

“Morality and emotions have no place in one’s decision to strategically default on a mortgage. Forget about shame and guilt. Don’t worry about your credit score. If you owe more than your home is worth, stop paying your mortgage and walk away.”

The abstract of his paper concludes:

When Should You Consult Strategic Default Florida Group?

To apply a Florida boater’s analogy, the waters of our 2012 real-estate marketplace are filled with sharks and pirates, and bordered by dangerous reefs. Big banks and self-serving lenders are more than willing to sink the ships and plunder the fortunes of unwary homeowners. Successfully navigating such treacherous waters requires experience and expertise in multiple areas. These include:

Our Strategic Default Florida Group provides all of the above. We are a one-stop safe harbor, comprised of licensed, experienced, professional Realtors and attorneys who specialize in Strategic Default Florida and the Florida Short sale. We also handle strategic mortgage default in several additional states. For years we have delivered proven asset-protection strategies and strategic default Florida services. We successfully negotiate many Florida short sale contracts each year for our clients on distressed or over-leveraged properties, while helping protect and preserve their other assets. Our associated law firms are recognized as among the leading asset-protection firms and most powerful legal negotiating teams within the United States and abroad.

Our Mission: Protecting Your Assets 

Our mission is to see that you walk away with your assets largely intact following a Strategic Default Florida.

We understand that each of our clients is unique. Each has a special situation that must be individually addressed. And each receives our personal attention.

We’re also unique. In the areas of Strategic default Florida and  Florida Short Sale expertise, we have no equal. We are truly one of a kind. We look forward to serving you during this challenging time.

All consultations are held in the strictest confidence.

For your private consultation, please provide your name and telephone number in the following form. We do NOT share your personal information with anyone. Period!

Strategic Default Florida Group

Agent: Glenn Musto

Charles Rutenberg Realty

Tampa Bay, Florida

For information, call Dr Charlie:  (727) 344-9382