The Myths and Misrepresentations of Strategic Defaults
Millions of Homeowners today find themselves in a situation where they owe more on their home than it is worth. Researchers have found that some homeowners begin to default when their negative equity hits 10% of the loan amount and they begin to walk away in masses at 15%. 17% of homeowners prefer to walk away once they are 50% or more underwater.
There have been many reports claiming that a “strategic default” can be an appropriate and even beneficial reaction to an upside-down mortgage. The truth is that default is never an easy road to choose and rarely is it ever strategic. Strategic default is when a homeowner simply chooses to walk away from the property even though they could afford to stay and continue to pay, because they owe more than the property is worth and view it as a bad investment. Some states are “no deficiency” states, meaning the lenders cannot pursue the debt owed on the property after the foreclosure. Colorado, however, is a “full deficiency” state. The lenders in Colorado have up to 6 years after a property has been foreclosed on to begin collection action against the defaulted borrower. This is not something anyone wants hanging over their head while attempting to put their financial life back together. Even in these “no deficiency” states there are better options than walking away, but in states like Colorado this should never be considered an option.
There are numerous programs available to homeowners who have a documentable hardship, to help them avoid a foreclosure. In some cases programs such as a short sale would allow the struggling homeowner to receive cash to assist with relocation expenses. If you are under water on your mortgage and wondering if there is a hardship scenario that applies to your situation feel free to contact me for a free consultation.