Chamillionaire Strategically Defaults on His Mortgage

The rapper Chamillionaire recently alerted many of his fans to the concept of a strategic default -- a rather high-end personal finance concept. The rapper was asked about one of his homes that went into foreclosure in a recent interview, and explained why he let the house go deliberately, rather than working to keep up with the mortgage payments. The rapper told TMZ:

"I have multiple mortgages. This house actually was my most expensive mortgage. ... When the market went down, the house went down too and it was just worth nothing. ... I just decided to let it go, give it back to the bank. It wasn't a situation where they came and took it from me . I felt like I didn't want to pay that much money a month for a house I'm never at. ... I just didn't feel like it was a good investment. ..."

A strategic default is when you choose to let go of your home, rather than keeping it. It's not always the case that the bank comes and takes your house without your permission in a forced foreclosure. In this case, you are simply passing the house on because it's too much trouble to pay the bill.

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There can be a number of reasons that you choose not to pay. The mortgage may not fit your budget, the value in the home may have dropped a great deal, or the mortgage may have increased recently due to it having an adjustable rate. During the recent economic downturn, many Americans found themselves without jobs, and realized that the dream home they'd been occupying had suddenly become a nightmare for their family.

If you choose to strategically default on your mortgage, you should realize that there is going to be damage to your credit rating. A default on a home is going to reduce your credit score and make it difficult to get credit in the near future. Also, you will become liable for any amount of money in the short fall, which is the difference between what you owed the bank and what the bank receives when it sells your home to someone else. If you do not deal with the shortfall, you may find that the creditor garnishes your wages or sues you for the balance.

If you feel that you are in the middle of a temporary setback and you have plenty of cash, then a strategic default may get the economic monkey off your back just long enough for you to get on your feet. Also, if you want to avoid losing points on your credit, you may consider selling the home for less than what you owe and paying for the difference yourself. Either way, if you are going through a mortgage crisis, you have more options than you think. A strategic default, while not a perfect solution, can help you make it through.

Lawrence Watkins is the Founder of Great Black Speakers. He is also the owner of speakers' bureaus dedicated to Hispanic speakers and Christian motivational speakers. His book, "Frame Your Future: 8 Principles to Effectively Focus on the Future and Not Dwell in the Past", will be released in August 2010. If you would like Lawrence's articles delivered directly to your email, please click here.

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