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Valparaiso Univ. Law School

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Saturday, December 4, 2010

Strategic Default on Second Homes

I have been closely following the discussion of strategic default in the popular press (and on comedy shows too).  For anyone else who may be interested, the New York Times recently printed a column with a new variation on a common theme - strategic default on a second home.  Though, much of the article was about strategic default generally (i.e., the information in the article was not specific to second homes).  Generally, the numbers:

In July, a study by researchers from the European University Institute, Northwestern University and the University of Chicago concluded that the strategic default trend was “large and rising” among homeowners with an equity shortfall of $100,000. As of last March, it said, strategic defaults accounted for 35.6 percent of all foreclosures, compared with 23.6 percent a year earlier.

The challenge here is the definition of "strategic" and identifying which situations are in fact "strategic."   Is the default strategic if the borrower is unwilling to take on a second job to pay the mortgage?  If the borrower is unwilling to work overtime?  Decides to stay at home longer after having a baby?

[Meredith R. Miller]

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