By: Richard E. Korb. ©2011[1]
It’s no secret that in California—and all across America—the housing market is in a crisis and foreclosures continue to mount. With housing prices dropping, some homeowners have found themselves in the unenvied position of owing a greater debt on their property than the property itself is worth. In technical terms, this is called ‘negative equity,’ or more plainly referred to as being ‘underwater.’ And in today’s market, the homeowner may see no possibility of this situation changing anytime in the near future.
When this occurs, many homeowners may begin to feel that desperate times call for desperate measures. And that is where the idea of a ‘strategic mortgage default’ comes into play. Simply put, a strategic default is what happens when a homeowner decides to stop paying their mortgage in order to allow the bank to foreclose on their house. There is an important distinction to make between a strategic default and a regular foreclosure; in this situation, the homeowner has the money necessary to make the mortgage, but deliberately chooses not to do so.
Needless to say, this is a drastic step for anyone to take. But it has, in recent times, become increasingly common. However, anyone who is considering going through with a strategic default should first make sure that they are thoroughly prepared for its consequences, which can be severe. A default will damage your credit rating, which—even with an otherwise good credit score—can last for several years, and make getting any future loans much more difficult, expensive, or both. Furthermore, government agencies may deny you the chance to obtain a new mortgage for at least three, and possibly up to seven, years after the foreclosure.
There is also the possibility that your lender will not be satisfied with accepting the default, and may come after you to collect the rest of your debt. This generally happens when the bank is forced to re-sell your house for less than the amount they are owed on its mortgage, in which case they may be able to sue you for the difference, or the ‘deficiency.’ Californiais a state with anti-deficiency laws that may be able to protect you.[1]. However, there is no absolute guarantee, and it would be wise to research the clauses specifically pertaining to you and your situation further before moving forward with the default. Another easily-overlooked point to consider is the property tax still owed on the property; for as long as the house remains under your legal ownership, you will need to continue paying its taxes, even after you’ve chosen to default on the mortgage. Until the foreclosure has officially gone through, these taxes are your responsibility; if you choose to ignore them, the lender will likely be forced to foot the bill, which will enable them to pursue you later to recoup their losses.
Thus, before you go through with a strategic default, it’s best to contact an attorney to discuss all other possible options. Working with the bank to get a successful loan modification can allow you to stay in your home at a lowered mortgage rate; however, this is easier said than done. Alternatively, a short sale on the house may help you to get rid of the mortgage without damaging your credit score. Another option the bank may offer you is a deed in lieu of foreclosure, a document which you sign to hand over the house’s legal ownership to your lender, also allowing you to avoid foreclosure and possibly getting rid of the rest of your debt.
However, if a strategic default still appears to be your wisest—or only—choice, it’s best to enter into the situation well-prepared. After you stop the payments on your mortgage, you will probably be allowed to continue living in the house until the foreclosure goes through, which can take from several months up to six months, and in a few cases an entire year. This would be a good time to work on getting your other debts under control and generally sorting out your financial affairs. In the meantime, stay open to negotiations from the bank, which will likely want to arrange to keep the building occupied and in good condition until they are able to take possession of it. Your lender is not required to give you any more than three days notice in which to quit the property, but if you keep communications open and hold up your end of any deals, they may be willing to let you know when it will be time to move out much further in advance.
For any further questions or concerns on the advisability of a strategic default, or its possible consequences, please contact Richard Korb, a Berkeley-Oakland Real Estate Attorney, for a consultation at 510-524-0903.
[1] See our article on our Business & Real Estate blog:” Foreclosure and Anti-Deficiency Laws in California: Can Your Lender Come After You?”
RICHARD E. KORB is a seasoned attorney with 30 years of experience in business law, and other related legal experience. Over his legal career, Richard has successfully litigated, negotiated and resolved over 300 cases for individuals and companies of all shapes and sizes. Richard leverages his big firm experience to now assist individuals and smaller companies with a broad spectrum of legal matters. In addition to his legal practice, Richard is also court-approved mediator and serves on the Alternative Dispute Resolution (ADR) panel for both the Alameda and Contra Costs County Superior Courts.
The content in this article and on the website or blog where it is posted is for informational purposes only. It is not intended to serve as legal advice and no attorney-client relationship shall exist by virtue of its dissemination ©2011 RICHARD E. KORB. Should you wish legal advice, you may contact Richard for a consultation at 510-524-0903. ©Richard Korb. 2011.
RSS
Facebook
LinkedIn
YouTube
34 comments
casino bonusse says:
August 19, 2011 at 5:04 am (UTC 0)
casino bonusse Good post, thank you. Do you have a Twitter account?
fussball wetten tipps says:
September 2, 2011 at 9:35 am (UTC 0)
fussball wetten tipps Nice post, thank you. Do you have a Xing account?
關鍵字 says:
September 3, 2011 at 10:25 am (UTC 0)
the written content on this publish is really one particular of the top substance that We have at any time arrive throughout. I adore your submit, I will are available back again to examine for new posts.
mortgage, companies says:
September 10, 2011 at 6:43 am (UTC 0)
Interest-only mortgages? Do they serve a useful purpose… ?
Grand Palace says:
September 17, 2011 at 12:10 am (UTC 0)
You have really interesting blog, keep up posting such informative posts!
cheapest vps says:
September 18, 2011 at 2:24 pm (UTC 0)
Some genuinely interesting information, well written and loosely user pleasant. unmetered vps | cpanel vps |
Блог о путешествиях says:
September 26, 2011 at 4:57 am (UTC 0)
Thx for this great information that you are sharing with us!!!
buy lexapro says:
September 29, 2011 at 10:43 pm (UTC 0)
Great post I must say. Simple but yet interesting and engaging. Keep up a good work!
Replicaonline says:
October 6, 2011 at 2:48 pm (UTC 0)
I like reading blog posts, and when I stumbled upon to this weblog, it just blew me away! Hey there I mean it! Your contents are rich and I discover them very useful!
self breast exam says:
October 6, 2011 at 5:34 pm (UTC 0)
Thank you for every other wonderful article. Where else could anybody get that type of info in such a perfect manner of writing? I have a presentation next week, and I am at the search for such information.
fashionreplica says:
October 7, 2011 at 8:44 am (UTC 0)
This is one of the best comments on this site ЁC thank you for sharing with us. I wait every day to watch and you never let us down you do a brilliant service for the readers, thumbs up keep it upЎ.
Home Mortgage Toronto says:
October 11, 2011 at 6:18 am (UTC 0)
Great beat ! I wish to apprentice at the same time as you amend your site, how can i subscribe for a weblog site? The account aided me a appropriate deal. I were a little bit acquainted of this your broadcast offered brilliant clear concept
self breast exam says:
October 15, 2011 at 4:58 am (UTC 0)
Hi, i feel that i saw you visited my website thus i came to ?return the want?.I’m attempting to find issues to enhance my web site!I guess its good enough to make use of some of your ideas!!
ebook readers says:
October 15, 2011 at 10:43 am (UTC 0)
Nice post. I used to be checking continuously this blog and I am inspired! Extremely useful information specifically the ultimate part
I deal with such info much. I was looking for this certain info for a very long time. Thank you and good luck.
beats says:
October 16, 2011 at 4:11 am (UTC 0)
Great work! That is the kind of information that are meant to be shared across the net. Shame on the seek engines for not positioning this publish upper! Come on over and consult with my site . Thanks =)
Joye 510 Manual Battery says:
October 16, 2011 at 5:20 am (UTC 0)
I am now not sure where you are getting your information, however great topic. I needs to spend some time finding out much more or figuring out more. Thanks for fantastic information I was looking for this information for my mission.
samsung 1080p hdtv says:
October 16, 2011 at 6:16 am (UTC 0)
Awesome informational article! I like the way you get your point across and your views on this subject. I have to share this great article. http://www.samsung1080phdtv.net/
Electronic Cigarettes says:
October 16, 2011 at 8:51 am (UTC 0)
I don?t even know the way I finished up right here, but I believed this put up was good. I do not recognise who you are but definitely you are going to a famous blogger in case you are not already
Cheers!
buy electronic cigarettes says:
October 16, 2011 at 9:12 am (UTC 0)
Hi there, I discovered your web site via Google whilst searching for a similar subject, your website came up, it looks good. I have bookmarked it in my google bookmarks.
Electronic Cigarette says:
October 16, 2011 at 9:38 am (UTC 0)
I?ve read some just right stuff here. Definitely value bookmarking for revisiting. I wonder how much attempt you put to create any such great informative site.
Joye Ego 1000mah Kit says:
October 16, 2011 at 10:24 am (UTC 0)
Wonderful items from you, man. I have bear in mind your stuff previous to and you are simply too great. I really like what you have obtained here, really like what you are stating and the way during which you assert it. You’re making it enjoyable and you still care for to stay it smart. I can not wait to read far more from you. This is actually a terrific web site.
ego booster says:
October 16, 2011 at 12:41 pm (UTC 0)
I think that is one of the so much vital information for me. And i’m happy reading your article. However wanna remark on few common issues, The site style is wonderful, the articles is really nice : D. Good activity, cheers
Map Cartomizer says:
October 16, 2011 at 1:17 pm (UTC 0)
My brother suggested I would possibly like this website. He was once totally right. This submit actually made my day. You can not imagine simply how so much time I had spent for this info! Thanks!
Echo Cartomizer says:
October 16, 2011 at 1:33 pm (UTC 0)
I was suggested this blog by my cousin. I am no longer certain whether or not this put up is written by means of him as nobody else understand such particular about my problem. You are wonderful! Thank you!
replica omega says:
October 17, 2011 at 2:13 pm (UTC 0)
After reading this I thought it was very informative. I appreciate you taking the time and effort to put this post together. Once again I find myself spending way to much time both reading and commenting. But so what, it was still worth it!
Tadalafil says:
October 17, 2011 at 11:11 pm (UTC 0)
alloha
buy viagra from india pharmacy says:
October 20, 2011 at 8:07 am (UTC 0)
Once read some of the blogposts on the weblog simply because not too long ago, and that i undeniably much like your means for blogging for cash. My partner and i saved them to help my favorites web-site variety and are examining once more fast. Could you go to my website too combined with let me know the views.
Generic Viagra says:
October 20, 2011 at 11:22 pm (UTC 0)
Do you got from now on info on this kind of?
generic cialis fda banned says:
October 21, 2011 at 9:21 am (UTC 0)
Will you be lived in by way of swapping one way links?
replica rolex submariner says:
October 28, 2011 at 9:34 am (UTC 0)
After reading this I thought it was very informative. I appreciate you taking the time and effort to put this post together. Once again I find myself spending way to much time both reading and commenting. But so what, it was still worth it!
Generic Viagra says:
October 29, 2011 at 2:11 pm (UTC 0)
It’s infrequent so that i can come across a problem on the web that may be as exciting along with amazing simply because everything you contain the following. Ones internet page is going to be fantastic, an individual’s graphics are excellent, coupled with what’s extra, you utilize form which you’ll find related to what exactly you’re expounding on. You’re definitely one from a million, congratulations!
Generic Viagra says:
October 30, 2011 at 11:28 am (UTC 0)
Perfectly i’m as a result of Ireland in europe, as well as while in Ireland in europe bono in addition to the lads are really most likely loved and as well can potentially not complete definitely noticeably misguided, of course you like him or her.
shared ownership mortgage says:
October 31, 2011 at 4:56 pm (UTC 0)
It’s really a great and useful piece of information. I am satisfied that you shared this helpful info with us. Please keep us informed like this. Thank you for sharing.
mortgage interest rates forecast says:
October 31, 2011 at 11:31 pm (UTC 0)
Hello there, You have performed an excellent job. I will certainly digg it and in my view suggest to my friends. I’m sure they will be benefited from this web site.