When you are upside down on an investment, such as your home, it means you owe more than it is worth. Many homeowners in this situation are weighing their options, and often it comes down to taking one of two paths. They can either continue paying on a mortgage that may never allow you to make a return on your investment; or, walk away from the debt entirely, which is called a strategic default.
There are pros and cons to each scenario. If you do go ahead with a strategic default, you won’t have to worry about that giant, unaffordable mortgage hanging over your head. However, you will also suffer a huge decrease in your credit score, and you probably won’t be able to qualify for another mortgage for a while.
Financial expert Suze Orman, who normally argues for strict financial responsibility, offers some sound advice. She says that if you are upside down by only about 10 percent, keep paying on your investment because there is a light at the end of the tunnel. When you are facing a higher loss, contact your mortgage company and try to work out a refinance or a modified loan balance. If they refuse, try to get them to agree to a short sale. If they refuse to consider that option as well, you can go ahead with the strategic default and move on with your life.
Deciding whether to pursue a strategic default versus continuing to pay on an upside down investment is major decision, Stephen K. Hachey, a Florida real estate attorney, can help. Contact our office at 813-549-0096.