“Strategic Default” and Foreclosure Defense


If you have been following the news in the last few weeks, you have probably heard about the New York Times’s editorial Why I Defaulted on My Student Loans.  In this opinion piece, the author gives his reasons for not paying his student loans and encourages other borrowers in a similar scenario to do the same.  The article has generated alot of buzz, with several financial and legal experts criticizing this approach.  (Click here and here for good reads on this topic).
With this in mind, I thought I would discuss in this blog post a related question I sometimes get regarding foreclosure:  does it ever make sense to do a “strategic default” on a mortgage loan?  Is it ever worth it to stop paying for a home?
If the goal is to live at the home for a few years rent free (without concern to the impact on one’s credit history), then I suppose a default may make sense.  Otherwise, purposely deciding not to pay a mortgage loan is a bad idea.
As I have written before, getting a free home from a foreclosure defense lawsuit is an unrealistic goal.  The much more realistic goal is affordability: a loan payment that the borrower can pay. However, even with a strong case, foreclosure defense is tough. With that said, a borrower should never risk loosing their home in hopes of getting a free home or a reduced principle balance.  If a borrower is having trouble affording their home, they should try for a loan modification (and consult an attorney if they are not making any progress in this difficult process).