What is a strategic defaulter?
A strategic default is a decision by a borrower to stop repaying a mortgage obligation. The decision is typically made when the market value of a property has fallen below the amount due on the mortgage. Rather than waiting for conditions to change, the mortgage holder walks away from the property and the debt.
What are the consequences of foreclosure?
Eviction from your home—you’ll lose your home and any equity that you may have established. Stress and uncertainty of not knowing exactly when you will have to leave your home. Damage to your credit—impacting your ability to get new housing, credit, and maybe even potential employment, for many years.
What’s a strategic foreclosure?
Unlike a standard foreclosure, where a lender repossesses a property because the borrower is unable to keep up with payments, a strategic foreclosure occurs when a borrower can afford to continue mortgage payments but decides it is more advantageous to stop them.
Is strategic default ethical?
As long as Congress is unwilling to force lenders to write down underwater mortgages, many homeowners will conclude that strategic default is not only morally acceptable, but also the most rational course of action.
What is an underwater mortgage?
An underwater mortgage, sometimes called an upside-down mortgage, is a home loan with a higher principal than the home is worth. This happens when property values fall but you still need to repay the original balance of your loan.
How does a foreclosure affect taxes?
A foreclosure is treated the same as the sale of a property, which can trigger a capital gain. In some cases, the taxpayer may also owe income tax on the amount of any part of the mortgage debt that has been forgiven or canceled.
How long does a foreclosure affect your credit score?
A foreclosure stays on your credit report for seven years from the date of the first related delinquency, but its impact on your credit score will likely diminish earlier than that. Still, it’s likely to drag down your scores for several years at least.
Can you hand your house back to the bank?
If you can’t pay your mortgage, don’t just: hand the keys back to your mortgage lender – this is called voluntary repossession and should be a last resort. wait until you get evicted – your lender could take you to court to repossess your home.
What happens if you just stop paying your mortgage?
If you fall behind on your mortgage payments, the lender or current owner of the loan (the bank) is going to start taking steps to collect from you and prevent further losses. Eventually, if you don’t pay the overdue amounts, the bank will likely initiate a foreclosure.
What happens to your credit when you foreclose on a house?
Once a home is lost to foreclosure, the homeowner’s credit score could drop dramatically. According to FICO, for borrowers with a good credit score, a foreclosure can drop your score by 100 points or more. Typically, it will take three years or more of on-time payments to restore the credit score.