Strategic Default a Valuable Option for Homeowners Drowning in Debt
Many homeowners in Georgia are continuing to struggle with the current economic crisis. Despite reports of modest improvements in the economy, a lot of Georgians are still floundering in the weak housing market. Stresses are compounded for those dealing with job loss or having their hours cut back. These financial pressures are making it increasingly difficult for people to afford their mortgage payments.
Falling Home Values Can Limit the Choices Available to Homeowners
Unfortunately, this problem is compounded by the fact that home values continue to drop. Homes in Georgia have lost an average of 60 percent in value. In addition, Georgia’s foreclosure rate remains one of the highest in the country with one in every 196 homes facing foreclosure.
Some home values have fallen so far, their owners have no hope of regaining equity in them. Homeowners anxious to make things work with their lenders have tried loan modifications and mortgage assistance programs to make their homes more affordable, but the relief they are offered is not enough in many cases.
Many find the help they need with Chapter 13 bankruptcy, which can be used to strip-off an unsecured second or third mortgage. Unfortunately some families are unable to afford the first mortgage payment and Chapter 13 may not be viable option.
When those methods fail, homeowners are usually ready to part with their homes. In these situations, the homeowner may try to negotiate a short-sale. But even these efforts are not always successful. This is often the time when a homeowner may want to consider a strategic default.
Benefits of Strategic Default
What is strategic default? A strategic default allows a homeowner to give their home back to the bank. This can be done by using either a deed in lieu of foreclosure or a regular foreclosure instituted by the bank.
Financial industry observers recommend considering strategic default when the value of property falls below what is owed. Generally, it is recommended that the value fall so low that it would take years to recover the lost equity. It may also be a good idea if a home is suffering a serious structural defect that would not be covered by a homeowner’s policy.
The most valuable benefit of a strategic default is time, especially if there is not enough money to continue on with payments. The foreclosure process takes time. Homeowners can use this time to save some money and accumulate a modest cushion.
How Bankruptcy Helps After Default
In Georgia, mortgage lenders could attempt to pursue a deficiency judgment for the money that was not paid back. In these situations, it is often in a person’s best interest to pursue a Chapter 13 or Chapter 7 bankruptcy.
People are often surprised by how quickly they can rebuild their credit after bankruptcy. Many experts have found that homeowners who strategically default on their mortgage, file bankruptcy and keep their credit clean for three years have often been able to qualify for a federally backed mortgage again.
Homeowners trying to decide what to do about their homes should speak with an experienced Gainesville, Dallas or Cumming bankruptcy attorney who can review their options with them. Navigating through these issues can be difficult, and it is important to understand the implications associated with each choice so the homeowner can feel empowered to make the best choice for their family.