Strategic Default

by Georgia Engineer
(Atlanta, Georgia USA)

Ask Kate about strategic default: Kate, I am upside down in a mortgage owing $99K with a market value $87,000. I am looking to refinance it to rent or just sell it outright.

Georgia Engineer continues... I am currently at 6.75 percent APR with a credit score at or above 800.

My lender offered about 6.25 percent APR with a HARP refi and offered 5.625 percent APR on a regular refi. Neither sound appealing with closing costs of $2500.

My credit union will not offer me a loan since I am upside down but they said I would otherwise qualify for a rate of 4.875 percent. All rates I quoted are for a 30 year fixed rate mortgage. What other options do I have?

Is foreclosing and walking away feasible? Would they renegotiate on a rate?

Kate Answers: Strategic Default

Dear Georgia Engineer,

Here's the deal... For today's homeowner, it has come down to picking your poison.

One option (aka poison) is strategic default. This practice is otherwise known as walking away from a property with no equity, even though the homeowner can still make the mortgage payment.

If payments are not a hardship, I personally do not recommend a strategic default. But either way, I am not the Moral Patrol. Homeowners need to decide what is right in their own eyes.

But if you are contemplating strategic default, be aware Congress is again discussing deficiency judgments and whether banks can sue homeowners who practice strategic default. Different states also have varying laws on the books regarding strategic default and deficiency judgments so contact an attorney before proceeding.

Besides strategic default, here are other negotiation options.

A second option is negotiating with the bank to sell the house for less than you owe. Hear what I told a Veteran who is living on credit cards and owes the IRS. You'll find my advice at Real Estate Short Sale.

Loan modification is a third option for owner-occupied properties. See why there is so much buzz over mortgage loan modification here.

Lastly, Donald Trump has this to say about negotiating with the bank.

What about HARP or HAMP?

HARP assists homeowners making payments on time who can't refinance due to a loss of equity in their homes.

HAMP assists homeowners with less than perfect credit who are struggling with interest rate increases or income decreases.

You can read HARP and HAMP questions I have received and answered here.

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Best Wishes,

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If you still have questions regarding Strategic Default, write me at Ask Kate where every question is a good question.

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