Strategic Default

A Strategic Default is when a borrower decides to stop paying a mortgage even though they may still be able to afford the payment. When the value of a property has fallen far below the mortgage debt and recovery of the equity lost is expected to take years, a borrower may elect to default based on the mortgage contract.

Please keep the flaming to a minimum. thanks!

I have been doing some research on this topic, and I know this is common in Phoenix. I bought my house in 2005 for 138,000, equity loan out in 2007 for $25,000 and refinanced in 2009 for 172,000. Similar houses in my complex are selling for 40-45000. I pay $1200 a month.

I was curious how many AZ people have gone this route/Strategic Default? How many of you rent your house from a private owner/realtor? Issues? I appreciate the info, thanks!

 

I would strongly urge you to contact a lawyer who deals with this sort of thing.

Keep in mind with any responses you get on here regarding this issue, this is an open forum so you may be getting input from a lawyer or some goober who has nothing better to do with his time. No offense to the members here but I wouldn't put too much weight in their responses when it comes to decisions directly related to my own livelihood.

 

I make all my life decisions based on what the internet tells me.

 

I've heard of this also.
Might be a quick way to improve your financial situation, but your credit will be damaged pretty badly for a long time.
IMO If you aren't planning on moving, just tough it out. Markets go up & down.

 

I'll bet you live an entertaining and eventful life

 

I guess I was looking more for others experiences, not really info to sway me one way or another. I will be meeting with an attorney in the next few weeks.

A few more notes:

I have a townhouse, so I dont think the market would pick up enough to make it worth sticking around.

My HOA is run by the devil himself, so its not like it is pleasant in my complex to begin with.

In the research i have done so far, it would affect my credit for the next 4-5 years. I know this could affect my car insurance, my credit cards, etc. But now that i have my truck i am not looking to make another big purchase.

 

So, my fiancee and I just went through this whole decision and talked to many folks in the real estate and mortgage industry. Based on how upside down we were on just a first mortgage, everyone we spoke with told us to walk away. We both make plenty of money to own multiple homes, but want to have this bad investment behind us the quickest way possible.

All sources state that it's about a 3 year recovery to your credit if you default. But, that's based on having STELLAR credit during that time. But, based on the fact that we wouldn't break even on the value of our home for almost 10 years, we would recover credit-wise much faster if we walk away and rebuild. So, that's what we did.

Now, we are renting a home 2x the size of our townhouse, we pay less per month, and our commutes to work save us almost $400 a month in gas combined. Not to mention wear and tear. Yeah we're not building any equity as renters, but we were looking at negative equity for many more years by staying where we were. We are in a great position to save more for a nice down payment on a home. In 3 years we should be in great shape to buy a home at a good price.

Everyone's case is different, but if you're grossly upside down, consider all of your pros and cons before making such a huge decision. I suggest talking to a non-biased reputable mortgage officer or 2 before deciding further.

 

I dont have very nuch knowledge to this issue, but my parents are looking to do the same thing. Their house up north towards Prescott is on the market, but they will be upside down as well. they are contemplating walking away. with two new vehicles, their own business, and great credit, they should be fine. as long as you don't need to make any big purchases in the near future I think you'll be ok.

 

I have thought about doing the same. I purchased my home in 2007 for $172k, I owe $164k on it now. Similar houses to mine are now selling in my neighborhood in the 120's. I was planning on being out of my house in 2-3 years based on the trending of the market back when I purchased. I'm at 4 years now and it will be a LONG time before values go back up.

At least I'm not as bad as my parents, they moved to Jacksonville FL in '07 because my dad got transferred and their house is now worth $120k less than what they paid. They're talking about pulling money out of their 401k and taking the loss, then moving back here to GA and buying a smaller house up here since all of the kids have moved out they don't need a 4,000 sq ft house anymore for the two of them.

 

Sell everything and buy gold (you can get in Vegas at vending machines) and bury gold and then default. then after Bankruptcy unbury gold and come out ahead...

I'm a finance guy, for what it takes to get ahead on some of those upside down deals we're in its better to just get out.

Check out the state laws though..the fricken banks are THIEVES they come after your assets.

 

Wow. A whole thread on fiscal irresponsibility.

You bought the house, pay for it.

 

2 people very close to me have gone this route. It has it's pluses and minuses, but your credit gets boned.

 

it may keep you from getting a job in the future. Well over 50% of employers use credit checks to disqualify financially irresponsible applicants.

 

Then I guess the unemployment rate in the US will go up to 20+% because that's how many people foreclosed in areas that were hit hard like ours. With defaults being so rampant in the past couple of years, credit checks see it as a norm now.

 

If you bought a car and it started costing you more than it was worth for years, would you keep it?

 

wow. please get the fuck out of this thread

 

Is this similar to what the US government is thinking of doing August 3rd ?

 

No worries, Eric. If he sees that hanging on to a poor investment is "financially responsible", let him speak his mind. Yes, some of us made poor investments in the past, but instead of roasting in them some of us decided to get off our asses and get rid of them to better our lives.

 

I got lucky, I purchased my house up in washington state which wasnt hit hard at all compared to this location, at the bottom of the slump so I got lucky and havent lost anything. Thats being said, down here I would walk away and cut your losses.
I am actually thinking of buying a place in Tucson because you can get a place for so cheap that its 1/2 to 1/3 to buy a place as it is to rent. 10,000K down and I can get a decent place for 50-100K and your mortgage is no more than $500 a month.

As for a condo or a place with a HOA for the person who says thiers is the Devil... Run from an HOA as fast as you can. They are horrible and I will be damned if anyone tells me what color I cant paint my place, where to park my car, if I can have a boat in my driveway, or if I can hang a flag from my hosue. I am reading about HOA's that are forclosing on people for not paying your HOA dues if you cant afford it. They are putting a lein on peoples house, docking thier pay, evicting and forclosing because they are jacking up the HOA dues and people cant afford it anymore. WTF.

 

So... you decided to get off your ass and stop making your payments?