What is the Downside of Strategic Default

Posted on July 7th, 2011 by Mark Stopa

Below is a great question I just received on this blog and my response.

Question:

I am up to date on my mortgage. Under the water +60K
Got divorced, things are getting more difficult to pay but still making it
Credit score is excellent
I am approved to a buy a primary residence much cheaper than what I owe now and I will rent the one I am living by doing this will save like 40% of mortgage
If I rent the one I am living and don’t pay the bank I will eventually foreclose but will have saved some $
My credit will be affected for 7 years.
Crunching the numbers it makes sense to me.

My assets will be all on retirement savings 401k and IRA
What is the downside of this? Thanks.

Response:

This is a great question, and I suspect many people are in this type of situation. 

If you’re all set to purchase a similar home for less than you owe on your current home, the downside to defaulting on the home you currently have is that the bank forecloses (eventually), obtains a deficiency judgment against you, and collects on that judgment because/if you have assets.  The younger you are, and the more assets you have, the greater the risk.  The older you are, and the fewer assets you have, the less the risk. 

For instance, if you’re 60, and your only assets are the new home you’re buying (your homestead) and your retirement accounts, then the downside here is quite minimal – the bank probably won’t ever collect on the deficiency even if it gets one. 

If you’re 35 and have assets, the risk is greater.  In that scenario, you’d have 30 years left in the work force, so the risk of garnishing wages is higher (since judgments are good for 20 years in Florida, and you’ll undoubtedly be earning wages for many years to come).  However, even in that scenario, it’s quite possible the bank won’t pursue a deficiency, that you can settle the case without a deficiency, or that you could reduce or eliminate the deficiency through a bankrupcy. 

There is no right or wrong answer in this type of scenario – it depends on each person’s situation.  Hopefully, these generalities give you a good idea on how to proceed.

Mark Stopa

www.stayinmyhome.com

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Failure to Amend = Dismissal With Prejudice

Posted on July 7th, 2011 by Mark Stopa

I’ve said many times that if you defend your foreclosure case then you never know what good may come of it.  Today, I saw another example of that.

I filed a Motion to Dismiss early in 2011.  It was pretty standard.  The motion was granted, and the judge’s Order gave the plaintiff 20 days to amend.  That was over two months ago and the plaintiff never amended.  So I got creative.  I wrote this letter to the judge, enclosing this Renewed Motion to Dismiss. 

As the motion reflects, I asked that the judge enter an Order dismissing the case with prejudice unless the plaintiff amended within a certain number of days.  In response, the judge did exactly what I asked – he entered this Order saying the case was dismissed with prejudice unless the Plaintiff filed an Amended Complaint within 10 days. 

Last week, the 10 days passed and the plaintiff did nothing.  Hence, this case has been dismissed with prejudice. 

Reasonable lawyers, and even reasonable judges, can disagree about what “with prejudice” means in the context of mortgage foreclosure cases.  However, it is clear this case is over, and the homeowner, at worst, has an argument that the plaintiff is barred from re-filing a new lawsuit.  

Note that there wasn’t anything terribly special about what I did here.  I didn’t prove the bank committed fraud.  I didn’t prove any nefarious acts.  I simply defended the case and utilized the rules of procedure to my advantage.  Consider this another illustration of why you should defend your foreclosure case!

Mark Stopa

www.stayinmyhome.com

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