A voluntary default on your home mortgage, whether because you are able or unable to pay the mortgage and just choose not to, may be beneficial to hundreds of Tampa homeowners. Homeowners throughout Florida have mortgages that total more than their home is actually worth, leaving many wondering why they are consistently paying for something that will never amount to the money they are putting into it.
The monthly savings of a what used-to-be a mortgage payment can be repurposed to paying off other debt, maintaining a standard of living after a job loss or even building a savings fund. Of course, once you stop paying on your mortgage, your lender will take necessary steps toward foreclosing on the property, but the foreclosure process cannot be completed over night. A voluntary or strategic default may offer the time and money you need to reestablish your finances or simply walk away from a bad investment.
Is a Strategic Default Legal? If I Can Pay, Must I Continue Paying?
When a home is purchased, the mortgage agreement does contain a promise to repay your lender the amount you are loaned for the home's purchase price. But, that same agreement also contains a penalty for failing to make good on your promise: surrendering the home.
Defaulting on a mortgage is not escaping your contractual promise to pay, it is forcing the lender to exercise their right to repossess the home. Along with loan modifications, short sales or deeds in lieu of foreclosure, a voluntary mortgage default is just another tool for homeowners dealing with a home that is valued at less than what is owed on it.
Tough Economic Times Call for Tough Financial Strategies
Whether a strategic default is the right move for you depends on the specifics of your financial situation. For those who do default, the money saved on mortgage payments may be able to be put toward rent on an equally-nice home in the currently depressed housing market, often at a much lower price. The extra money left over can then be used to pay down or stay current on credit card bills or other expenses.
Credit agency Experian recently did a study of households who stopped making payments on a mortgage but stayed current on other bills, a possible indicator of strategic defaults by those who were able to continue paying a mortgage but chose not to. They found that in Florida, strategic defaults increased steadily from 1.51% of all mortgage defaults in 2005, to nearly a quarter of all defaults (22.67%) in 2008.
Statistics reveal that strategic defaulters tend to have higher credit scores. Whether that is because of careful planning of the default or because they were then able to keep current on other bills is unknown.
It's not uncommon for those considering walking away from a mortgage to already be facing foreclosure or have other financial problems. If that is true for you, bankruptcy may be a better option. A bankruptcy and foreclosure defense attorney can help you understand the Tampa housing market and help you determine the best path for your financial future.
