They call it the Real Estate Market for a reason. Just like stocks, the value of your property can increase or decrease without any warning. When this happens to a home you have a mortgage on, it can leave you owing far more than the home is presently worth. When that happens, you may be tempted to walk away, but can you?
When you have plenty of money to make the payments on a property, but you choose not to, it’s called a “Strategic Default.” The goal of a strategic default is to leave you, the homeowner, not owing money.
The bank could agree to a short sale – In a short sale, the lender agrees to let you sell the house for less than the remaining principal on the mortgage.
The bank could agree to Deed-in-Lieu – In this arrangement, you would assign your interest in the property to the lending institution, avoiding costly foreclosure proceedings for both parties.
You could simply stop making payments – Eventually the property will enter foreclosure.
The short answer is, yes, there are ways you can escape from an “underwater” mortgage. There are risks involved. Before you decide on a strategic default, there are some factors to consider.
Your credit will be impacted – Defaulting on a loan, even for the best of reasons, will still hit your credit. It may cause problems years later when trying to get a new car, mortgage, or credit card. Current credit cards may even be canceled. In most cases, a short sale or deed-in-lieu arrangement will hurt your credit the least.
You may still end up owing money – Depending on contract language and your lender’s willingness to negotiate, a short sale or deed-in-lieu may not satisfy all of your debt.
The bank may attempt to foreclose anyway – Even if your intent is to arrange a short sale or another arrangement, the lender may start proceedings to foreclose on the property, necessitating a foreclosure defense while you are actively trying to remedy the situation.
Regardless of your decision, talk to competent legal representation first. The Law Office of Jonathan Kline, P.A. is South Florida’s expert on real estate litigation. With almost two decades of experience, Jonathan Kline is a member of both the American Bar Association and the Florida State Bar. Call today to schedule a free consultation and put the power of experience in your corner.
