Strategic Default Lawyer in Chicago
What is a Strategic Default & How Does it Work?
When a property goes underwater, many owners decide to simply stop making payments in order to force lenders into initiating the foreclosure process and walk away from what they view as a bad investment. Known as strategic default, this is very different from foreclosure, which occurs when a homeowner cannot make mortgage payments.
Since the collapse of the housing market, strategic defaults have been on the rise. In areas that have been hit the hardest by foreclosures, property values have plummeted. Some homeowners may not see their homes regain equity for 5 to 10 years. To many people, it makes no financial sense to throw money away on a bad investment. No matter what the reason for making this choice, there are several things that anyone considering a strategic default should know.
- The possible disadvantages of a strategic default may consist of the following:
- Outstanding loan balances caused by a deficiency judgment
- A negative impact on your credit score
- Limited employment and housing opportunities
If you are considering a strategic default as a form of debt relief, our Chicago foreclosure lawyers at Atlas Consumer Law can lay all of the cards on the table for you. We want you to understand the pros and cons of any decision you make in order to ensure your next move is a sound one. Please contact us today for an initial consultation.
Initial case evaluations are available to all potential clients. Request yours by calling (312) 313-1613.
Recourse v. Non-Recourse States
In some states, like California, lenders cannot pursue borrowers for additional funds after seizing a home through foreclosure. These are known as non-recourse states. They have anti-deficiency statutes that prevent lenders from pursuing homeowners for extra money if the home is worth less than the balance due on the mortgage loan.
In a non-recourse state, walking away may be as simple as it sounds. However, Illinois homeowners do not enjoy the protection of a non-recourse state. Illinois is a recourse state, which means that lenders can and will pursue former homeowners for deficiency judgments when a foreclosed property sells for less than the value of the loan.
Loan Balances Increase During Foreclosure
While a foreclosure case is pending, the loan's servicer will assess fees and penalties, adding them to the loan balance. The loan will also continue to accrue interest. Lenders will often purchase insurance for the home. This insurance, also known as force-placed insurance, is generally more expensive than traditional homeowner's insurance.
The lender will begin paying the property taxes. It will also charge the borrower for attorney's fees and property inspection fees. All of these fees and penalties add to the loan balance. A loan that was $25,000 underwater when the borrower chose to default can end up being $50,000 underwater by the end of the foreclosure process.
How to Avoid an Unpredictable Outcome
A common belief is that banks are not currently seeking deficiency judgments in Illinois. This is not 100% accurate. Banks can and do seek deficiency judgments against borrowers. There is no test that will indicate whether a bank will seek a deficiency judgment or not, which means that walking away provides a highly unpredictable outcome.
For a default to be truly strategic, a predictable outcome is of the utmost importance. When corporations want to walk away from a bad investment, they use the law to their advantage. Homeowners in Illinois can do the same thing. With the right information and careful planning, it is possible to enjoy the benefits of a truly strategic default.
Turn to Our Chicago Consumer Attorneys for Assistance
Walking away from a bad investment is not a cookie-cutter process. A strategic approach to consumer debt involves creating a plan designed to achieve the specific goals of the individual. At Atlas Consumer Law, we evaluate each case and develop a strategy that best suits our client's needs. We do not provide one-size-fits-all solutions.
We help our clients make informed choices. When you turn to our firm for assistance, we launch a careful assessment of your needs and long-term objectives. If we find that a strategic default is not the most suitable option, we can recommend another effective debt solution, such as loan modification, short sale, or deed in lieu of foreclosure.
Looking for more information about strategic default? Contact us today to arrange your initial consultation.