Study Reviews “Strategic Defaults”
A recent study has indicated that homeowners who are “upside down” in their mortgages are more likely to default in “non-recourse” states. This means the lender cannot go after the borrower’s personal assets if he stops making payments. California is one of these non-recourse states. Here, a loan to buy an owner-occupied property of one to four units falls into this category.
The study found that those in higher-end homes were much more likely to strategically default than those in more modest properties. Strategic defaults refer to the fact that the borrower chooses to discontinue his loan payments even though he has the funds to make them.
According to what I heard recently at my California Association of Realtors meetings, lenders are now aggressively pursuing borrowers who provided false information (e.g., inflated income) on their loan applications. In those instances, the borrower could be liable to the lender.
For more information, see the Wall Street Journal article, “Report Sheds Light on Why Homeowners Walk Away.”