The Mechanics of Strategic Default
When you take out a loan to buy or refinance real property, there are generally two legal instruments that your sign. The first is the promissory note. The note creates your legal liability to repay the debt. The second is the mortgage. The mortgage secures the debt against the real property as collateral. This creates a secured debt obligation. The bank holds a lien against the property and can force it to be sold if the borrower stops paying on the loan.
When a borrower stops paying their mortgage payments, the bank generally looks first to the collateral to repay the loan amount. A foreclosure occurs when the bank takes or sells the property to repay the debt that is owed. In some states, the bank can take back the property or force it to be sold without going through court proceedings. In other states, foreclosure can only occur if the bank files a foreclosure lawsuit and the Court allows them to sell the property.
What If My Property Isn't Worth Enough?
If the sale of the property is not sufficient to repay the debt, there is a "deficiency." When a mortgage loan is underwater, the sale of the property will not be enough to satisfy the outstanding debt obligation. For example, if a homeowner owes $100,000 on a mortgage loan, but the foreclosure sale only brings in $60,000, there is a deficiency of $ 40,000 that is still owed on the debt.
In some states like California and Arizona, lenders are prohibited by law from seeking to recover the deficiency from the borrower. Their only recourse is the money generated from the sale of the property following foreclosure. In other states like Florida and Nevada, lenders can pursue the borrower for the amount of the deficiency. If they obtain a deficiency judgment for the amount of the shortfall, they can seize bank accounts, place liens on other property, garnish wages and pursue other collection remedies to satisfy the debt. The lender can also sell the deficiency judgment to a third party debt collector.
A strategic default (also called "walking away from a mortgage") occurs when a borrower defaults on a loan intentionally because it no longer makes financial sense to continue making payments on the debt. This most often occurs when the borrower owes a lot more on the loan than the house is now worth. Following the example of most every major banking and financial institution that walked away from toxic assets through the TARP bailout, many borrowers have now decided to do the same.
Choosing this path is best done with sound legal advice and guidance.
It is very important to be represented by an experienced attorney during the strategic default process. An experienced attorney can help you navigate the pitfalls and emerge from a strategic default with as little financial damage as possible. You wouldn't try to set your own broken arm; don't try to navigate a strategic default on your own with professional guidance. It doesn't cost as much as you think.
Florida Strategic Default Attorney
Call us today to discuss whether a strategic mortgage default is your best option. I will explain in detail your options as a property owner. If you are considering walking away from your mortgage, either because you can no longer afford to pay your mortgage payments or because it no longer makes financial sense for you to continue paying on a mortgage when you owe more than the property is worth, I will explain the benefits and risks to you. I will give you the information you need to make an informed decision about your financial future.
A calculated strategic default may be the best decision you've made in a long time.
What Should You Do Next?
Call me today for a free, no obligation telephone consultation about your situation. No office visit is required and I represent clients with properties in all Florida counties. We can discuss your options. I may have the solution you’ve been looking for. Call me today at 800-915-3923. I'm here to help.