Q:  I don’t see any way that my home will regain the value it has lost in the past few years, so I’m considering a ‘Strategic Default’.  What are the pros and cons of doing this?
 
A:  A ‘Strategic Default’ is when homeowners who have the capacity to continue paying their mortgage choose to walk away from the house, allowing it to go into foreclosure, simply because they owe more than the home is worth. 
 
Unless you live in a state that does not allow deficiency judgments (Tennessee does allow banks to pursue deficiency judgments), there really are very few benefits to choosing this course of action, other than you no longer own the house that was underwater.  I can tell you that the banks look at this strategy as using a fancy name to justify walking away from your obligations.  And lenders are now striking back at people who employ this strategy.  Fannie Mae has already announced that Strategic Defaulters will be ineligible for a Fannie Mae-backed mortgage for seven years and they are very likely to aggressively pursue deficiency judgments in those cases.  Expect other lenders and investors to follow suit.  And all of this is in addition to the havoc the foreclosure will create with your credit.
 
The bottom line is that if you are having trouble paying your mortgage, you need to talk to your bank or a competent real estate professional about foreclosure avoidance alternatives.  If you can continue to pay your monthly note, you may be forced to stay where you’re at or rent out the home if it has lost value.  But it’s worth the effort to talk to your bank about what options might be available.  For instance, some lenders consider a job transfer a suitable hardship to approve a short sale on your home.  You never know what you can get worked out until you ask.