What Is A Strategic Foreclosure?
Strategic foreclosure is when you have taken the stepsand I used the example earlier
. You have purchased a home for $300,000 and you come to realize that your property is worth less than $150,000. So youre facing negative equity for probably over a decade at that amount.To be brutally honest at that point you truly are just renting. Youre not paying down that mortgage. You may be paying down that debt, but you certainly are not affecting the value of the property. And you wont be seeing any equity in that property.
So once youve come to that conclusion, if you decide to allow the property to go into foreclosure, you really should be smart about how you use those mortgage funds. If theyre not going to go to the mortgage, apply them to other debt. Start using the fact that youre going to be residing in the house for about six months.
Because in foreclosure, within 90 days of not making your payments, youll receive a letter from your lender that lets you know that the property is going to be sold in another 90 days if you dont become current on the payments. So you have six months to reside in that house.
Say if your mortgage payment was $1000 a month, theres $6000. Take that money, set it aside for a property (a rental property that youre going to be residing in), but also use it to pay off other debt.
Contact your creditors. Contact your credit card companies at the time that you decide that youre going to stop paying your mortgage. What youre going to do is ask them to lower your interest rates and to raise the available credit that you have.
The reason that youre going to do that is foreclosure is bad for your credit. You cant help that fact. This is a financial decision. Youre getting rid of one debt in order to hope to acquire better debt in the future.
So, if you use your house payment to apply towards other debt, you will come out of it with lower debt. And, if youre smart about paying those credit cards every single month and paying them off, you wont necessarily remove the foreclosure from your credit. But at least youll offset some of the problems that can cause.
Maintain your credit in your foreclosure.
Thats really what a strategic foreclosure is about is to not simple spend those mortgage funds without any thought of where theyre being spent at. Be very conscious of how you spend it, where you spend it, and get your best financial bargain for being able to live in the home for six months.
Thats really what a strategic foreclosure comes down to is being smart with your money during this process.
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