Lately there have been several articles and blog posts centered on Strategic Default.  While the phrase seems to be new, there is nothing new about the concept.

Strategic Default is making a conscious decision to stop making payments on a debt.  The debt can be a mortgage, car loan or even a credit card balance.  Bankruptcy is a form of strategic default.

Strategic default.  It certainly sounds nicer than foreclosure. 

Remember last year's popular Buy & Bail?  That too was strategic default.  For anyone who may not remember, Buy & Bail is where a homeowner, upside down in his residence, buys a 2^nd home while his or her credit score is still good.  Of course the new purchase is typically comparable or sometimes better than the current home but at much better price.  Once the purchase is complete, the homeowner simply defaults on the current home.  Strategic Default.  Lenders caught on to that strategy.

For anyone working with distressed property owners, more than likely, strategic default has been discussed in one form or another.  Maybe it was referred to as Positioning.  That is another good word but very similar to Strategic Default.  Positioning is when a person, realizing he or she is "losing ground", systematically (strategically) puts a plan in to motion wherein assets are protected, moved, or maybe hidden.  I spoke with an asset protection attorney recently who confided that business has never been so good.

It is not uncommon for investors to practice strategic default.  An investor looks at his portfolio and selects the properties that have no chance of ever catching up with the real estate market again and makes a decision, a business decision, to default on properties with significant negative equity.

The Kenny Rogers song lyrics ‘ You've got to know when to hold ‘em, know when to fold ‘em' comes to mind.

Strategic default is as basic as any homeowner facing financial difficulties and having to make a decision as to which bills get paid.

We will see a lot more "strategic default" as lenders continue to refuse to work out viable plans with homeowners AND investors.  

As Shakespeare wrote "A rose by any other name..." meaning what matters is what something is, not what it is called.

In this case, no matter what it is called, property owners making the decision to default on their loans will be with us until lenders make the decision to truly work with property owners.

Whether by choice or by forced choice, strategic default by some homeowners will continue to have a negative impact on those homeowners that ARE paying their loans and that do have equity...or did.