Today Reuters looks at the "foreclosure crisis, Beverly Hills-style," which as you can imagine looks a bit different than the "foreclosure crisis, Phoenix-style" (the neighborhood is probably in a somewhat unique position in LA too--rich, but not as rich as a recession-resistant neighborhood like Holmby Hills). In the 9-0, walking away is all the rage, says Deborah Bremner, owner of Coldwell Banker's Bremner Group. She told Reuters that "she had seen in Beverly Hills a big increase in 'strategic defaults,' in which owners who can still afford to make their monthly mortgage payment choose not to because the property is now worth so much less than the giant loan used to buy it during the housing bubble." She adds that she recently sold a house that the prior owner had bought for $4 million (with a $3 million mortgage); he stopped paying, "even though he could easily afford it," when the house's value fell below $2.5 million. The strategy works well in California, because this is a non-recourse state, in which banks can only take a property--not wages or other assets--in the case of a default.
Here's another case: a Beverly Hills lawyer says he stopped making payments on his house on Schuyler Road (he had $3 million in loans from Countrywide) after he got a letter from the lender freezing a line of credit linked to his second loan: "Friedman says he decided to stop paying out of a sense of vengeance from the moment he received that letter. He has been in negotiations for months with Bank of America, which took over Countrywide after its collapse, to modify the loan."
You know, It almost sounds like some of these walkaways could be strategic in a social sense as much as a financial one ("I didn't have to default, I wanted to!"). Anyway, according to Reuters, "some 180 houses in Beverly Hills" have currently been foreclosed on, scheduled for auction, or served with a default notice, and most of the delinquents owe more than $1 million. Reuters is concerned that a shadow inventory is building up--only 12 of those properties have hit the market.
· The U.S. foreclosure crisis, Beverly Hills-style [Reuters]