More Americans Are Walking Away From Their Mortgages
Are you selling a house that isn’t worth as much as the balance remaining on your mortgage? Then it may be time to walk away. With the real estate market not expected to recover until 2023 and foreclosure rates abysmally high, more and more Americans are choosing to let their lender repossess their home even though they’re ahead on the mortgage. It’s a strategy that the lending industry calls “strategic default,” and if you’re struggling to build equity in your home, it might be worth a closer look.
Strategic default used to be portrayed as something deadbeat homeowners did when they couldn’t keep up with the mortgage. That changed in 2009, when the Wall Street journal ran a piece on a couple who cut their monthly living expenses from $4,000 to $2,000 by defaulting on their home and renting a new one. As the real estate market continued to slide, homeowners around the country – many of whom had never missed a loan payment in their lives – started to seriously weigh their options. According to “Underwater Home” author Brent White, right now “a large number of Americans who are underwater on their mortgages would be better off financially if they walked away from their homes.”
Strategic default works for a few different reasons. Many people who are thinking about selling are close to retirement and want to downsize anyway. Since they won’t apply for a home loan ever again, they can stand to take the hit of a foreclosure on their credit score. People might also choose to walk away if they live in a state like California, where lenders are allowed to foreclose but are not allowed to sue for the balance of the mortgage. But the biggest reason is this: banks simply don’t want to deal with the paperwork. They’re so backed up thanks to the robo-signing scandal that they’re willing to accept a loss on a short sale to save them the effort of pursuing your debt.
If you think that a strategic default would benefit you, research your local real estate laws or get in touch with a professional defaulting agency today. After all, if you’re drowning in your mortgage, starting a new life could be as easy as walking away.