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ODU Study: Social Media's Influence on Strategic Defaulters

When a borrower decides to default on their mortgage debt and intentionally walk away from it, despite having the financial ability to make the payments, it's known as a strategic default. In Virginia, lenders have the right to pursue these borrowers and collect the difference — also called a deficiency —between what the property sold for in foreclosure and what the borrower owed on it.

Many borrowers may not be aware of deficiency judgment laws. Their decision on whether to strategically default may be tied more to emotion than anything else. In fact, several studies have shown that borrowers are more likely to strategically default if they are angry about their financial situation or mistrust the banks and want them to be better regulated. They are also more willing to proceed if they know someone who defaulted strategically, even if they only “know” them through social media.

To what degree are people receptive to the concept that it is okay to strategically default on one's mortgage? This important question is the core of a special report published earlier this year by the Research Institute for Housing America. Developed by a team led by Michael J. Seiler, Director, Institute for Behavioral and Experimental Real Estate at Old Dominion University, the report provides a detailed and analytical view into the impact of social media on the current housing crisis.

The report makes clear that as these influences continue to flourish, mortgage servicers, including VHDA, must exercise full diligence in the evaluation of a borrower's financial circumstances to determine if their request is subject to a verifiable and valid hardship, or if this person seeking relief due to their negative equity position.

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