Strategic Default

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DEFINITION of 'Strategic Default'

A deliberate default by a borrower. As the name implies, a strategic default is done as a financial strategy and not involuntarily. Strategic defaults are commonly employed by mortgageholders of residential and commercial property who have analyzed the costs and benefits of defaulting rather than continuing to make payments and found it more beneficial to default.

INVESTOPEDIA EXPLAINS 'Strategic Default'

Strategic defaults are often employed by borrowers when the value of their property has dropped substantially within a fairly short time. If the value of the property dips below the mortgage balance then a strategic default provides a way to minimize the property owner's loss. Owners who use this strategy have been assigned the nickname "walkaways".

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