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“Strategic Default” It’s All The Rage!

by Charlie Allred

When it comes to this Arizona real estate market, you may have noticed that 2 groups exist: The frustrated, and the downright miserable.

Unfortunately, for the downright miserable, there is not a lot that they can do to rectify their situations. These are the home owners who are now facing a foreclosure. Ideally, they would choose their best option and avoid foreclosure altogether by opting for a short sale in Arizona, but statistics are telling us that 66% of those foreclosed upon didn’t even try going the short sale route!

That statistic is mind boggling to me when a short sale is usually attainable.

But, for the other group… those who are merely frustrated. Here’s another statistic that you may find very interesting: FICO researchers have discovered that people with higher credit scores are more likely to choose a “strategic default” over paying on their underwater mortgage.

What? That is a twist, right? Usually, a higher credit or FICO score is an indication of creditworthiness. However, what a higher FICO score is coming to mean is that you are more savvy when it comes to money and finance.

So what is this “strategic default” thing anyway? Basically, a strategic default is a process by which a person who can still afford to pay their mortgage and is not yet behind on their mortgage strategically plans to miss payments and goes delinquent on purpose with the goal of initiating a foreclosure or short sale intentionally to get out of an upside down mortgage situation.

“People making the decision to strategically default tend to be more savvy. Most of the people who walk away from a mortgage are saying, ‘This is not a contract that makes sense anymore.’” – Andrew Jennings of Fair Isaac, the company that created the leading FICO credit score.

And, the funny thing is… Statistics are now showing that the “savvy” people are choosing to go this route!

Today, somewhere in the neighborhood of 66% of mortgage defaults is classified as a “strategic default”.  Those strategic defaulters are more likely to stay within their credit limits, use less credit, have low account balances, and historically possess better credit histories that their counterparts who stop or are unable to continue paying their mortgage.

This isn’t a bullish sign for home prices in my humble opinion, but it does give us another phenomenon to name. “Strategic default”… it even sounds smart when you say it out loud in a dubious sort of way.

No matter your position in the marketplace you must look into the options available to you that will create a more positive future outcome for yourself or your family. Arizona short sales are much less damaging than just walking away and taking a foreclosure.

So whether you plan a short sale (stratic default) or are forced to look into a short sale… Just get the facts on short sales in Arizona before you allow your lender to decide for you.

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