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.
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