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Law Offices of Michael H. Johnson, P.A.
3601 West Commercial Boulevard, Suite 31
Fort Lauderdale, FL 33309

954-535-1131
Fort Lauderdale Law Office

Law Offices of Michael H. Johnson, P.A.
2240 Palm Beach Lakes Bvld, 4th Floor
West Palm Beach, FL 33409

561-353-1131
West Palm Beach Law Office

Strategic Defaults Provide Options for Struggling Homeowners

Americans who find themselves without sufficient income to cover their mortgage payments have two main options - they can tap into savings and retirement funds in the hope that their situations will change before the money runs out, or they can stop paying and pursue strategic default.

Increasingly, strategic default is appearing to be a far more attractive option. In a strategic default, the homeowner makes an intentional decision to stop paying the mortgage to allow the home to go into foreclosure.

Essentially, the homeowner is making a decision that the short-term effects of foreclosure - such as a damaged credit score and difficulty securing new lines of credit - are better than the long-term consequences of exhausting whatever financial cushion he or she might have left.

The move can be especially beneficial to homeowners who owe more on their mortgages than their homes are worth. It's unlikely that these individuals would ever be able to sell their homes for enough money to pay off the associated loans.

Nearly 11 million Americans now hold these so-called "underwater" mortgages. Approximately 3.5 million homeowners are behind on their payments, and another 1.5 million are currently somewhere in the foreclosure process.

What to Consider Before Walking Away

Many homeowners have a difficult time justifying strategic default. After all, we're taught to be responsible and to honor the promises we make. To many, walking away from a mortgage seems dishonest.

It's best to think about strategic default as strictly a business decision. Companies discharge their obligations when they become too much to handle, and homeowners should be able to as well.

Be realistic about what it will take for you to maintain your mortgage payments for the life of the loan. If you're throwing good money after bad, or if you won't be able to sustain the payments in the long term, it may be best to just walk away. You may end up in a much worse place if you exhaust all of your financial resources trying to keep up with your home loan.

Still, a strategic default can be financially damaging, and should therefore be used only as a last resort. Homeowners who default on their mortgages typically see their credit scores fall by between 85 and 160 points.

Further, in some states, the lender may be able to come after the homeowner for the "deficiency balance," which is the money left on the loan after the house is sold in a foreclosure sale. In those states, the defaulting homeowner may have to file for bankruptcy to discharge that obligation.

If you are struggling under the weight of an unsustainable mortgage, you do have options for relief. But, you shouldn't make such a major decision without first getting professional advice. Talk to an experienced bankruptcy attorney who can help you understand your options.