When a Default becomes Strategic

A Strategic Default may not be very Strategic if you have not created what we call an upside down analysis. 

Now that Fannie Mae and other lenders are pursuing deficiency judgments it may be time to consider that Strategy is part of Strategic Default .

Checklist of Strategic Default considerations:

1.  To get released from the deficiency or loan balance. 

     a. some loans may state they are non recourse loans in writing.   

     b.  see if you are protected from the deficiency by operation of state law.  CA has two major anti deficiency statutes.  Most people are aware of CCP 580b and the one action rule.  However there are other judicially supported doctrines which may help the defaulting homeowner.  

           

2.  Does your lender consider workout options which are useful?

     a.  will they release the deficiency in writing as part of a short sale?

     b. will they release the deficiency in writing as part of a deed in lieu?  (most banks do release the deficiency as part of a deed in lieu… the tough part is getting the lender to accept the offer of deed in lieu on terms you find acceptable.

    c.  is there a short pay  or short refiannce option? 

Note… our commercial real estate group has closed commercial refinance’s .  If you have the funing commercial refi’s are met iwth few obejections. 

   d. There are other options to consider.

3. Is your default part of Bankruptcy planning?  Please note Bankruptcy is not nearly as useful as it once was for most people with average or better jobs or other assets

4. Has your default consider credit rebuilding and repair consequences

5. Assets or Salary Preservation.  If you have recourse loans you might decide it is too risky to give your lender a current road map to your assets or salary.   

6. Choice of Creditors. With some lenders it is sometime beneficial to deal with their likely collection arms.  With other lenders it is much better to deal with the servicing arm of the lender. 

 

Fannie Mae has said that they are going to seek a judgment against strategic defaulters.  This is why we have always advised people to do an upside down analysis prior to going into default or accepting a foreclosure.