Strategic default begins nearly one in four Nevada foreclosures

Strategic default has become common and accepted in Las Vegas.

Irvine Home Address … 260 DEWDROP Irvine, CA 92603

Resale Home Price …… $249,000

It's not right, but it's okay

I'm gonna make it anyway

Close the door behind you

Leave your key

Whitney Houston — It's Not Right, But It's Okay

I am emotionally conflicted about strategic default. It's not right, but it's okay. Do you know what I mean?

I understand the argument that says borrowers should be responsible to keep their word and pay their debts. They should. However, I also believe that families should not be burdened for decades by one poor financial decision.

There are times when our values and beliefs are in conflict, and to avoid hypocrisy, each person must evaluate which of their conflicting values they hold in higher regard. I side with the family. I can't condemn a family for relieving themselves of a financial burden they cannot handle, particularly when lenders abdicated their responsibility of making sure the family could handle the debt.

Strategic default the norm in Las Vegas

Unless you have spent time talking with Las Vegas residents, you can't fully appreciate how common and accepted strategic default is in that town.

First, there is no class distinction when it comes to walking away. I know a business owner who walked away from his $1.1M mortgage. He said when he saw a few comps in his neighborhood go for less than $500,000, he said continuing to pay seemed pointless, so he walked.

I know a mortgage broker who walked away from three properties. She had a condo she bought in the mid 90s and two properties she bought when the market “corrected” in 2007. In early 2009, she saw a comp for her condo go for less than its 1996 purchase price. She calculated that she had almost $400,000 in mortgages on about $175,000 in real estate, and prices were still headed straight down.

Basically, anyone who bought in the 00s is underwater or nearly so, and there is little hope of price recover while the rest of the city strategically defaults because they too are underwater. The excess debt will be purged in Las Vegas, and the excessive debt service payments will not serve as a drag on the local economy as it will here. That being said, the purging process is not pretty.

In Nevada, 23 percent who lost homes to foreclosure could afford payments

Officials say trend shows no signs of slowing

By Buck Wargo

Published Tuesday, Jan. 25, 2011 | 9:22 a.m.

Updated Tuesday, Jan. 25, 2011 | 3:06 p.m.

Nearly one in four people in Nevada who lost their homes to foreclosure have admitting to walking away even though they could afford their monthly payments, according to a study released today by the Nevada Association of Realtors.

The study said 23 percent of those surveyed described their own situation as a strategic default, meaning they decided to stop making payments on their debt despite having the financial ability to pay. Many of those who walked away from their homes said trusted confidants advised them that a strategic default was their best option, the study said.

Keep in mind that many of these borrowers probably could not really afford the payment long term. Those borrowers are merely accelerating the inevitable rather than truly walking away from an obligation they could comfortably cover.

The authors of the study said strategic defaults are a much greater problem in Nevada than the rest of the nation. It has less of a stigma here that it’s a shameful decision, and it’s becoming more popular as part of a snowball effect, they said.

“I believe the current trend upward. It could get worse,” said Joel Searby, SGS’s director of marketing and business development. “The cultural stigma is dropping, and it’s becoming more acceptable.”

The survey was conducted by SGS, a national research firm that has done similar studies in Florida and Pennsylvania. It held two focus groups in Las Vegas and interviewed more than 1,000 Nevadans by phone.

It was striking to see that nearly one in four Nevadans who lost their homes to foreclosure admitted they simply walked away from their mortgage,” said outgoing Nevada Association of Realtors President Linda Rheinberger.

Nevada has ranked No. 1 in the nation in terms of its rate of foreclosure filings since January 2007.

A report released today by California-based CoreLogic said foreclosure rates in Nevada increased in November to 9.49 percent of mortgage loans, up 1.71 percentage points from November 2009. The national rate was 3.48 percent in November.

In November, 19.65 percent of Las Vegas mortgages were 90 days or more delinquent, down from 19.70 percent in October. The statewide delinquency rate is 17.35 percent, CoreLogic reported.

It's difficult to imagine nearly 10% of mortgages in foreclosure and another 10% delinquent. It is difficult to keep a rate that high because after enough time goes by with a 20% delinquency rate, every mortgage in the area will turn over. The 20% in the pool from last year is a different 20% that is in the foreclosure queue now.

University studies in the past two years have suggested that between 17 and 25 percent of Las Vegas residents have considered or would consider walking away from their mortgage even though they could afford their payments.

Nevada had nearly 8,000 homes foreclosed upon in the fourth quarter of 2010, according to California-based RealtyTrac. If the survey is correct, that means more than 1,800 of those are people who did so strategically.

Searby said he was surprised with the findings of so many people walking away in Nevada. Anecdotal evidence in surveys in other states suggests the problem is “significantly worse” in Nevada, he said.

Nevada homes have taken one of the biggest price drops in the nation, and in Las Vegas prices have fallen about 60 percent from their peak in June 2006.

Cause and effect. Low prices are creating the circumstances leading to more strategic default. It is a classic downward spiral. The Las Vegas experience inspired the amend-extend-pretend dance to avoid a repeat in every housing market in the country.

Searby said a culture is developing in Las Vegas and the rest of Nevada that strategic defaults are OK, and there isn’t the stigma once associated with it. That’s creating a snowball effect that increases its popularity, he said.

Some websites are dedicated to encouraging people to walk away from their homes. The Las Vegas Sun and its sister publication, In Business Las Vegas, has written on the subject, and one prominent home builder, Richard Plaster, president of Signature Homes, has encouraged people to do a strategic default to spare their finances.

“It is about how they’re perceived by their peers,” Searby said. “One man in a focus group said growing up this would have been an act of shame. It’s not seen as something that brings shame on him now. There’s a subculture arising who don’t believe walking away from a mortgage is necessarily bad. This has become a financial decision for most of the families first and foremost.”

This is the argument I have been making for months. The needs and interests of the family outweigh paying the mortgage on an underwater property when it's cheaper to rent.

This dilemma is not new. If your family were starving to death, would you steal food? Most would. Anyone who valued survival more than personal property law would. In fact, many wars have been fought because one group lacked resources to survive, so they go to war to take those resources from another.

Searby said what surprised him in the survey is that those who are walking away tend to be older, mostly 40 and over, rather than younger generations that might be perceived to be less financially responsible.

“They are looking at the last 30 to 40 years of their life and feel it doesn’t make sense to have that kind of debt hanging over their heads,” Searby said. “It’s about their quality of life and that all they are going to pass on to their kids is debt.

That scenario describes one Las Vegas resident who took part in the survey.

Lee, who didn’t want to use her last name, said she plans to walk away from her $1,700 a month mortgage even though she can afford the payment. Lee said the value of her home that she refinanced about six years ago for $235,000 plummeted from $270,000 to $80,000 today. Since then, she has retired from her federal job and had her husband leave her.

Interesting sob story, but at least she admitted to the HELOC abuse.

Lee said the Federal Deposit Insurance Corp. has taken over the bank that once held her loan and the lender now servicing the loan has been unwilling to work with her to reduce her payments. She said it’s prudent to keep the money for taking care of herself during her retirement.

“Why should I pay on something when it’s like losing $150,000 in the stock market,” Lee said. “The way I look at it is I’m 73 and never going to see this market come back. I don’t feel bad at all. They had a chance to work with me.”

Lee said she plans to rent a home from her girlfriend and isn’t worried that the lender will come after her for the first mortgage six months after foreclosing or for the second and third mortgages on the homes over the next six year as allowed under state law.

If that happens, she said, she will file bankruptcy.

In all likelihood, either the lender or a zombie debt collector will come after her, and she will have to declare bankruptcy to make the problem go away.

Most borrowers who walk away should declare bankruptcy. It's the only way to be sure the debt will never be a problem again. I can foresee many borrowers who walked away getting blind-sided by lenders several years from now when the borrowers have assets again.

Searby said those who walk away aren’t concerned that it would take them three to seven years to get another mortgage or that their credit might make it difficult to buy a car for a while.

That's because people don't have much reason to worry. The powers-that-be are determined to give everyone a pass.

The survey said most Nevada homeowners facing foreclosure weren’t aware of the federal and nonprofit programs designed to help them. Some 61 percent said they weren’t aware of foreclosure aid programs and only 3 percent said they used the state’s foreclosure mediation program or were helped by it in any way.

Many Nevadans experiencing foreclosure faced two or more life-altering events that increased their risk of defaulting on their mortgage, the study said. The report said the loss of a job and unexpected medical bills were the most common events triggering a foreclosure.

Homeowners statewide were far more likely to blame banks and lenders, at 46 percent, than the government, which polled 20 percent, for the foreclosure problem. Homebuyers got 13 percent of the blame, the study said.

Interesting. Lenders are getting their oversized share of the blame.

Short sales proved to be moderately helpful in avoiding foreclosures with the report saying 10 percent of those surveyed said it helped them.

NVAR President Mike Young said the study would be used as a basis with the state’s lawmakers to help address the problems with foreclosures. Besides advocacy and counseling, streamlining short sales could help stabilize the housing market, he said.

Short sales are those in which lenders allow the homes to be sold for less than is owed on the mortgage. Homeowners have faced hurdles in getting banks to approve that option.

Short sales are not the answer, and neither are loan modifications. More foreclosures are on the way.

What the foreclosed leave behind

I have found all manner of personal possessions left behind in properties. One of my competitors jokes about how he finds vacuum cleaners left in each property. I have only found 4 or 5 of them.

Some of the items left behind likely were beloved by their former owners. Mostly this is stuff like dolls or photographs, but on some occasions, it is much more.

Aren't these two cute?

They were a few days from starvation when we found them trapped in the back yard of a house the former owners. I understand owners abandoning their house. It's property. It's not alive. These owners abandoned their family pets. Disgraceful.

What goes through the mind of the former owners? Did they think someone like me would come along and save their dogs? What if we had waited another few days before taking possession?

We couldn't find any evidence of food left behind, although judging from these dogs appearances, they long since scavenged anything edible. After eating any remaining garbage and plant matter, they likely gnawed on that rubber tire.

Are these former owners such assholes that they left their dogs to die?

You'll be happy to know that we saved these two dogs from this fate and took them to a local shelter.

Should it really take two or more years to resolve a bad loan?

Today's featured property was originally posted April 26, 2007: More Jasmine Dew Drops in Quail Hill.

This was a flip gone bad. The owner put the property for sale about a year after paying $450,000 for a one bedroom apartment. He tried off and on selling the property for the next couple of years. He tired of the payments and quit paying sometime before mid 2008.

Foreclosure Record

Recording Date: 11/29/2010

Document Type: Notice of Default

Foreclosure Record

Recording Date: 02/18/2009

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 10/08/2008

Document Type: Notice of Default

They may have convinced him to pretend with a loan modification, but one bedroom apartments are still not selling for more than $450,000 six years later, so the owner doesn't see much point in remaining current.

When he bought the property, he used a $356,000 first mortgage, a $66,700 second mortgage, and a $27,300 down payment, so he does have some skin in the game.

I speculate he has other assets too. I further speculate this sale is being held up while the owner and the second mortgage holder agree to a settlement. I know none of these people, but it does explain why one property can be for sale for years while an underwater delinquent borrower continues to be on title.

Today's featured property should have been foreclosed on years ago and washed through the system. Here we are in 2011, and we haven't resolved bad loans from 2008.

Irvine Home Address … 260 DEWDROP Irvine, CA 92603

Resale Home Price … $249,000

Home Purchase Price … $445,000

Home Purchase Date …. 11/21/05

Net Gain (Loss) ………. $(210,940)

Percent Change ………. -47.4%

Annual Appreciation … -10.9%

Cost of Ownership


$249,000 ………. Asking Price

$8,715 ………. 3.5% Down FHA Financing

4.78% …………… Mortgage Interest Rate

$240,285 ………. 30-Year Mortgage

$50,274 ………. Income Requirement

$1,258 ………. Monthly Mortgage Payment

$216 ………. Property Tax

$153 ………. Special Taxes and Levies (Mello Roos)

$42 ………. Homeowners Insurance

$297 ………. Homeowners Association Fees


$1,965 ………. Monthly Cash Outlays

-$117 ………. Tax Savings (% of Interest and Property Tax)

-$301 ………. Equity Hidden in Payment

$16 ………. Lost Income to Down Payment (net of taxes)

$31 ………. Maintenance and Replacement Reserves


$1,594 ………. Monthly Cost of Ownership

Cash Acquisition Demands


$2,490 ………. Furnishing and Move In @1%

$2,490 ………. Closing Costs @1%

$2,403 ………… Interest Points @1% of Loan

$8,715 ………. Down Payment


$16,098 ………. Total Cash Costs

$24,400 ………… Emergency Cash Reserves


$40,498 ………. Total Savings Needed

Property Details for 260 DEWDROP Irvine, CA 92603


Beds:: 1

Baths:: 1

Sq. Ft.:: 0830


Lot Size:: –

Property Type:: Residential, Condominium

Style:: One Level, Contemporary

View:: Peek-A-Boo

Year Built:: 2003

Community:: Quail Hill

County:: Orange

MLS#:: L27347



The realtor describes this place as LARGE and SPACIOUS. It's a one-bedroom one-bath condo of 830 square feet. The right word in realtorspeak is COZY.

26 thoughts on “Strategic default begins nearly one in four Nevada foreclosures

  1. Planet Reality

    This may be at rental parity at $1600 per month. It’s a nice 1 BR with garage, but I don’t think it’s cheap enough. Who would want to live here for a long time? If you were on a fixed income wouldn’t you want to either get more for $250K or pay less for a 1BR? Maybe a single mother with a kid? Still seems like it would make more sense to rent.

    The original price is completely WTF.

    Debtors who leave pets to die are scum bags. The debt mistake I can over look, killing an animal for no reason is morally wrong.

  2. flyovercountry

    Its a slippery slope, you start by rationalizing the shirking of your respnsibilities to banks. And some people end up rationalizing shirking their responsibility to living creatures.

    Leaving them locked up is about the worst of all the bad alternatives that they could come up with. Putting a bullet in the dog’s heads on the way out the door would have been more humane than leaving them locked up to starve.

  3. flyovercountry


    Some stories about your Vegas adventures would make for some good weekend posts. That keeps it separate from the Irvine content, and would be a good replacement for the missing news links.

    Personally, I think the Vegas play is a somewhat high risk investment. But bubbles get formed when everyone has the same opinion about what makes a good investment, so it is interesting to see how a contrarian play works out.

    1. IrvineRenter

      My Las Vegas adventures would be a good topic for the weekend. I should recount the story my cash-for-keys guy told about being attacked by a bear-chested former owner wielding a Samurai sword.

      1. irvine_home_owner

        I agree.

        It would be interesting to read the IHB-Las Vegas Weekend Edition.

        Especially if it involves bladed weapons.

  4. SoOCOwner

    Thank you for helping the poor, defenseless animals. The photos were heartbreaking. For the life of me, I don’t understand this behavior.

  5. tenmagnet

    Where’s Lee?
    I thought he’d be all over the fact that Shawn Green cut the listing price of his Shady Canyon home from $17.495M to $10.9M
    Grab your checkbook PR

  6. mike

    Good for you for saving those animals. What F#cking slime leaves a living creature to starve to death? They would have been better off roaming the streets than entombed in that yard.

    I am blinded with anger over this story.

    1. AZDavidPhx

      No animal cruelty charges for the former owner? I hope the police department was notified as well.

  7. newbie2008

    The bank FC on a property not a home. At least for the contracts I’ve signed, I have the option of not paying and the bank has the option to FC if I don’t pay. If you can afford to pay, it time to consider moving.

    It just not right for folks to HELCO out above the purchase price and then sell off appliances or trash the place.

    It’s also not right for the banks to pawn the losses onto the taxpayer via loan transfer, loan modifications and inflating the sales price by restricting the supply. The banks took the profits before the cake was baked. Now they not accepting the loss. It’s cronney capitalism — Privatize the virtual profits and socialize the real losses.

  8. bltserv

    I see these 1 bedroom Quail Hill units going down even more in the near future. $445K down to $249K
    in 5 Years? Nice investment. I have the same size one Bedroom down the street IAC for $ 1600. And no association dues, property tax, Etc, Etc.

    This unit in another year will be under $ 200K.
    Almost down to rental parity. Thats if rents dont fall faster.

  9. Alan

    It seems to me that when it is a speculative investment, there are none of the moral considerations in play when it comes to strategic default. However there should be plenty of fraud considerations, if the place was represented as a primary residence on a liar loan. Hiding among millions may let them sneak by though.

    When it really is the primary residence, and there is a family, there may be more regret and family strife to a default. Then I guess you see more people hanging on while their resources drain away until the “strategic” part no longer applies, or they see it coming and drag out the foreclosure process as long as possible to conserve or build up some cash for survival afterwards. Survival has got to trump moral appearances for most people though.

    So more strategic defaults coming, as the rich get their bonuses and the rest see their grip on middle class fading away or gone already.

    As for those dogs or any other animal abandoned and locked in to starve, probably the cities and states have too many deficit problems to spend money on prosecutions and prison time. Fair might be to make the owners live in the backyard for a couple of weeks with their animals. Put an adequate-sized bowl of food on the ground for everyone to share. Make sure the smallest and hungriest get to go first, in case they are too weak or intimidated to insist.

  10. lowrydr310

    I spent the past weekend in LV visiting some friends and saw several condos advertised for less than the price of my car. I haven’t seen the condition and don’t know the state of the HOA finances, but it was still a shock.

    I also saw many *gorgeous* homes for sale in decent neighborhoods that are very affordable for me. Unfortunately there are absolutely ZERO jobs in my line of work. I’m still debating the positive cashflow rental idea, but in all the places where I’ve seen nice homes at good prices, I see tons of FOR SALE and FOR RENT signs that have been up for the past 9+ months.

  11. JK

    Interesting tonight’s column is focused on strategic defaults. I’ve been thinking of another type of strategic default. Walking away from CC debt. Why?
    Well..first this bank pisses me off with their service and has not helped me resolve an issue. Secondly, I may lose my job, therefore if they won a court order garnishing my wages…well..good luck. I have other sources of income: possible early retirement, rental properties, etc.
    Let’s say I have a 15k line of credit. I suppose I could negotiate w/the bank before they have to turn it over to credit agencies after 6 months. I could probably pay a third of that debt. I’m thinking 10k is not bad to ruin my FICO. I could give a rats ass about it as I have a low low home rate and intend to keep my home and don’t need a loan for a car. My car is paid for, I would use cash if I need another one. So I’m thinking of rolling the dice. I can handle the phone calls. I realize this is not non-recourse debt like a house but has anyone done this and willing to admit it?

    1. IrvineRenter

      Every person who declares bankruptcy does exactly what you describe except that they don’t have to worry about the phone calls.

      The key with credit card debt isn’t just getting rid of it, it’s stopping from using it again and going back into the hole.

      1. Swiller

        The masters bought out our Congrees and changed the BK rules.

        If you make more than $70,000 with a family of three…you do not qualify for BK7. I’m guessing as a single man, it’s around $64,000. This is in CA, I’m not sure what the means tests work out to in other areas.

        You could do what I did. Just stop paying. I haven’t payed for my CC or HELOC in over 1 year. Who cares….garnish my wages…I’ll chapter 13 and combine both.

        So far it’s been 1 year with no payments on either. Life goes on. At this point I’m waiting for paperwork to complete my Chapter 13 filing.

        After that is complete, then, and only then, will I walk from my 1st mortgage and let the taxpayers eat another loss. I’m assuming a bare minimum of 6 months free rent. Anything above and beyond that will only pad my bank account for my 6 months cash reserve. My retirement investments will go through the roof when I default as well in order to perserve my income from being handed to an unworthy corrupt government.

        And one note, don’t trash the place, just follow the RULE OF LAW, and strip that damn thing of everything you LEGALLY can…you would be surprised what that means. Expect an epic garage sale when I default!

    2. newbie2008

      BK is not designed for low debt. It cost money to file, etc. Isn’t retirement funds counted in the assets for BK?
      The $15K is chump change. NPB with a 2 plus million equality withdraw and 3 years of non-payment or corporate exec. who declare BK and walk away with millions in cash and killing debt. Corporations just kill the obligations, i.e., pensions, contracts and some debt.

      Why is it that animal cruelty in CA sparks more outrange and a long prison time than murder of many humans?

  12. JK

    True IR, but I don’t have a problem w/credit card debt. I can pay it off. Nor do I want to declare bankruptcy. Maybe after reading so many stories I want a share of the pie and I want a strategic default but instead of a house it’s on the CC. I could still use another CC or debit cards. Again, trashing my FICO seems like a good exchange for 10k or more. I also wonder how many people have done this. Let’s face it, banks would not want people to do this en masse.

    1. County Sherriff

      It is easier to default on a 10k CC loan because a bank would rather sell the loan to a debt collector, or issue you a 1099.

      I know because I walked away from over 1 million in CC and real estate debt in Cook County,IL.

      I tried to file for bankruptcy but was over the statutory limit for a Chapter 13, and made too much money for a Chapter 7.

      Being denied the 13 was the best thing that happened because after that I simply just stopped paying on 6 properties and 4 CC’s.

      I even told my tenants that they did not have to pay rent anymore. Strangely, one of them kept paying until 3 months ago.

      Even after being promised a loan mod, the bank reneged so I eventually stopped paying my primary residence.

      So I have just been here squatting for the past 18 months, waiting for the bank to make the next move on my primary residence.

      I am not trying to sound smug, but the system is jacked when it is easier to stop paying than it is to work out your debts and pay.

  13. JK

    thanks sherriff for adding your insight.
    Ca is a communal property state so technically they could go after my spouse’s income though I tend to doubt it. I will only default if I am let go (fired) from my current position which I’m fighting w/a lawyer about. Once they fire me I will use the CC for regular expenses including lawyer fees and walk when it’s maxed out.
    The money I have saved I can hide and use for other expenses.
    People put so much emphasis on maintaining their credit and FICO but other than a house and a car (which you should pay cash for) what else do I need it for? It’s overrated and I have a screw the bank attitude right now.

    1. AZDavidPhx

      People put so much emphasis on maintaining their credit and FICO but other than a house and a car (which you should pay cash for) what else do I need it for?

      Exactly. The banks want everyone in debt for astronomical amounts, paying interest and crowding out the wage slave from saving enough cash to buy without one of their “loans”.

      And since they have everyone running on the hamster wheel to try to cover the interest payments on their astronomical debt – their little FICO machine is a great tool to keep the little lemmings obedient and timely.

      Fu{k these crooked corporations. They don’t even lend their own money – it’s all created from thin air; Lent into existence.

      Everyone stop paying your mortgage and watch the scam blow up in their face when they have to make good on all these loans with money they don’t have and gambled they would never need to have.

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