The Rise of the "Strategic Default"

With the housing market in worse shape than during even the Great Depression, more and more homeowners are turning to a "strategic default" as a way to "move on" from their financial and housing woes. 

A strategic default is fairly straightforward - you owe more than the house would sell for, and instead of seeking another course of action to avoid foreclosure (short sale, loan modification, deed in lieu of foreclosure, etc..) the homeowner stops paying "strategically" and eventually loses the home to foreclosure. 

It is understandable why some people believe this is their best option.  Many underwater and distressed homeowners feel trapped and fail to seek advice from someone who understands the implications of foreclosure, as well as the foreclosure process itself.  Others genuinely believe that strategic default is their best choice. 

I'm here to tell you that, in almost any circumstance, doing SOMETHING is better than simply doing NOTHING.  There are a litany of professionals who can help guide you in the right direction.  For example, most lenders are accepting a short sale as a viable alternative to foreclosure.  For a bank to start the foreclosure process is very expensive.  For a homeowner early in the process, there is plenty of time to attempt a short sale.  A short sale will limit the damage done to the homeowner's credit score, and will typically allow them to purchase again in just 2-3 years.  Conversely, a homeowner with a foreclosure on their credit will likely have to wait 7+ years to purchase again.

For some people, perhaps just walking away really is the right choice.  If you are a private investor with 25 houses and hefty sums in your bank account, a foreclosure or two probably isn't going to devastate you.  But in reality, most people don't have 25 houses.  They have one, and it is the largest investment they have.