What is a strategic default?
As defined by Wikipedia…
A strategic default is the decision by a borrower to stop making payments on a home mortgage despite having the financial ability to make the payments. Usually this occurs after a substantial drop in the house’s price such that the debt owed is considerably greater than the value of the property, and is expected to remain so for the foreseeable future. Such borrowers are called “walkaways.”[1]
As discussed in CRS Course-111 on Short Sales and foreclosures, a strategic default will likely effect your credit score negatively by 140-150 points and will also result in 5-7 negative marks on your credit. This is likely going to be more detrimental than going through the process of a short sale or a loan modification, but is said to not effect your credit score as negatively as filing for bankruptcy.
**Disclaimer: I am a licensed real estate agent and cannot provide legal consulting or tax advice. For counsel on either of these things, please consult your tax accountant or attorney.
Before making any decision to pursue a short sale, a foreclosure, a strategic default, or to file for bankruptcy, it is in your best interest to consult with a licensed Realtor, your tax accountant, and an attorney.
