Growing numbers of rich Americans are welcoming the foreclosure crisis into their homes.
Default rates for the nation’s most expensive properties have jumped since 2007, CNN reports, with foreclosures of homes worth $ 2 million or more now accounting for a larger share of all foreclosure activity nationwide than in previous years.
As with the millions of other properties that have slid into default since the housing crash, these homes have experienced a precipitous drop in value, suddenly leaving their occupants with a lot less wealth. Sliding into foreclosure could also hurt the neighbors — properties that are occupied, but in foreclosure, drive down neighboring home values twice as much as vacant properties, a recent study found.
But as one analyst explains to CNN, many working- and middle-class Americans experienced foreclosure because they simply ran out of money. By contrast, in wealthy communities like Beverly Hills, homeowners are turning to foreclosure because they owe more on their homes than what they’re worth, and so going into default makes the most financial sense.
“You feel like a sucker if you’re paying a $ 5 million mortgage on a house that’s worth $ 2 million,” Zar Zanganeh, a Las Vegas broker, told Bloomberg last year. “These days, there are no traditional sales.”
This practice of walking away from a mortgage, known as a strategic default, has become more common among the wealthy and other financially-savvy homeowners.
“Strategic defaults can be an even bigger issue with higher-end homes… because the borrowers may be more financially shrewd and consider it a financial decision to walk away from the home,” RealtyTrac’s Daren Blomquist explained to Forbes.
This housing strategy, increasingly common among the rich and which some argue often have a deleterious effect on the surrounding neighborhoods, is just one example of how the weak economy is drawing increasingly clear distinctions between those Americans equipped to deal with hard times and those for whom the downturn is proving disastrous. While the recession and slow recovery have touched nearly everyone in the country in some way, the effects have been far from uniform.
The nation’s highest earners are drawing a smaller share of income now than they were a few years ago, for example, but they’re still light-years ahead of the average taxpayer when it comes to net worth. The American wealth gap didn’t get narrower during the recession — rather, things are now more unequal than ever, with the gulf between the rich and poor at its most pronounced level in generations.
While nearly half the country lives paycheck to paycheck, with not enough in the bank to cover even one financial emergency, luxury spending among the well-heeled set has proceeded apace. And the wealthy even have their own ways of seeking out quick cash: Certain pawnshops that cater to the affluent will accept jewels, wine and fine art as collateral for loans, according to Reuters.