A “strategic foreclosure” happens when a homeowner decides to quit making mortgage payments as a wealth-protection strategy. The homeowner doing a strategic forclosure may be almost broke, or may have substantial financial assets. A strategic forclosure is proactive, and different from ordinary involuntary bankruptcy or BK.

If you are wondering if a strategic foreclosure is suitable for your situation, please go to Who Should Do a Strategic Foreclosure?

Strategic Forclosure Sign

Either way, the homeowner realizes that they have a house whose value has fallen and is significantly below the remaining balance on their mortgage. Their monthly payments have become out of line with the reality of current real estate values.

In many states, there is no legal penalty for “walking away” from a house and letting the bank forclose on it. The buyer’s credit score will take a substantial hit, but that will be erased automatically in a few years. Many persons with forclosures in their past find that they are able to purchase another home fairly quickly, at a much lower price than their original one.

However, mortgage lenders may punish those who do strategic defaults by limiting their ability to obtain another mortgage and in other ways.

In other words, a Strategic Forclosure / Strategic Default is a way to eliminate a large mortgage debt after a housing crash, but it is not without its downsides.

To learn if a Strategic Forclosure is right for you, click the tabs at the top to visit the other informational pages.