Strategic Defaults

Between the mortgage foreclosure crisis and COVID-19, many Florida homeowners were "underwater" on their mortgage. They owed more than their home was worth. Rather than sending mortgage payments in month after month on a home that was worth far less than what was owed, some made a choice to voluntarily stop making payments on their homes. This is called a “strategic default.” It's essentially deciding not to pay your mortgage even when you can. 

During COVID, Florida home prices increased significantly. And that completely changed the paradigm on this issue. If there is equity in the home, strategic default is mostly likely not best. 

We can gladly walk through the likely pros and cons of not paying your mortgage to help you decide if this is the right route for you. We do not believe a lawyer's job is to tell clients what to do. So, we will never tell you not to pay your mortgage. Rather, as lawyers, we will counsel you and give you sound legal advice of the consequences of paying versus not paying. From there, you, as the client and principal in the attorney/client relationship, decide what is best for you.

Contact the Fort Lauderdale and Hollywood lawyers at the Law Offices of Evan M. Rosen to learn more about strategic default and other loan resolution options. Our strategic default and foreclosure defense attorneys are committed to treating you like we would want to be treated and to treating your case as if it was our own. We will listen to you as you explain the situation and your goals, and will then discuss various options that may be available to you to best resolve the challenges you are facing.

You are welcome to read more about strategic default below or you can contact us now for a consultation by calling 754-400-5150 or by filling out our online form.

A strategic default means that you simply stop making payments on your mortgage, even though you have the money to pay. You may continue to live in your home or rent your investment property after making this choice. You may also decide to leave the property and send in your keys to your mortgage lender, a practice so common that it now has been dubbed “jingle mail.” Finally, you may wish to negotiate alternatives to foreclosure that still allow you to give up your home, such as a deed-in-lieu of foreclosure. These generally only apply to homes that are "underwater." If there is equity, there are almost always better alternatives, and less reasons to consider a strategic default.

Weighing the Pros and Cons

A strategic default is not for everyone, and there are some consequences to making this choice. You should thoroughly understand the risks and rewards before making a final decision. For example, consider:

• Whether you want to keep the property. If you hope to keep your property, then options like a loan modification, reinstatement, or redemption are better choices.
• How great is the difference between your home loan and the value of your home. As the difference of your mortgage balance minus your home's value increases, the possibility a strategic default making sense may increase too.
• Whether you have significant assets that could be put at risk. Florida is a recourse state, which means a lender could obtain a deficiency judgment against you. A deficiency judgment is a court judgment for the difference between the balance owed/judgment amount and the amount the lender recovers when selling your home in a foreclosure sale. While you may be able to avoid a deficiency judgment in a strategic default by exploring loan resolution options with the Law Offices of Evan M. Rosen, it is important to realize that a deficiency judgment is a risk of default.
• Whether you are willing to withstand the damage to your credit. Late payments and a mortgage default are going to do damage to your credit score. This can make it difficult to buy a new home, get a car loan, or obtain other types of credit. However, your credit score can recover, and it is even possible to obtain a home loan in as little as two to three years after a foreclosure, so this may or may not be a deciding factor.

These are just some of the key issues to think about when making the choice as to whether a strategic default is right for you. 

In the business world, corporations understand that it is important to look at the bottom line and to make a choice regarding whether fulfillment of a contract makes sense. When it doesn’t, businesses regularly opt to breach a contract because it is more economically efficient and because doing so is necessary to keep the business profitable.

Most homeowners do not look at their mortgage relationship with an eye on the bottom line or even view it as a business transaction. Instead, many feel a moral obligation to repay their loan. This is understandable and admirable, but it may not be the wisest decision. Perhaps it helps to consider what a bank would do if the deal you made turned out to be unfair to them. 

By making the choice to keep making payments on a home that is worth less than what is owed, homeowners can make it very difficult for themselves to build wealth or get ahead. But on the other hand, if you stop paying, a foreclosure will almost certainly be filed. You could lose your home, seriously damage your credit, and face a money judgment for the deficiency. And a deficiency judgment can remain valid for up to twenty years. Deciding to default is not a decision you should take lightly but it is one that the Fort Lauderdale and Hollywood strategic default lawyers at the Law Offices of Evan M. Rosen can help counsel you through.

When you purchased your home and obtained a mortgage loan, you did it on the basis of an appraisal, who was typically hired by a lender or mortgage broker. Your lender then reviewed your credit and other information, assessed the value of the home, and made the decision to lend to you on the basis of that information. Oftentimes borrowers relied on their mortgage brokers or lenders to give them input as to how much of a monthly payment they could actually afford. Yet, borrowers who continue to pay on mortgages that are upside down are the ones who bear the full cost of the losses. This is simply unfair.

As a borrower, you generally did not cause the home to be underwater. Often times things happen in life that are beyond our control and that can affect our ability to pay as agreed. Why should you have to bear the full brunt of things that have happened that are beyond your control? When banks make loans, part of their business includes the risk that some borrowers will not pay. When that happens, they still make vast sums of money. They know that things can and do happen, and that not everyone will pay. They build that risk into their business model and still make plenty. Ultimately, you have to do what is best for you, so long as it's legal. (Ideally, you should only do things that are both legal and ethical.) And even if you can afford to pay, it’s in your best interest to at least consider whether strategic default is the right choice for you.

If you owe more than your house is worth, whether you are struggling to make mortgage payments or not, you should consider all your options and make a wise choice. Speaking with a Fort Lauderdale and Hollywood foreclosure defense attorney at the Law Offices of Evan M. Rosen, is a great place to start. With our commitment to put the needs of our clients first, we will take the time to review your situation in detail and to advise you on how best to proceed in dealing with your mortgage loan. Contact us today at 754-400-5150 or through our online form to schedule a consultation to learn more.

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