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Strategic Default Overview

�Strategic default� has typically referred to the choice made by homeowners who can afford their mortgage payments but choose to walk away. Typically, a strategic default takes the form of simply letting the bank foreclose. That�s because other options � like short sale or deed-in-lieu of foreclosure � typically require the homeowner to prove a hardship. If there is no legitimate hardship, the bank is not likely to agree to a short sale or deed-in-lieu.

That said, remember that a hardship is not defined only by an inability to pay your mortgage today. If you have to move � for a job relocation, for example � that can be considered a hardship. Or if you�re borrowing from your financial future by tapping your retirement accounts or kids college funds to pay for your mortgage today, that could also be considered a hardship.

    A strategic default might be right for you if�
  • You are significantly underwater (owe at least 10 percent more than your home is worth)
  • You donâ��t have what might be considered a legitimate hardship
  • Itâ��s in your best financial interest to get out from under your mortgage debt today
  • The credit consequences associated with foreclosure are acceptable to you
But you won�t really know what�s right for you until you get the Underwater Homeowners Assessment and Action Plan .

Strategic Default Pros & Cons

Strategic Default Pros

  • If it allows you to get out from many years of negative equity on your mortgage, a strategic default could be in your best long-term financial interest
  • By defaulting today (when the Debt Relief Act still applies), you could avoid having to default later if your mortgage payment does become unaffordable
  • A strategic default today could allow you to become a financially healthy homeowner again in the future (instead of buried underneath a mountain of mortgage debt for many, many years to come)

Strategic Default Cons

  • Unless you can demonstrate a financial hardship, the mortgage holder is not likely to approve a short sale or deed-in-lieu of foreclosure
  • Depending on your circumstances, you could be subject to a deficiency judgment (see What to Watch Out For â�� Deficiency)
  • A foreclosure typically has the most negative impact on your credit score (see What to Watch Out For â�� Credit Score)
  • Typically, the path back to homeownership longest after a foreclosure (5-7 years)

Is a strategic default the right decision for you? You won�t know until you sit down one-on-one with an experienced professional to evaluate your unique circumstances.

Strategic Default Resources

Homeowner 101 Authorized Legal Advisors

Strategic Default in the News

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Other Strategic Default Resources

Strategic Default Videos

Do Homeowners Have a Moral Obligation to Pay the Mortgage at All Costs?

Pat Lloyd and Tyler Heymann of Prism Financial Concepts discuss the issue of "moral obligation" and short sales. Do homeowners have a moral obligation to pay the mortgage at all costs? Banks certainly don't hold themselves to that moral obligation - they frequently default on their mortgages when doing so is the right business decision. Says Pat, "Please don't hurt your financial future to hang on to an underwater home. It is not your moral obligation to do so."

Healthy Homeowners = Healthy Economy

To get out of the real estate crisis and economic recession, homeowners need to get out from underneath the crushing mountains of mortgage debt.

PBS NewsHour Interview with Brent White � Strategic Default: Immoral or Not?

PBS NewsHour interview with University of Arizona law professor Brent White who believes it IS moral for underwater homeowners to walk away.

Watch other videos

Take Action

For some homeowners in certain circumstances, a strategic default may be the right financial decision. Is it right for you? You can�t really answer that question until you have an accurate, 360 degree picture of your current financial situation. You also need to be fully aware of the potential pitfalls and consequences associated with a strategic default. That�s exactly what you�ll get from the Underwater Homeowners Assessment and Action Plan.

Learn more about the Underwater Homeowners Assessment and Action Plan


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