R. Kelly's mortgage woes

August 5, 2011 The JPMorgan Chase Bank is foreclosing on R. Kelly's mansion, currently valued at $3.8 million. R. Kelly has not made mortgage payments in over a year, even though one of his spokespeople stated he is not having financial trouble. No explanation was given for the non-payment of his mortgage. While Kelly has the weight of this financial issue on his shoulders, he also will be "laid up indefinitely" according to his publicist. He was sent to a hospital to drain an abscess on one of his tonsils.

The mansion in question is an 11,000-square-foot home in Olympia Fields, a suburb of Chicago. It was originally bought by Kelly for $5.2 million in 2009 and over the following twelve months it lost 26% of its value. Kelly reportedly owes $2.9 million on the mansion which is still less than the $3.8 million it is worth. However, homeowners who do not make their payments soon find out they owe much more than the regular payments as fees and additional interest can be tacked on to the current amount due.

Some articles have suggested that R. Kelly was trying to force the mortgage holder into a position where they would renegotiate his loan. The could mean lower payments, lower interest rate, or any number of other options that may make sense in his particular situation.

When you stop paying your mortgage on purpose and you still have the ability to pay it your action is called a strategic default. It is a strategy to force a mortgage holder to offer you new terms on your loan. Strategic defaulters are counting on the fact that banks don't want your house back. They don't want you to default thus forcing them to go through the foreclosure process. However, not all strategic defaults work out the way people want. In R. Kelly's case JPMorgan didn't negotiate and did start the foreclosure process.

Why would someone want to pursue a strategic default?
A strategic default is often employed by someone who owes more on their property then they believe they can sell the property for. Considering that if they sold their home they would take a financial loss, they choose to stop paying the mortgage, save the monthly payment during the negotiating process and / or foreclosure process.

Consequences of a strategic default.
As soon as you stop making payments your credit score will be lowered. The longer you go without making payments, the worse it will be. Additionally, if you end up going through the foreclosure process and lose your home, your credit score will take an even larger hit.

 

Jennifer Aniston
Identity theft can happen to anyone, including A list celebrities. What are you doing to protect yours?
Paula Deen
Learn how Paula Deen built a business empire starting with only $200, creativity, and a whole lot of work.
Justin Timberlake
Justin Timberlake says he likes to keep things in perspective and keep a frugal attitude.
Duff McKagan
Duff McKagan, from Guns n Roses, has started a financial planning firm catering to musicians.
 
The Quarter Roll is published to provide personal insights and opinions on everyday ways of saving and managing money, budgeting, and reducing debt. The Quarter Roll does not give professional accounting, legal, or investing counsel. The ideas, examples, and advice presented on this site are solely the opinion of the authors based on his or her personal experiences. All photos courtesy of The Quarter Roll, iStockphoto, or Dreamstime. All rights reserved. This site is best viewed when using Adobe Flash Player. the quarter roll magazine financial entertainment