Strategic Default Is Not Enough!

A hot topic in the news is the increasing use of strategic default to avoid Mortgage debts. More and more people who cannot make their mortgage payments are simply walking away from their properties and not paying their mortgages. What the news articles are not always covering is the topic of the liability for the remaining debt after the foreclosure. Simply allowing the bank to take the property doesn’t stop them from collecting on the note. There are a few options available to an attorney that do a better job than strategic default, and I’ll discuss them below.

Strategic Default

Strategic Default is the decision to stop paying a mortgage after weighing the consequences. A common example of strategic default is a property-owner who has lost a tenant, but cannot sell the property in today’s market. This property-owner may weigh the consequences of negative credit, stop making payments, and allow the property to eventually be foreclosed on. While this allows the property-owner to stop making payments, they can face serious bills if this is all they do.

First, the Strategic Default does not eliminate the property-owner’s liability for the remainder of the mortgage due. To give a hypothetical, imagine a property-owner who owes $100,000 on a property. When the bank eventually forecloses, the foreclosure judge will order a sale at auction of the property. Since this is an auction of a foreclosure property, the auction may only bring in 60% of what the property is worth. If the property was worth $100,000 and the owner owed $100,000, but the auction only brought in $60,000, then there is a $40,000 difference. When the foreclosure is finished, and the property is deeded to the bank, the owner might be stuck with a $40,000 deficiency bill owed to the bank! The bank could then take that bill and collect, freezing bank accounts and garnishing paychecks.

Second, the Strategic Default does not eliminate the property-owner’s liability for the safety of the property. The owner has the responsibility to keep the building up to code. If a property falls below code, or becomes a threat to public safety, then the city or village the property is in will have the option to sue the owner, imposing fines and fees for failure to make repairs. This is because the deed for the property will remain in the owner’s name until the foreclosure is concluded and the deed is transferred by order of the foreclosure judge.

In either of these situations, simply walking away from the property by strategic default leaves an owner open to serious bills and fines, and the potential of substantial collections. A property-owner would do better to consider the options of Bankruptcy or a Consent Decree.


As I discussed before, a Bankruptcy can eliminate the liability of a homeowner for all the charges relating to their mortgage. This would include the deficiency bill I mentioned above. If an owner decides to pursue a strategic default and then files a Bankruptcy then the Mortgage Company cannot pursue collections other than an in-rem foreclosure to change the name on the deed. However, because the deed does not transfer immediately, Bankruptcy is most appropriate when the owner needs to stop making payments but wants to keep living in the property.

Consent Decree

For owners who want to abandon the property immediately, a Consent Decree may be the best option. When the owner is served with papers (which in Illinois is only the start of the 8 month foreclosure process) the homeowner can negotiate a consent decree, settling the foreclosure case out of court. Usually done by attorneys, consent decrees shorten the foreclosure process and are controlled by the Illinois Code of Civil Procedure. If these agreements are properly negotiated, then they will quickly eliminate the issue of the deficiency judgment, and transfer the deed faster than the other methods.

So, if you are considering a Strategic Default, consult with the real estate attorneys and bankruptcy attorneys of Urban & Burt before you stop making your payments. We can review your situation and craft a solution that is best for you. We can advise you about the necessary steps to release real estate you no longer want to pay for.

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