Strategic Defaults are a going trend among underwater homeowners. Guilt surrounds defaulting on a home loan. But businesses walk away from bad mortgages. Why don’t consumers? For some, a strategic default is better than paying a mortgage on a home with little equity in it. A few first questions must be answered before considering walking away from a home mortgage.
Ending mortgage payments is a serious decision that will effect your credit. It will 5-7 years to rebuild credit. Before you begin, ask yourself:
1. Am I willing to rent for at least three to five years while waiting to qualify for a home loan again?
2. Can I accept a blot on my credit record for seven years, one likely to make any loan I need more expensive?
Another issue is that some states allow lenders to go after your personal assets if you foreclose. But many consumer friendly states, like CA and AZ do not. Find out:
3. Does my state allow lenders to go after me for the money they will lose on my foreclosure?
Other questions you should ask yourself:
4. Have I tried negotiating with the bank or contacted a lawyer?
5. How much can I save by renting, taking into account the loss of any tax deduction on mortgage interest?
6. Do my state income tax laws count foreclosure as a taxable forgiven loan?
7. Was my mortgage my principal mortgage used to the buy or improve my principal residence?
These are complex questions and more information may be necessary. http://www.mystrategichomedefault.com is a good resource. They have information packets tailored to each state and low-cost counseling. It’s a good place to start before paying an attorney $500 only to find a strategic default is not for you.