About a Strategic Mortgage Default in Michigan

What is a Strategic Mortgage Default?

A strategic default is the decision by a borrower to stop making payments (i.e., default) on a debt despite having the financial ability to make the payments. For homeowners, strategic defaults are done in situations where a homeowner is:

• Trying to force the mortgage company into a modification
• May not want the home due to a valuation issue (home is worth less than what they owe on it), but is trying to figure out the best way to step away from the property.  Many homeowners no longer wish to pay on a home that is worth less than what they owe, but also don’t want to damage their credit or have a potential judgment(s) from the mortgage company(s) if they decide to stop making the payments.

Before you begin missing payments which is damaging to your credit, it is important to speak with a qualified professional about your available options and how to best meet your long term goals. Our firm offers free consultations to discuss your finances and the best path that will:

• Meet your goals with the home and mortgage(s)
• Resolve other debts and financial concerns
• Improve your credit by reducing principal debt and ensuring timely payments to your creditors

We are available to meet with you at one of our seven convenient office locations in Detroit, Ann Arbor, Dearborn, Southfield, Flint, Lansing or Warren, Michigan. Call us toll free at 866-261-8282; we look forward to discussing your strategic default and debt resolution questions.

Loan Modifications and Strategic Default

Many homeowners may want to discuss a modification with their mortgage company, but many are finding that if they are current on their mortgage payments, the mortgage company will not even entertain the idea of a modification.  Many mortgage companies have directly told the homeowner that they must be 3 to 4 months behind on your mortgage before they will consider some type of modification.
Even if the mortgage companies intimate that they would consider a modification at that time – they will not typically provide information as to what they would modify.

• Will the mortgage company lower the payment?
• How much would they lower the payment?
• Will they just allow the homeowner to make partial payments for a while?
• What happens after the partial payments?
• Will they lower the interest rate?
• What would the new interest rate be?

Becoming late on your mortgage, even for a short time will have an adverse impact on your credit.  Under the new Home Affordable Modification Program (HAMP) guidelines (Supplemental Directive 10-02, effective June 1, 2010), lenders are required to consider borrowers in active bankruptcies for HAMP modifications.  Under a Chapter 13 reorganization, you do not need to get behind on your payments to get your lenders attention.
If you have determined that you only want to keep you home if are able to secure a loan modification, a Chapter 13 reorganization is a plan to consider.  Through the program we can:

• Work with your mortgage company to secure a modification.  Under HAMP guidelines, they are required to consider our request.
• Because the Chapter 13 is designed to reduce and eliminate debt, the program may enhance your qualifying ratios (debt-to-income, etc.)
• You will have full court protection from your mortgage company from foreclosure if you have already gotten behind.  Through the Chapter 13 program, we are able to legally stop a foreclosure sale and terminate continued late charges and interest on your missed payments.
• The program allows you to reduce the principal mortgage balance for rental properties. This will bring reduce what you owe on the rental to current market value and allow you to pay it off through the plan in 3 -5 years.
• Because the Chapter 13 program is designed to prioritize secured creditors (mortgage, vehicles, etc), we may to able to provide budget relief just by reorganizing and reducing other bills such as credit cards, medical bills, etc.
• If you have a secondary mortgage or home equity loan and the value does not support the loan we can legally remove it.  This rebalances your home value relative to current market conditions.
• The Chapter 13 reorganization is designed to help you improve your credit over the course of the program.  Each month you are paying down principal debt and each month you are providing timely payments to your creditors.  These factors alone influence 65% of your credit score according to FICO.

We offer free consultations to discuss your financial future and options for modifying your mortgage and reorganizing your debts.

Surrendering Your Home Due to Affordability or Negative Valuation

If you determine that you can no longer afford the home or no longer wish to keep paying on it, you may need to consider filing a Chapter 7 Bankruptcy to eliminate the potential for a loan deficiency judgment from your mortgage company and minimize the impact on your credit.  The benefits of filing a Chapter 7 are:

• Total debt elimination for unsecured debts, such as credit cards, medical bills, personal loans, etc.
• Total release from any debt or liability with the home that you are surrendering
• Chance to “wipe the slate clean” with your credit and begin rebuilding it.  Chapter 7 is more favorable on your credit than experiencing a home foreclosure.
• Straightforward court process that completes to a discharge typically within 4-5 months.

Whether you decide to pursue a loan modification or need to surrender the home back to the bank, Chapter 7 and Chapter 13 Bankruptcy offer solutions to resolve your debts and improve your credit. Call one of our licensed attorneys at 866-261-8282 for a free phone or office consultation to discuss your options.

We offer free in-office or phone consultations to review your personal circumstances, analyze your situation and advise you on the best course of action. We specialize in bankruptcy law, debt resolution, foreclosure prevention and credit repair. We have offices in Detroit, Southfield, Dearborn, Flint, Ann Arbor, Lansing and Warren, Michigan. Please call us toll free at 866-261-8282 or click here to schedule a consultation right now.