MAKING SEN$E -- December 27, 2010 at 11:30 AM ET
The American Dream Deferred: What Befell our Strategic Defaulters?
We've devoted a lot of attention to the foreclosure crisis that is threatening the homes of so many Americans, and to various ways they've sought help: non-profit third parties; the government's loan modification program, HAMP.
But you may remember that some of those we covered had decided to simply stop paying and, if necessary, walk away from their property, aka 'strategic default.' The financial reasoning is pretty straightforward, according to a twenty-something Cape Coral, Florida resident and restaurant manager named Josh Bartlett, to whom we introduced you in April 2010.
"My $20,000 down-payment is gone," he told us the other day. "It became a business decision to me. It came to a point where I'm just working to try and pay [the mortgage], but I'm not living my life because every cent I made went into this place. Even if I was up to date with my mortgage now, I'd still be $150,000 underwater. My kids wouldn't even see that equity. And I don't even have kids yet."
Bartlett estimates that between the initial and monthly payments, he's invested $50,000 on a condo now worth only $40,000. In December 2007 he stopped paying his mortgage. Checking back in with him, exactly three years from his first non-payment, it turns out he's still living for free. His justification?
I was on time with every single one of my payments. I begged for a year for them to do something with the ridiculous interest rate, but I never got a response from the bank. I showed proof of my lost job, that I sold my car, and that I had no debt except this house.
My 401k, my savings, my investment portfolio, everything was gone in a year. I could have kept making those payments and going into debt, but it's just worthless now. I'm going to suck out the free rent as long as I can. That's what I'm living off of.
While a mortgage at $0 per month may seem like a gift from the banking gods, Bartlett says it's anything but.
"I want to get on with my life and get this credit mark off my past. I can't propose to my girlfriend because I don't know where I'm going to be next week. I can't rent a car. If they want to come and get me, come on and get me the hell out. It's so depressing to see where I might have been if I hadn't tried to have the American dream."
Bartlett blames himself. But he blames the bank too.
"I grew up in a blue-collar family and was taught to work hard and pay the bills. I signed that paper; I thought it was the right thing to do. But I want them to show me where they were right; where they didn't have ulterior motives, where they didn't line their pockets. The American dream has turned into my life's biggest nightmare."
Fellow Floridian and strategic defaulter Jason Welsh, a golf pro who we also interviewed back in April, says the foreclosure process hasn't moved an inch since we last talked with him. It's now been over a year since he made his last mortgage payment.
"This was more of a business decision. I have to think about my family, my three children," Welsh says. "I'm still in foreclosure process: every time you turn around, it's a different person you talk to. It's a nightmare and a frustrating process. The neighborhood went down. It's a bad situation down here."
In 2009, Welsh tried to sell his home, but offers were at least $125,000 below his current mortgage.
"[The bank] had no problem appraising my house for $300,000 around 2004. I wanted to sell, but to be $150,000 upside down in your house, what are you supposed to do? What if the roof breaks?"
The experience has led Welsh to an extreme conclusion:
"I'll never own again. Honest to God, it's absolutely not worth it."
As to the thinking behind his strategic default?
"I just wanted to get out of a bad situation at a bad time. I wanted to keep my family safe."
We end this update with a question for readers of this page: Have any of you decided to strategically default on your mortgage? If so, we'd like you to let us know why, and if you've already defaulted, how it's been going, how you feel about it. Other readers are bound to be interested.
Photos of Josh Bartlett and Jason Welsh from interviews in April 2010.