Is strategic default ethical?
As long as Congress is unwilling to force lenders to write down underwater mortgages, many homeowners will conclude that strategic default is not only morally acceptable, but also the most rational course of action.
What are the consequences of foreclosure?
Eviction from your home—you’ll lose your home and any equity that you may have established. Stress and uncertainty of not knowing exactly when you will have to leave your home. Damage to your credit—impacting your ability to get new housing, credit, and maybe even potential employment, for many years.
What happens if you defaulted?
When a loan defaults, it is sent to a debt collection agency whose job is to contact the borrower and receive the unpaid funds. Defaulting will drastically reduce your credit score, impact your ability to receive future credit, and can lead to the seizure of personal property.
How bad does a foreclosure affect your credit?
According to FICO, for borrowers with a good credit score, a foreclosure can drop your score by 100 points or more. If your credit score is excellent, a foreclosure could reduce your score by as much as 160 points. Typically, it will take three years or more of on-time payments to restore the credit score.
How does negative equity happen?
Summary. Negative equity occurs when you owe more money on your home than your home is worth. Falling local property values and missed payments can cause negative equity. This is a problem because it can make selling your home or refinancing more difficult.
How long will a foreclosure affect me?
A foreclosure stays on your credit report for seven years from the date of the first related delinquency, but its impact on your credit score will likely diminish earlier than that. Still, it’s likely to drag down your scores for several years at least.
How much will a default affect credit score?
A default will be added to your credit file and will cause your credit score to fall by as much as 250 points depending on the credit bureau. A default will also last on your credit score for as many as 6 years.
What happens to my credit score when a default is removed?
Does your score go up when a default is removed? Put simply: removing one default from your Credit Report won’t make much of a difference if you have additional defaults remaining. Only when all negative markers on your Credit Report have been removed will you begin to see any real improvement in your credit score.
Do you owe money after foreclosure?
After foreclosure, you might still owe your bank some money (the deficiency), but the security (your house) is gone. So, the deficiency is now an unsecured debt. But the promissory note lives on, as does your obligation to repay any remaining debt.
What are the consequences of a strategic default?
Consequences of Strategic Default. While strategic default can free a debtor from the burden of negative equity on an underwater mortgage, and can allow the debtor to use his or her income for other expenses or the payment of other debts, it can also cause substantial damage to the strategic defaulter’s credit rating.
Why is a strategic default a last resort?
Strategic default can be a last resort for a debtor who is in severe financial distress. It can offer an escape from a downward spiral, freeing the debtor from an overwhelming obligation. Inevitably, it also causes substantial damage to the strategic defaulter’s credit rating.
How does strategic default affect your credit rating?
While strategic default can free a debtor from the burden of negative equity on an underwater mortgage, and can allow the debtor to use his or her income for other expenses or the payment of other debts, it can also cause substantial damage to the strategic defaulter’s credit rating.
Can a strategic defaulter walk away from a home?
Strategic defaulters tend to justify walking away from a severely underwater home as something permitted by the mortgage contract itself, which specifies the consequence of a breach. Namely, the lender will foreclose and take the home.