Strategic Default in San Diego
Upside-Down Mortgages are Common in San Diego
The residential housing market in San Diego has experienced some of the
most extreme volatility of anywhere in the nation over the past several
years. Consider these statistics:
A report from the
San Diego Union-Tribune stated that the median home price in the city fell by a staggering $200,000
between 2005 and 2010, and that the rate of home sales dropped by half
in the same period.
- According to statistics provided by RealtyTrac, California has the sixth-highest
rate of underwater mortgages, with 28.3% of homeowners owing more on their
mortgages than their homes are worth on the market.
If your home mortgage is upside-down, you are not alone. This information,
while perhaps providing you with some solace, does nothing to make the
situation any easier.
When your mortgage is underwater, it may take years before you are able
to build any equity in your home. This can be a depressing fact to face,
in addition to the fact that it means that your efforts to keep up with
your mortgage payment are largely in vain, because it may be a very long
time before you begin to see any return on your investment. Fortunately,
you may have a way out of this situation. A recent national survey found
that one out of three American adults would be comfortable with the idea
of carrying out what is known as a strategic default, and this course
of action may be the answer to your current problems.
Explanation of Strategic Default
A strategic default is a relatively simple and straightforward solution
to an upside-down mortgage. It is commonly referred to as a "walkaway,"
because that is essentially all it is; the homeowner walks away from the
mortgage. Another common term for strategic default is "jingle mail,"
based on the image of sending the house keys to the bank in an envelope
as a way of surrendering possession of the home. Strategic default is
strategic in the sense that it is an action based on the homeowner's
decision to limit his or her losses by simply giving up on the investment
and moving on so that he or she can make a fresh start elsewhere.
Will I still be responsible for paying the mortgage deficiency?
Strategic default works in California because this is a "non-recourse"
state. Unlike in many states, a mortgage lender in California has only
one type of legal recourse in the event that a borrower defaults on a
loan: to foreclose on the property. All that the bank can do is repossess
your house; they cannot sue you in court to recover payment for the deficiency,
which is the difference between the outstanding loan balance and the amount
that the bank recovers by selling the home in a foreclosure auction. Strategic
default has the advantage that in many cases it allows the homeowner to
remain in the property for an extended period because the process of
foreclosure often takes a considerable amount of time. During this period, you can
save the money you would normally be spending on your
mortgage and use it to pay down other debts.
Call Our Foreclosure Defense Lawyer to Determine if it is Right for You
While there are certain advantages to strategic default, this course of
action is not without negative ramifications. To begin with, you will
lose your home, and you will end up with a foreclosure and several months
of delinquency on your credit report. Further, the amount of debt which
you are relieved of paying may have to be reported as taxable income.
Strategic default is not right for everyone, and depending on the circumstances
of your case, you may be better off with negotiating a
short sale, deed in lieu, or
loan modification, or perhaps you would benefit from using
Chapter 13 bankruptcy to stop foreclosure and catch up on your missed mortgage payments.
Contact us now at San Diego Legal Pros
free consultation with our San Diego foreclosure defense attorney.