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Strategic Foreclosure 101: Moving Away From Your Home

Many Americans wonder how to deal with a submerged mortgage in these tough economic times. Florida has been hit harder by the housing crisis than any other state in the nation. While some can afford to continue making payments on their home, many across the state have been pushed into foreclosure as home values ​​have dropped 15 to 55 percent or more.

In addition to a loan modification, we’ve all heard the terms foreclosure, short sale, and deed-in-lieu of foreclosure. Each of these terms spells trouble for the homeowner: home loss, low credit score, and negative social stigma. Although lenders filed fewer foreclosure actions in Florida in February compared to a year ago, a new strategy is on the horizon, an idea called “strategic foreclosure.”

If you bought your home at the height of the real estate market between 2004 and 2006, its value has dropped substantially. While it’s irrelevant to some borrowers since they can afford the payment and plan to reside in their home for a decade or more, others have simply defaulted in hopes of forcing a short sale or principal reduction.

Should You Give Up Your Mortgage Even If You Can Afford It? Millions of Americans are asking the same question. Some borrowers feel they have a legal, moral, and ethical obligation to make payments despite a substantial drop in value. With nearly half of residential mortgages in Florida underwater, a growing number of people are contemplating moving away from the place they call home.

If you can resolve potential litigation and a lower credit score for yourself over several years, retiring may be a smart business decision. At this time, only a small percentage of borrowers are contemplating this technique. However, a recent study found that approximately 32 percent of homeowners across the country would consider abandoning their mortgage if their home’s value continues to decline.

While “strategic foreclosure” makes perfect economic sense, many homeowners do not choose this course of action out of shame, guilt, and fear. Underwater homeowners continue to stress over their mortgage payments to avoid the consequences of foreclosure and a perceived negative social stigma within the community. This is especially so when a borrower has the financial ability to pay.

Although nearly 17.4 million homes across the country are underwater, the adverse implications of “strategic foreclosure” should be considered before walking away. First and foremost is the loss of your home. Have you bought the house across the street for half the amount of your current mortgage? Do you plan to rent? Do you know that a “strategic foreclosure” will have the same impact on your credit score as a loan modification, judicial foreclosure, short sale, or deed-in-lieu of foreclosure? Are you aware that you can be sued for any balance deficit in your home?

“Borrowers who are underwater on their mortgages would be better off financially if they left their homes,” says Scott Kleiman, a foreclosure defense attorney with Kalis & Kleiman. “They don’t do it because of their moral and ethical obligation to pay their mortgages.”

Borrowers who had good credit before leaving “strategic foreclosure” can usually rebuild their good name and reputation in a couple of years. In a recent study commissioned by the global information services company Experian, approximately 588,000 borrowers across the country simply left their homes in 2008. This represents a 128 percent increase over 2007. By all indications, 2010 will be a A banner year for the social stigma of foreclosure. and the simple act of moving away from your home will have dissolved in the middle of the mortgage crisis.

Like former “Beverly Hills 90210” star Brian Austin Green, who has proposed a “strategic foreclosure” strategy in an effort to short-sell his $2 million Hollywood Hills home, you too can get on the wave of the future

As a homeowner, you can afford to make your mortgage payments, but you’re underwater to the point of no return. As a borrower, the American dream of owning a home is lost as you will be holding negative equity for a decade or more. “Strategic foreclosure” can be the first step toward a short sale and moving away from your home.