Written by attorney John Mark Wilk

Is strategic default a good strategy for Michigan foreclosures?

I recently saw a piece on 60 Minutes talking about a process called "Strategic Default." With a strategic default, a homeowner intentionally stops paying their mortgage and lets the bank foreclose on the house. This is an option that many homeowners are considering when they are "upside down" on their mortgage - the current fair market value of your house is way less than the amount of your mortgage debt.

Here in Michigan, I have seen current house values that are less than 10% of the amount of the mortgage debt. That's right - I have seen a house with $90,000 in mortgage debt that is now worth $7,000. If you don't believe me, call me and I'll show it to you. The 60 Minutes segment featured a house in Arizona. The young couple owed $260,000 on a house that is now worth $170,000 - a 45% drop in value. The couple is intentionally walking away from the house - letting the loan go into default and letting the bank foreclose on the house. Under Arizona law, the bank can't sue the defaulting homeowner on the deficiency judgment - the amount still owing after the bank sells the property.

In Michigan - the law is very different. Here in Michigan, the bank can sue you personally for a deficiency judgment. For example, if you owe $100,000 and the bank forecloses and sells your property for $50,000 - the bank can get a personal judgment against you for $50,000 - unlike Arizona. I have talked to several home owners in Michigan who started the "strategic default" process before they sought legal counsel. In both cases, the home owners either thought that Michigan law was like Arizona law - NOT! Or, they thought that the banks are too busy to sue them for the deficiency judgment - WRONG! In Michigan, if you default on your mortgage and the bank forecloses and sells your house for less than you owe - you will get sued for the deficiency judgment. I guarantee it. If you get sued for a deficiency judgment, you have several choices. You can try to negotiate a compromise settlement and make payments or pay a lump sum - or - you can discharge the debt through bankruptcy.

My advice is this: Talk to an attorney who specializes in mortgage modifications and bankruptcy before you walk away from your house. The 60 Minutes segment also mentioned a company called "You Walk Away" at "" For $300, they'll tell you what I just told you for free. Save your $300 and spend it on some good legal advice. Call a good mortgage modificagtion or bankruptcy attorney and get some good legal advice - before you walk away.

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