If you decide to act on a strategic default, you are choosing to stop making payments on your mortgage despite the fact that you can afford to pay them. Normally, people who choose to commit a strategic default have experienced a substantial drop in the value of their property. At this point, chances are that they owe more debt on their home then the home is actually worth. This means that the property has “negative equity” or is “underwater.” At this point, it may not be worth it to pay an expensive mortgage on a house that doesn’t have that much worth. Some attorneys may suggest that you become a “walkaway” by defaulting on your mortgage. This process is often called “jingle mail” because the homeowners are essentially mailing their keys to the bank.

Most often, there is a barrage of strategic defaults after a real estate bubble bursts. At this point, people want to be free of their mortgage debt. If they know that they are paying beyond what their home is worth, they may want to abandon the responsibility of paying for a mortgage and use the money for other expenditures. A study in September of 2009 determined that about one-fifth of all troubled mortgages in the United States belong to a borrower who strategically defaulted. Depending on where you live, your strategic default will have different effects.

If you default on a recourse debt, then the loan isn’t backed by any collateral. This means that a lender can collect money from you if you decide to default, rather than foreclose on your home or seize your car. This means that the lender has the right to collect assets or pursue legal action when you default. In most cases, mortgages are non-recourse debts. In this case, the bank can only go after your home through a foreclosure. If you are trying to get rid of your home anyway because of its depreciating value, then a strategic default can actually work in your favor. If you choose to strategic default, you will need to make note of whether or not you have refinanced your mortgage, and whether or not you are strategically defaulting on a primary or secondary residency. These details may change the way that the bank handles your case.

Sometimes, a borrower is able to live in a house without paying the mortgage for years. Depending on how backed up the bank is, they may delay your foreclosure. During this time, you can use the money that is not going towards your mortgage to extinguish other debts. Sometimes, a bank will even ask borrowers to keep the house up and remain in the house until they can seize the property. There are times that they will even pay borrowers to leave a home in pristine condition, and they will agree to give long-term notice before they complete the foreclosure and issue an eviction.

Unfortunately, your foreclosure will result in a negative entry on your credit rating. It may be difficult for you to obtain another loan from the bank in the near future. You probably won’t be able to get another mortgage from a bank for 3 to 7 years. If you are considering a strategic default, then talk to a real estate attorney first. It’s important that you know what the laws are in your jurisdiction regarding mortgages. Look at any contracts and make sure that the strategic default won’t be going against any promises. Determine whether or not you can afford the bad credit for the next few years. By carefully evaluating all aspects of the strategic default with a wise lawyer at your side, you can make the best decision for your family and welfare.