One of the largest benefits of a mortgage modification used to avoid a foreclosure is that it is a agreement between the bank and the debtors. The banks do not want to go through an expensive process of taking the house back just to see it sell for far less than it is worth, while the homeowners wish to remain in their property if only they had a second chance after a hardship and a reasonably affordable monthly payment.
But this benefit of compromise can be a setback if the property is too far underwater to make it worthwhile for either the owners or the lenders to meet in the middle. And with the drastic drop in home values over the past few years, more borrowers are using strategic default as a way to sidestep being evicted or being made to pay for a property that is too expensive and not worth anywhere near the principal balance owed on the property.
Conventional wisdom would have us believe that foreclosure is a last resort for homeowners who have come to the brink of financial disaster and can simply no longer afford to make payments. But in the current real estate climate, this is not always the case anymore. A growing number of homeowners are treating the loss of equity in their properties as a business decision and walking away, letting the bank have the house back.
With almost twenty-five percent of the American housing market underwater, can anyone blame homeowners for deciding to default on their loans? While there are consequences for taking this decision, such as foreclosure and a severely decreased credit score, they seem like better choices for many people than paying hundreds of thousands of dollars more than a property is worth over the life of fifteen or thirty years.
Even if mortgage modification could be an option for certain homeowners who have lost all of their equity due to a declining market, strategic default often occurs when the owners are not behind on monthly payments. And borrowers who have not become tardy in payments are usually not qualified for a modification agreement. The financial institutions banks are only willing to modify loans for those who are facing a financial hardship and have missed several monthly mortgage bills.
This means that the lenders are mostly unwilling to work with owners who are concerned about spending too much income in the future on a house that is not worth what they have agreed to pay on it. And the only consequence is a civil lawsuit resulting in the loss of the house and a poor credit record. Neither of these are quite as disturbing as dedicating the next few decades of one's life to spending hundreds of thousands of dollars more on a piece of real estate than it is worth.
Strategic default is an issue that can not be fixed by increasing government programs to prop up home values or by banks offering mortgage modifications to borrowers that do not dramatically reduce principal balances owed. People with no equity in their properties already feel they have no ownership – giving up the costly monthly payment is often worth the terrible credit. And bad credit only lasts for several years, while a mortgage that can not be refinanced on a property that can not be sold will survive for decades.
Author Resource:-
Nick writes articles on how to stop foreclosure. To learn more about various methods to save a home, before or after a sheriff sale, you can visit his website online here: http://www.foreclosurefish.com/
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