What Is a Strategic Default?

 Posted on March 24, 2023 in Arlington Heights Foreclosure Attorney

When a homeowner is at risk of foreclosure, there are a number of ways that they can potentially respond. If their finances are solid but repayment could be made more manageable via a loan modification, this adjustment could mitigate the issues that led to missed payments in the past. Other homeowners file for bankruptcy to catch up on missed payments or pursue short sales to avoid foreclosure when they can no longer afford to remain in possession of their property.

Under a very specific set of circumstances, there is one additional opportunity that makes sense for some individuals who can no longer afford to remain homeowners. This opportunity is referred to as strategic default. It involves intentionally halting payments on a mortgage tied to a home that is worth significantly less than what the homeowner owes their lender.

Important Considerations

One of the reasons it is critical to seek professional guidance before engaging in a strategic default is that the consequences of this action are significant. While committing to a short sale will affect a homeowner’s credit score for a time, a strategic default will affect it significantly because this opportunity serves as an abdication of responsibility for the mortgage debt.

Additionally, a lender may hold a homeowner responsible for the value of their mortgage debt that cannot be recouped via a foreclosure sale. This is called a deficiency balance and it may be enforced per the terms of a deficiency judgment. As a result, a homeowner may find that their wages are garnished or that other assets are seized if they cannot work out a repayment plan for a deficiency balance with their lender.

Yet, despite these negative consequences, strategic default is often the best option available when a mortgage is significantly “underwater.” 

Contact an Experienced Lake County, IL Foreclosure Defense Lawyer to Learn More

Although strategic default is a legitimate and widely-recognized strategic decision made by many homeowners facing the risk of foreclosure, it is not a process that should be approached lightly or in an uninformed way. This is one legal and financial situation that no homeowner should undertake in a “DIY” fashion.

If you are interested in learning more about strategic default, connect with the skilled North Chicago, IL foreclosure defense lawyers at Newland & Newland, LLP to get a stronger sense of the process and why you would need professional support if you choose to move forward with this opportunity. You can schedule a free case evaluation today by calling us at 847-549-0000 or by submitting a contact form on our website. Our team will do its utmost to ensure that you are empowered to make informed decisions before moving forward. 

Source:

https://www.ilga.gov/legislation/ilcs/ilcs4.asp?ActID=2017&ChapterID=56&SeqStart=107100000&SeqEnd=115800000