Executives who improve a company's bottom line by backing out of bad deals through strategic defaults on their commercial real estate loans often get bonuses. But when homeowners choose not to pay their mortgages because their homes have lost value, they are often vilified as deadbeats who are impeding the housing market recovery. Nevertheless, are there circumstances in which a financial advisor should recommend strategic default?
Some industry observers say yes. When the value of a property has fallen so much below what is owed that it would take years to recover the lost equity, it's foolish to go deeper into debt to pay for it, according to Jon Maddux, CEO of YouWalkAway.com, a foreclosure company that charges a fee to help homeowners default. Rather, owners should use the laws to their advantage to forestall foreclosure while saving money to secure a better financial position in the future. James Surowiecki, a financial writer for The New Yorker, recently wrote that it's time for owners who have no hope of recovering their losses to ignore the perceived stigma of default and do the "smart" thing rather than the "right" thing.
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