It’s called strategic default…when you purposely walk away from a mortgage if your payments are too high and your house is underwater.
That extra word “strategic” almost makes this maneuver sound like a well-thought-out idea.
But is it for you?
Many homeowners have considered this option; the guidance to follow through on this action is readily available online. You really can walk away, they promise, and even buy a house again within 2 years. At least that’s what they say…
Here’s why it’s not the best option for most homeowners, at least if you plan to purchase a house again the near future (or sooner than 7 years after walking away).
1. Your credit
Repairing your credit is a big part of your ability to get into a home again. You may be able to finance a house through seller financing at some point, but even in an unconventional home purchase the seller is going to want to check your credit history.
When you work to repair your credit a lot of things go into the big picture. One of the most important goals you are working to establish is meeting your current obligations. Paying your bills on time — your credit card bills, your utilities and your rent, as well as any other debts you are currently paying on — makes a favorable impact on your credit. But when you have a foreclosure (or a strategic default) on your record, it’s just that much more difficult to boost your credit score quickly. Your new lender will want to make sure that you’re making regular payments and have the ability to assume another loan. Even if you are doing that, the tarnish on your credit from a defaulted mortgage or a foreclosure doesn’t help your case because it speaks about your history.
If you are barely hanging on making your house payments on a home that’s underwater, then now is the time to sell that home…not allow yourself to be foreclosed on. Unless you really don’t care about your credit, you’re better off finding an alternative to foreclosure. While a strategic default isn’t a deal-breaker, lenders are happier to work with someone who did everything they could to avoid one.
2. Money in your pocket
Who doesn’t want money in their pocket? When you walk away, as they so causally discuss, sure you officially unleash yourself from your mortgage. Strategic default doesn’t mean you are off the hook, though. Think of the people who do want to be paid, the electric companies, the trash collectors, etc. Possibly your insurance and car loan. Wouldn’t it be better to have some money to spend? Often times, when you sell your house to an investor who is willing to work with you and one who can buy your house fast for cash; you end up with a little cash to adjust to your new life. As they say, cash is king. The smart thing to do is explore your options and see if a strategic default isn’t just shooting yourself in your own foot.
3. Finally, there’s the goodwill involved
If you feel like you’ve been duped by your mortgage company, you might look at strategic default as a great way to “get back” at the lender who put you in such a difficult position. But the truth is, no one forced you and the bank to agree to sign those closing documents on an overpriced house. If you choose strategic default, you both lose some skin in the deal. Often you the homeowner pay the higher price in terms of stress, personal loss and the ability to bounce back. Not fair, but true. It’s a case where a little education is hard-earned.
As you look ahead to your future, your ability to claim that you did not default, but rather sought another, more beneficial solution to your financial problems — that’s a golden opportunity that opens doors. You might not see it now. But if you dig in and find a solution other than defaulting on your loan, future lenders will want to do business with you. That’s just the way it is.
Now we’re not in the business of telling anyone what to do, but we’ve been on both sides of the negotiation table around purchasing and selling property. In every single case, we at Markette Properties try to
a. Set ourselves up for a financially secure future.
b. Put a little cash in our pockets, and
c. Do the right thing.
Why would we steer you any other way? Strategic default is one option for getting out of a bad situation. If someone is trying to convince you to engage in a strategic default or tell you it’s a great deal to just “walk away,” I urge you to get a second opinion. It might be the best thing you ever did.
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Do you want to sell your house fast in Texas for top dollar with the least hassle? Give us a call! (210) 853-2788 or click the button below.
Photo Credit Flickr CC: Cennydd Bowles