Last week, TIME Magazine’s Martha C. White wrote an article asking the following question, “Is the Stigma of Ditching Your Underwater Mortgage Fading? ” and the conclusion reached in that piece shouldn’t be much of a surprise to most anyone living here in foreclosure filled South Florida. The answer is Yes. Yes, the stigma of ditching your underwater mortgage even though you can make ends meet and pay the mortgage payment is not there like it used to be, even just a couple of years ago.
In her article, White discusses a recent survey done by JZ Analytics which found that almost a third (32%) of those questioned thought it was acceptable to default on a mortgage despite an ability to pay, based upon the economic decision that the home’s new fair market value does not jive sufficiently with the remaining mortgage loan balance. In other words, the home is underwater.
Default v. Strategic Default
This is not the situation where a home owner cannot pay their mortgage payments for any one of a number of reasons. Loss of income, divorce, death, etc. — these are all life events which have forced many Florida borrowers to fall behind in mortgage payments and go into a default situation with their bank. These are cases of default. They are not cases of “strategic default.”
In a strategic default, the borrower evaluates his or her financial situation and decides to stop paying the mortgage payments on the property because strategically, they have determined it is not in their long-term best interests to keep making those payments. Strategic defaults are based upon analysis and these home owners aren’t dealing with the life crises and financial furies that force their hand. In strategic defaults, the borrower holds the reins.
Larry Tolchinsky’s Tip:
This new study isn’t the first one to report on changing attitudes about ditching that mortgage payment: we wrote about the Pew Study that was released last December which found the same trend, with an even higher number (36%) reporting that it was acceptable to strategically default on an underwater mortgage. For Florida foreclosure defense attorneys, this has been pretty obvious for a long while now. More and more calls are being made to ask questions to Florida foreclosure lawyers about how a strategic default works, the things to consider in making that decision, and the biggest question: what are the ramifications of a Florida strategic default?
What Happens After a Florida Strategic Default
There are consequences to walking away from your underwater mortgage here in Florida. Expect to have your credit rating hit – and hit hard. A strategic default on your FICA Score will stay with you as long as seven years.
Another thing to expect: debt collection agencies will invade your life. One of the many factors of the current Wild Wild West of Florida real estate these days is the rampant amount of unethical debt collection methods that exist today. Sure, there are laws on the books to protect you from this sort of thing: doesn’t mean that it doesn’t happen.
Another consequence: the bank is going to sue you not only for foreclosure on that home but for the amount left on the note. Yes, they have a time limit to do so, and the bottleneck in Florida courts right now makes it a Beat the Clock game — will the foreclosure take place, will it be done properly, will the deficiency be properly calculated, will they sue for the deficiency before they are time barred? Banks want their money; we’ve just written about how Fannie Mae and Freddie Mac just this month announced a new level of pressure the federal government will be exerting: and that pressure is specifically to collect deficiencies on strategic defaults.
Should you default on the underwater mortgage?
That’s the big question and it’s a difficult decision for anyone to make – and it’s best made with a Florida real estate lawyer to give you counsel and advice after reviewing your situation. Your case may have variables to it — appraisal fraud, lost notes, robosigned documents, etc. — that make your negotiating position with the lender very strong, and the consequences of a strategic default may become part of a negotiated settlement with a bank instead of a walk away where the borrower just stops making payments and leaves himself open to the bank taking whatever actions it deems best for its own interests.
Do you have questions or comments? Then please feel free to Chat with Larry in the comments below, at email@example.com, or (954) 458-8655.