The wealthy are more likely to strategically default

Usually, homeowners do not get to choose whether or not they will default on their mortgage. For most, default, repossession and foreclosure occur after a job loss, a medical emergency, an accident, or some other unplanned event that causes irreparable financial damage. Yet there is a small faction of homeowners who choose to go into default on their mortgage as a strategic move. Many such homeowners are wealthy, with homes worth over $1 million. And because of their home's value, they are more likely to avoid foreclosure despite a long-term default.

Currently, approximately one in seven homeowners with mortgage loans at or above $1 million are seriously delinquent, meaning that they have spent several months or even years in default without being ejected from their home. In comparison, only about one in 12 homeowners with loans under $1 million are seriously delinquent.

According to realtor Chad Ruyle, this is often because banks are slow to begin foreclosure proceedings on pricier homes, not wanting to take on a risky investment. "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," he said. "These properties come with maintenance costs." As a result, Ruyle says, it is often much less costly and time-consuming to just allow the homeowner to remain in the home, even when they are no longer making those big mortgage payments.

In addition, says realtor Rob Magnotta, a foreclosure in a ritzy area can do serious damage to home values throughout the neighborhood, which banks also have a vested interest in protecting. "An empty $2 million home hurts the inventory around it," he said.

Source: CBS, "Even More Millionaires Defaulting on Mortgages", John Blackstone, 30 January 2011