In Real Estate What Is Strategic Default

Strategic default has become a buzz word in the past year. You could probably gather from the name a general idea of what it is. Strategic default is when a home owner decides to let their house go into foreclosure even though they could still afford to make the mortgage payments. Now in certain state consumers are protected from financial recourse based on anti-deficiency legislation. This is not however, the case everywhere. In some state banks have the right to pursue the original borrower for any shortfall they suffer. When a property goes into foreclosure the bank will either sell it at an auction to the highest bidder or they will take the house back and put it back on the market through a Realtor. Once the house sells the bank will realize some loss between the original loan amount and what they sold the property for. This amount is called the deficiency and the original borrower could be on the hook for that money. Another way to resolve a mortgage you can’t afford is through a short sale. I’ll write another post on that topic soon. For now, here is a short video from the Daily Show. I saw this today and thought is was ironic. Hope you like this clip.