What are some general guidelines regarding strategic default?

A strategic default is a choice that some homeowners are making to walk away from mortgages or to stop paying mortgages when they technically can afford to pay them. Unlike those who lose their home to foreclosure because they really don't have the cash, those who do a strategic default make a conscious choice that they will no longer pay their mortgage payments.

You may wonder why anyone would ever do this. There are a few reasons:

• People may default on their mortgage and walk away when their house is not worth anywhere near what they paid for it. For example, assume you bought your home for $500,000 and you still owe $490,000 on it. The home has fallen dramatically in value and now your home is worth only $300,000. If you kept making your payments, you'd end up paying $190,000 more than what the house is worth. Some people would prefer to go and buy another house (at these lower property values) and simply walk away from the old mortgage where they were underwater
• People may default in order to try to force the lender to change the terms of the mortgage or modify the mortgage loan.

In either case, you need to be aware that a strategic default can have consequences to your credit, may result in foreclosure, and can also have other legal consequences in some states if the bank comes after you for a deficiency judgment. Before even considering a strategic default, you need to speak with a lawyer to understand all the implications of your decision.