Is ‘Strategic Default’ My Best Choice, Should I Walk Away?

If you owned a house that’s now worth a lot less than what you owe on your mortgage, would you walk away from the home and default on the mortgage? If your answer is, “yes”, you are probably in a whole lot of company.  Today we are seeing more and more homeowners ‘walking away’ and choosing a ‘strategic default’ with their mortgage obligations.

Options When Falling Behind On Your Mortgage

Millions of homeowners are facing these tough questions and agonizing on what their next step or move should be. There are many companies that have organized to empower homeowners through the foreclosure process by providing foreclosure assistance in the form of tools, resources, support and peace of mind. Often times taking advantage of the emotions of the homeowners. Seeking legal advise or a real estate professional that specializes in short sales, pre-foreclosures should be your first priority.

Click here for more information on your options before foreclosure.

If you are facing or considering foreclosure, you’re not alone.

There are several options before walking away from your mortgage. There are professionals that specialize in working with your lien holders to help you determine what the most realistic strategic move should be. Walking away might be the easiest or less stressful but not without some serious consequences.  Seeking out a professional Real Estate person/s in learning more about your options should be a consideration opposed to turning a blind eye.

Surprisingly so, you might even learn that a real estate professional might know how you feel first hand.  I, personally have experienced the emotions of losing a home to foreclosure. Long before I was involved in real estate as a profession, I lost a home back in the 90′s.

Not wanting to even face the reality of losing my home, I made it a very low priority and let time takes its course. Not really knowing at that time there were options even during that time. My naiveness really left me financially damaged and emotionally damaged for many years to follow.  If there is one suggestion I can share most with you today is to, seek out some help. Learn what your options are. Don’t sit dormant and not do anything. Call me if you want to talk about what your options are.

Purposely Defaulting On A Mortgage

Intentionally defaulting on a mortgage, often called “strategic default,” is a personal finance decision, but it’s not without potential consequences. Not necessarily the best option for anyone underwater who can afford to make monthly mortgage payments but who does not want to wait up to 10 years for the housing market to turn around.

I know several homeowners, family and friends that are terribly under water and have discussed with me what they should do.  I’m not a legal professional and my first advise I would give would be to seek out legal council. Each person’s situation is different and you very might have a legitimate hardship and need to exercise your options on your mortgage obligations.

How Strategic Default Works

If your home has severely declined in value, as a homeowner you will face difficulties if you want to refinance or sell your home and you owe more on the house than it’s worth. Strategic default happens when homeowners with mortgages will walk away from their properties even though they can still afford to make the mortgage payments.  One would think they could or should hold onto the property and wait for the real estate market to improve just to break even. Many homeowners feel the only way to get out of this situation, then, is to walk away.

Why would anyone want to get rid of their home?

For many home buyers, a house is a very emotional investment. It has memories attached to it, family gatherings, family births of a child, marriages and weddings, a baby’s first steps and birthday parties. More and more homeowners are taking on the loss of value of their home and considering it like a business approach to and see a home that’s seriously dropped in market value as a major financial liability.  A very difficult position to be in and one you certainly didn’t anticipate. I know owners that are more than 50% upside down on home values and are most likely never going to see it even break even.  I also know a few homeowners that took advantage of the zero interest only loans and have seen an increase in their payment and are basically renting at this point, not to mention the loss in value.

So whats  happening? Homeowners simply stop making payments, move out and send the keys to the bank. Others stop making payments and wait for the bank to evict them, living rent-free in the meantime.  Whatever your answer might be to default or go down with your ship, know that you do have some choices. It doesn’t always feel that way and it doesn’t always seem like the most logical thing to do, but at least do yourself, your family and your credit a favor and exhaust all your options with a professional and see if there is something worth saving!

The Consequences

A foreclosure, whether voluntary or involuntary, will remain on your credit report for seven years and severely damage your credit score. Thus, a foreclosure will make it difficult for you to secure any kind of credit, from credit cards to auto loans. Once your score dips below 620, you’re considered a subprime borrower.

Can my Lender come after me for the difference?

This is a million dollar question. Known as a deficiency judgment, the lender can pursue you for the difference between what you owe on the loan and what the home ultimately sells for.  In some states laws ban lenders from coming after borrowers in most cases. In most states, there is a time limit for them to pursue a judgment and it is so small that many won’t have the resources to do it anyway.  You will want to seek legal advice in your own state to find out what your legal options are and if your state has a deficiency judgement law.

Foreclosure is one of the most devastating financial challenges that a family can face and one that many times can be avoided. The options available to Phoenix-area residents for foreclosure are many.  Feel free to contact me to give you a brief explanation of these solutions, including their benefits and drawbacks.  I know how difficult this time of your life can be, I experienced some of the same emotions that you are feeling. There is a way out.