A term that has become popular in the real estate crisis of the last few years is “strategic default” (or “strategic foreclosure“). The theory behind the term is that the borrower is defaulting on a loan because of a financial “strategy” rather than an inability to pay. With the decline in housing prices many people have gone from having equity in their homes to being underwater by thousands of dollars. As a result, they potentially face several years of paying to get out of the hole. In reality, the term has morphed into a feel-good term for any situation in which a default is imminent, regardless of the reason. From a legal perspective, it does not matter whether the borrower defaults because they simply cannot afford the debt or because they believe it is a good strategy to stop payment. The negative ramifications are the same, and the borrower faces repossession or foreclosure, deficiency claims, judgments, negative credit reports, and income tax liability for any forgiven debt. The long term negatives often outweigh the benefits of the “strategy” for people who truly have the ability to pay. If you are having financial problems and are facing a default for any reason then you should consider all of the available options. Many banks and lenders are willing to discuss alternatives with you and it is usually worth it to at least explore other options before you simply stop paying or allow a foreclosure or repossession. After all, any good strategy necessarily involves weighing all the alternatives.