Here are some considerations for anyone considering a strategic default. This is when the homeowner elects to stop making loan payments on purpose and tries to live in the home essentially for free until the lender forecloses.
- As the housing market continues to struggle for stabilization, many homeowners are turning to strategic default. Almost 11 million homes are now underwater, according to Corelogic. Around 3.5 million homeowners are behind in their payments and another 1.5 million homes are already in the foreclosure process, according to RealtyTrac.
- Aside from the moral quandary of whether strategic default is the right decision, there also are other factors to consider.
- The borrowers’ credit scores will take a hit. According to FICO, someone with a 680 credit score would see their score decline anywhere between 85-100 points after a strategic default, and someone with a 780 credit score could lose 140-160 points.
- Borrowers who are considering strategically defaulting on a house should look at it as a last resort, not a first option. Financial troubles could be eliminated by refinancing, especially if the Obama administration’s program is implemented.
- Each state has its own rules and regulations regarding foreclosures, which affect both the length of the process and what the borrower could be liable for in the end.
From C.A.R. Market Matters
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