A strategic default is the decision by a borrower to stop making payments (i.e., to default) on a debt despite having the financial ability to make the payments.
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This is particularly associated with residential and commercial mortgages, in which case it usually occurs after a substantial drop in the house’s price such that the debt owed is (considerably) greater than the value of the property — the property has negative equity or is underwater — and is expected to remain so for the foreseeable future, such as following the bursting of a real estate bubble.
A short sale negotiator makes a case for default from the UT Newspaper.
Jacalyn Blank, a Clairemont-based short sale negotiator, wrote this guest post for the U-T San Diego in response to last week’s story about an anti-strategic default website started by a local real estate agent. Blank, who works with strategic defaulters, makes the case for what’s now a more widely accepted practice. We featured Blank in a business Q&A last fall: Meet a San Diego short sale negotiator.
Myth: Strategic defaulters are bringing down home values and impeding a housing recovery.
Truth: Strategic defaulters are not selling their house for a discount. They are selling it for what it is worth in today’s market. A “normal” sale is still selling for less than the house was valued at 6 to 8 years ago, even though it is a “normal” sale. This isn’t because of short sales or even foreclosures. All distressed property sales are a symptom of the real problem: Homeowners owe too much on inflated mortgages they obtained in an unsustainable housing high. The attachment to an inflated value comes from the name “housing crisis,” when really what we have is a “mortgage crisis.”
Read more at: http://www.utsandiego.com/news/2012/mar/19/are-strategic-defaults-right-or-wrong/
Disclaimer: for information and entertainment purposes only
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