A “strategic default” occurs when a borrower decides to stop making mortgage payments (i.e., thus defaulting) on his/her debt…even though they have the financial ability to continue making payments. These borrowers are called “Walkaways”.
But, why on earth would they do this…and take such a major hit to their credit report that lasts for 10 years?
When the value of their residential or commercial property has dropped substantially below what they owe on their mortgage…and they feel it will remain that way for the foreseeable future, some property owners rationalize that it makes more sense to them to simply choose to walk away.
Being called a “strategic default”, it’s obviously not a strategic way to avoid foreclosure.
As always, check with your attorney, CPA, etc.