Strategic Default Questions:
I'm seriously considering a Strategic Default on my mortgages, but I have some questions regarding the foreclosure process before proceeding...
Also, in case the Strategic Default title doesn't mean anything to you -- it refers to home owners who can afford to make their mortgage payments, but choose not to. Looking at the 10+ year financial analysis of staying in the home, or taking the credit hit and walking away now, Strategic Default is my best financial option.
-Bought house for $320K in Northern California in Fall of 2005
-Received 80/20 purchase money loans from the same bank to obtain the house (no money down)
-80% loan interest only for 7 years (resets to fully amortized over 23 years in fall 2012), 20% loan interest only for life (30 years)
-Home now worth ~$100K (underwater by ~$220K), and no signs of increasing in value anytime soon. If my home increased in value 5%/year, in 10 years it would only be worth $163K, and I'd still owe close to ~$300K due to the amortization schedule -- that's still ~$137K underwater in 10 years!
1) Knowing that California is a non-recourse state, what are the chances the bank would opt for a judicial foreclosure as opposed to non-judicial foreclosure (judicial meaning, they would take me to court and sue me for the balance owed on the mortgages and/or deficiency payments for the ~$220K I'm underwater)?
2) What are the chances the bank would work with me on a Short Sale or Deed in Lieu of Foreclosure?
3) Are there any tax implications of doing a foreclosure, short sale, or deed in lieu of foreclosure for my situation?
4) Anybody have any advice on what to tell the bank once they start calling me asking why I'm not paying the mortgages (I have no hardships, and can afford the payments -- do I just tell them I'm exercising a Strategic Default? Will that trigger them to seek out a judicial foreclosure??)???
The only thing that makes me nervous about a Strategic Default is whether or not the bank can/will come after me for deficiency payments if/when they foreclose (not sure how likely/possible this is, but it makes me VERY nervous since I can afford to pay the mortgages). I think the only way they can do this is with a judicial foreclosure, but not sure if the banks are doing these on people with situations similar to mine (I certainly hope not!)...
Any feedback you can provide is greatly appreciated! I just need a little more information before I take the plunge and stop paying my mortgages!