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Mortgage Walkaway Double Standard Practice |
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Sunday, 21 February 2010 |
There is a double standard for property owners with mortgage liabilities that exceed the value of the real estate. For the individual, defaulting on a loan earns you the label deadbeat. For a real estate investment company, walking away from devalued property is a wise business decision. How is this the case?
Although allowing a bank to foreclose will have a significant impact on an individual’s credit rating, for some it is a better choice than remaining in a property with a monthly payment that far exceeds its value. Even though it might make financial sense to walk away from the devalued property, many elect to remain in homes that they can no longer afford because of social pressure to abide by your financial obligations.
The average American facing high mortgage payments despite decreasing property values usually feel obligated to continue to make their monthly payment even though defaulting might be financially advantageous. Not so for giant real estate tycoons. Tishman Speyer Properties, whose holdings include Rockefeller Center and the Chrysler Center in New York, as well as dozens of other properties worldwide, has turned over 11,232 Manhattan apartments to its creditors. Although the company has $33 billion in assets, the apartments’ value has plummeted from $5.4 billion to $1.8 billion. Unable to find a buyer or satisfactorily restructure its debt, Tishman chose to default rather than enter into bankruptcy. The effect of this decision on its reputation in the real estate world will likely be minimal.
The disconnect between real estate giants and the average American homeowner facing foreclosure is similar to the continued suffering of Main Street as Wall Street is bailed out by Washington. As average Americans struggling to pay mortgages read about firms such as Tishman, the anger of this disparity should soon come to the attention of legislators and policymakers.
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