What is Strategic Default?

Many homeowners choose to use strategic default in order to get out of their current mortgages. Strategic default is when a borrower decides to not make their mortgage payment anymore, even though they have the funds to do so. Many borrowers are now choosing to use strategic default as an exit strategy for their current mortgages. People choose to use this strategy for a number of reasons.

Why It Is Used

One of the most common reasons that people consider using strategic default is because of decreasing property values. In a bad real estate market, many people find that they are upside down on their mortgages. Property values might decrease to 75% of their purchase value. When this happens, homeowners are faced with the choice of staying in their current homes or walking away from them.

They cannot sell their homes because they would still have a balance on their current mortgage. This is why many people that need to get out of their current homes, will utilize strategic default to help them get out from under the debt. Many borrowers try to work with lenders for short sales to avoid this problem. A short sale is when a borrower finds a new buyer for the home, but the sales price of the home is less than the balance that is owed on the property. Since a lender must approve the short sale, this method doesn't always work.