• 19
  • April
    2011

For homeowners who are underwater on their mortgages (meaning that they owe more on the home than it is worth), the future can look dismal. This is especially the case when a homeowner's monthly mortgage payments have become more than they can afford. Selling the home is not an option, as many mortgage lenders hesitate to allow short sales. Therefore, many homeowners are resorting to the only option they have left: a strategic default.

Strategic defaults occur when homeowners stop making payments and walk away from their homes, leaving them to go into foreclosure. Certainly, the majority of homeowners consider strategic defaults a last resort, choosing to walk away from their homes and mortgages only when there are no other options. This may be because of the negative stigma surrounding strategic defaults, which was detailed in a recent survey.

According to the results of that survey, which was conducted by FindLaw.com, approximately 60 percent of Americans are opposed to strategic defaults, considering them an irresponsible way to deal with mortgage debt. The survey, which was conducted via a telephone interview of 1,000 Americans, found that 34 percent of Americans consider it acceptable for homeowners to walk away from mortgages they can no longer afford. Three percent believe it is okay to do so at any time.

There are potential negative effects of a strategic default, of course. It will ultimately lead to foreclosure, which damages a homeowner's credit score and their ability to secure new loans in the future. In addition, legal and tax issues may also arise. It is advised that homeowners consult with a bankruptcy attorney before choosing to engage in a strategic default.

Source: Thomson Reuters, "Most Americans opposed to homeowners walking away from mortgages, says new FindLaw.com survey", 7 April 2011