Life happens and sometimes, life doesn't always work out the way that we would like it to. Sometimes, hard work just is not enough to manage everything that life can throw at someone. More and more stories of people buying homes to start a family or have a place to call their own are becoming tragedies instead of happy endings. This is due to drastic drops in home values and a job-strapped recession that has put people in situations where they cannot continue to make payments. These situations can transform a house from someone's home to someone's prison.
Changes in the law over the past few years have tried to make things easier for people to make their payments. A number of financial services have also been made available to struggling homeowners to refinance mortgage payments, negotiate payment schedules and help people keep their homes.
Yet, even in light of these programs, some are faced with making a decision that losing their homes is inevitable, and are making the decision to cut their losses, stop making monthly mortgage payments and wait for an eviction from a foreclosure proceeding. This is referred to as a strategic default.
Is a Strategic Default the Solution?
A strategic default can be an option for people struggling with their finances to save some money to recover losses from losing their homes, pay off some other debts (including car payments and credit card balances) and try to mitigate their damages as much as possible.
Making the decision to strategically default is not an easy one, for some it may mean giving up the house for which they worked hard. Others may feel like they are giving up or cheating the mortgage company.
However, in a situation where someone cannot afford their home and selling is not an option, often because they owe more than what the house is worth, people have to make hard decisions in order to survive and prevent the financial situation from worsening.
In Michigan, a strategic default may not fully save someone from paying for some of the cost of the house. When a person is evicted in a foreclosure, the house is sold and sometimes mortgage companies can sue the person who defaulted for the difference between what they owe and what the house sold for; this is called a deficiency judgment.
Jumping the gun by defaulting too early may also have consequences. If you are in danger of losing your home and are considering a strategic default, speak to a Michigan attorney knowledgeable in debt relief matters. A lawyer can discuss your situation, explain your options and help you determine the best course of action.
Source: Reuters, "What happens when you walk away from your home?" Chris Taylor, 01/27/2012.