Even More Millionaires Defaulting on Mortgages
The RealtyTrac organization predicted earlier this month that home foreclosures in 2011 will likely exceed the record 3.8 million reported in 2010.
CBS News correspondent John Blackstone reports one group of mortgage defaulters seems to be bucking the trend. In wealthy communities like La Jolla, Calif., living near the ocean is a privilege that many homeowners are willing to pay millions for.
For Darren Thomas that ocean view was quickly losing its value. He says, "I bought it for [$1.385 million]. It is worth less than [$800,000], maybe less."
Thomas bought his townhome in 2006 but after seeing its value drop steadily he stopped paying.
"I haven't made a payment in two years," he says. "It was business decision. It was an easy decision. I have a property worth six or 700,000 less than when I bought it. I was making payments of 10,000 a month."
Thomas has gone into strategic default. He could make payments but is refusing to put more money into a home that is worth less than his mortgage. Among luxury homeowners he is not alone.
One in seven homeowners with loans over $1 million are seriously delinquent compared to one in 12 with mortgages below $1 million.
The more you owe, it seems, the better off you may be. Darren Thomas continues to live in his home because banks are often slower to foreclose on million-dollar homes.
"Banks are less willing to take those homes back because they are harder to move on the market, harder to sell and much more of an up-keep," says You Walk Away Real Estate's Chad Ruyle. "These properties come with maintenance costs."
In Huntington Beach, Calif., realtors say banks can be slow to foreclose on luxury homes because an empty house can be bad for everyone's bottom line.
"An empty $2 million home hurts the inventory around it," says realtor Rob Magnotta.
For those who have stopped paying their million-dollar mortgages it's just an investment that didn't work out.
"As negative equity took place and drove the value down it became an investment not worth holding onto," says Corelogic's Mark Flemming. "Not much different than a regular stock you would sell."
"People like myself, business people, are going it is silly to throw good money after bad," says Thomas "The loss is not mine. The loss is the banks."
When it comes to real estate, the rich are different. They can be just as ruthless as the bankers.
