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‘Strategic’ Plan Not Working
I have a strategic default. My house has a $320,000 mortgage, and the current value is about $190,000. It is foolish for me to make payments, and I have not made a payment since January 2011. I have told the lender the house is theirs and to notify me when to move out. However, if they're willing to give me a new mortgage based on the current appraised value, I will consider it. They refuse to deal with me in any way. Any advice?
A “strategic default” means you have the ability to make mortgage payments but elect not to do so. By “walking away” you have defaulted on the loan and now want a lender to make you a new and better offer.
Why would the lender offer new financing? Based on your record you might again walk away if property values continue to fall. And if you can walk when home prices go down then would it be unfair for a lender to unilaterally increase your debt if property values increased?
Unfortunately the new reality is that many parties in the financing process do not meet their obligations. In his new book, “Way Too Big To Fail,” William A. Frey – a broker-dealer who has sold mortgage-backed securities worth billions of dollars – says many in the mortgage field “are choosing to ignore their contracts. This is true of homeowners, servicers and banks, and though they were never participants in the deals, even politicians are ignoring the contracts that underlie mortgage securitizations.”
“Voluntary defaults,” adds Frey, “are particularly troublesome because the collective action of millions of borrowers who have the ability to pay but choose not to is dragging down the value of U.S. real estate and the economy as a whole.”
Given today’s mortgage rates it likely would have been better to make payments and refinance. Such a strategy would have allowed you to keep the property and substantially reduce your costs.
Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to firstname.lastname@example.org.View Foreclosure Article Archives
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