Why Strategic Default

Does a strategic default make sense for you?

Strategic default begins to make financial sense once homeowners realize that:

  • From a business and financial standpoint, it does not make sense to continue putting money into an over-leveraged, underwater asset that may never be worth what is owed.
  • Arizona laws can protect homeowners from lenders pursuing them for debt deficiencies.
  • The Mortgage Debt Relief Act can eliminate tax liability on the debt forgiven by the lender.
  • Homeowners are able to purchase again within 12-24 months.
  • Government legislation gives subsidies to eligible individuals for $3,000 for relocation expenses.

Millions of homeowners who bought homes in the last five years, particularly in the hardest hit states of California, Florida, Nevada, and Arizona are underwater in their mortgage. For example, a homeowner who bought an average home in Phoenix at the peak would have paid around $339,118. That home would now be worth only $169,805 and, assuming a 5% down payment, the homeowner would have approximately $132,000 in negative equity. He could save approximately $116,000 by walking away and renting a comparable home. Or, he could stay and take 20 years just to recover lost equity – all the while throwing away $1300 a month in net savings that he could invest elsewhere. Millions of U.S. homeowners could save hundreds of thousands of dollars by strategically defaulting on their mortgages.

There is a distinguishing factor between “Strategic Defaults” and “ordinary” defaults. Ordinary defaults occur when people simply can’t make the payments. In a Strategic Default, the homeowner chooses to ‘walk away’ even though they can make the payments; they decide to stop “throwing good money after bad.” An extensive study on this practice found that about 26 percent of existing defaults have been strategic.

If you feel like you are putting money into a bad investment and want a way out, please contact the Default On Purpose  team for a free, no obligation consultation at 480.359.1911. We will be able to learn about your individual circumstances, determine tax and credit liabilities, figure the market value of the home, and assess what options you have.

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