STRATEGIC DEFAULT - What is it, how does it work, and what can it do for me ?
What exactly is Strategic Default ?The answer to this depends greatly on the state in question and the laws of the particular state, because they vary tremendously. In general, "strategic default" involves intentionally discontinuing paying your mortgage and either moving out or waiting until the foreclosure occurs, at which point there is no choice but to leave. Obviously, this is not a solution for everyone, and certainly not for those who are looking for a way to keep their homes, but for those who are willing to live elsewhere and who are very upside down, it may make sense. However, before any decision is made, there are very important points to consider, and it is CRITICAL to have solid legal advice from someone with in depth understanding of the law of the state in question, and of foreclosure and bankruptcy law as well, as all of these issues intersect in a strategic default scenario. In some states, in some situations, this may be a relatively easy thing to do, while in others it may be very difficult.
Who Might Benefit from Strategic Default ?If you owe a great deal more on your house than it is worth, and if you can bear the idea of giving your home or other under water property up, you may be a candidate. If you owe a great deal more on your first mortgage than the house is worth, and if you can bear the idea of giving the house up, there is a fair chance that this could be an answer for you. There is MUCH more involved in actually deciding to go forward with such a plan, but IF you fit this profile, it is worth finding out more. There are some states where the holder of a purchase money first mortgage on your primary residence CANNOT pursue you for the difference. There are some states (such as Florida) where ANY mortgage holder can easily pursue you for the difference. This does not mean that strategic default is not possible in Florida , but it DOES mean that asignificant analysis and planning is necessary to make sure it is not a dangerous step, or to handle the dangers that do exist.
Why Would I Want to Consider Strategic Default ?Many people have become frustrated and disgusted with the total lack of cooperation from their mortgage companies. They have mortgages which they were tricked into, manipulated into by mortgage originators and developers who sold them overpriced homes and overpriced loans. They now have mortgages far greater than the value of the home, and cannot or don't want to pay far more for the house than they could buy another for today. They are trapped and don't know how to get out. They may not care about even being able to keep the house, they want OUT. For people like this, strategic default may be the answer. It does have consequences however, and so the challenge for anyone considering this is to understand exactly what consequences they might have, what the risks are, what could go wrong and then to determine whether the consequences of strategic default are more or less than the consequences of the other options they are considering.
DO NOT PROCEED WITHIOUT SOUND LEGAL ADVICE.
If I Am Interested in Considering Strategic Default, What Would I Do Next ?First, read the following:
Walk Away From Your Mortgage! - New York Times, Jan. 10, 2010
Underwater and Not Walking Away
Then make sure to discuss your situation IN DETAIL with an attorney in your state who is knowledgable about foreclosure, deficiency judgments, asset protection and bankruptcy. Depending on your particulars, some combination of these areas of law will be relevant, and MUST be understood and analyzed in order for you to know whether you can do this, and if so, how. Then and only then is it possible to decide whether it makes sense for you.