Strategic Foreclosures

Personal Finance

Are you familiar with the term “strategic foreclosure” chances are with the recent downslide of the real state market and economy you have probably educated yourself on the term.  The simple definition of a strategic foreclosure is someone who has negative equity in their home and has the means to pay their mortgage but decides the only solution to get out from under their obligation is to allow it to go into foreclosure.

This may seem like the most logical and simple solution but it does come with legal ramifications, not to mention how it contributes to the already failing economy. Typically when a consumer makes the decision to walk away they are not aware of how the process works. Financial institutes make the decision to allow your home to go through the short sale process or they may just pursue you and the loss via judgments, liens and or garnishing of wages.

Not only do you suffer through the courts but you receive a 1099 at the end of the year that requires reporting the loss as income. Can you imagine getting a 1099 that shows $200k as income? Your beacon score and credit is destroyed usually forcing the inevitable bankruptcy. I’m not trying to scare you, but if you can afford the home and the financial institute lended you the funds to purchase your home, don’t you think it’s fair to try and hold onto the property and your end of the bargain?

I know what you are thinking; I’m an advocate for the banks and financial institutions. No, that is not the case and I think there were a lot of bad loans and unethical ways of business that helped get us here. The people also have to take responsibility for their actions and so many people where driven by greed and many extended themselves way to far trying to get a piece of the money pie. What’s your take on the real-estate situation? Are you in a situation where you have considered walking away and want to share your story?