What Is A Strategic Foreclosure?

Many Americans are going to great lengths to save their homes; from maxing out credit cards to getting a foreclosure attorney.  There have even been stories of people blockading their property to prevent eviction.  But a small minority of owners are actually walking away from their homes even when they can afford the mortgage.

Strategic Foreclosure

If you bought during the peak of the real estate market, the value of your home may have decreased anywhere from 10 to 40% or more.   For many, this is irrelevant, because they plan on being there for the long run.  But others bought with the intention of reselling their home for a tidy profit in a few years.  Whatever the case, many are choosing to walk away simply because their home is worth so much less than what they paid for it.  This is called a strategic mortgage.

Right now only a small percentage of people are doing this.  But if prices continue to decline, this may become much more common.  In fact, a recent poll recently found that 32% of homeowners say they would walk away if the value of their home continues to decrease.  They say it would be better to cut their losses and get an apartment than continuing to pay on an underwater home loan.

Consequences

If you’re contemplating this technique, there are consequences to consider.  First of all, a strategic foreclosure impacts your credit in the same way a regular foreclosure does.  That means it will stick around on your credit record for at least 7 years. 

During that time, it will most likely be more difficult to get credit cards, car loans, or any kind of lending for that matter.  According to internet forums and credit card reviews, right now it’s even difficult to obtain something as simple as a department store card if you’ve had a recent foreclosure. And if you’re dreaming of a Visa Black card or some other premium piece of plastic, you can forget it as long as that foreclosure is on your credit file.

Alternatives

As ironic as it sounds, there’s never been a better time to have troubles with your mortgage.  With so many new programs, incentives, and regulations to protect homeowners, there’s a good chance you can modify your mortgage.

There are now opportunities to get a historically low APR.  Depending on your current rate and the amount you borrowed, this has the potential to save you hundreds of dollars a month.

Rate Reduction: 

  This may be harder to do, but depending on the price you purchased your home for, you may be able to get the amount of the principal reduced.

Principal Reduction:

Foreclosure Freeze:  This varies state by state and the rules are constantly changing, but there are some areas which have put a “freeze” on new foreclosures; postponing them an extra 30 to 90 days.  During that time, they want you to try and work out a new payment to keep you in your house.

The bottom line is that help is available and a strategic foreclosure may not be necessary.  Consult the internet or an attorney which specializes in this field to find out more.

Finding foreclosure listings and foreclosed properties by city and state can easily be done through sites like GoHoming.com