When a person is unable to repay their debt, they have no option but to file for a strategic foreclosure. In this process, one needs to sell their property on the mortgage to repay their debt.
However, this process may seem like a lucrative exit from your worries, but it isn’t the exit that you will like. A strategic foreclosure will have a huge impact on your credit history. Here are a few things that you need to keep in mind if you plan a strategic foreclosure.
What Is A Strategic Foreclosure
Owing lots of debt from banks may land you in a condition where it becomes very difficult for you to clear all the debt from banks. When people owe large amounts of debts from any financial institution, and they are unable to pay them back, they find an alternative way to repay their debts. This repayment is done by giving away their mortgage and getting all their debts cleared at once. This alternative is known as strategic foreclosure.
How Is Strategic Foreclosure Different From Traditional Foreclosure
Traditional foreclosure happens when a person borrows a heavy amount of money from banks and later does not repay the loan or the interests; in such a case, the bank takes their home on the mortgage. This leaves the person with no choice other than to leave their home or land unwillingly.
Whereas, in strategic foreclosure, banks do not wish to do any such activity. Here, the homeowner willingly sells their home and repays the debts of banks.
While the strategic default is when a person borrows a loan from any lender or bank and later refuses to repay the money. This is not because of bankruptcy but due to the increase in debt with high interest, and thus they prefer to sell their home, which is of less value than the burden of loan. But the mortgage cannot be sold because it has less value than the loan.
Foreclosure’s Impact On Credit Score
Once you abandon your mortgage, the foreclosure process will start, and it will appear on your credit report within a month. This foreclosure report will be on your credit for over the next seven years, starting from the date of a first missed payment. There will be no lease provided to you. Moreover, your credit score will also fall sharply, and you will not be able to meet hard money loan requirements in the future.
Alternative To Strategic Foreclosure
There are a few alternatives that may help you to strengthen your financial position, preventing the sale of your mortgage.
- You must try to convince the lender or banks to settle for a short sale. When you sell your home at a lower price than your loan, it’s called a short sale. This will prevent you from negative credit scores.
- To avoid paying high interest, you must try refinancing your loan.
- You can take help from any non-profit organization, and they will help you prepare your budget and guide you to improve your credit score.