A strategic default is the decision by a borrower to stop making payments on a home mortgage despite having the financial ability to make the payments. Usually this occurs after a substantial drop in the house’s price such that the debt owed is considerably greater than the value of the property, and is expected to remain so for the foreseeable future.

… As discussed in CRS Course-111 on Short Sales and foreclosures, a strategic default will likely effect your credit score negatively by 140-150 points and will also result in 5-7 negative marks on your credit. This is likely going to be more detrimental than going through the process of a short sale or a loan modification, but is said to not effect your credit score as negatively as filing for bankruptcy. … Before making any decision to pursue a short sale, a foreclosure, a strategic default, or to file for bankruptcy, it is in your best interest to consult with a licensed Realtor, your tax accountant, and an attorney.

I have had a couple of people over the past few months mention that they may consider a short sale, so that they can just get out from under their homes and move on. While the ramifications of a short sale or foreclosure seem to be getting slightly more lenient in light of all of the predatory lending that has occurred in the past several years, they are still significant. Here are some general credit score ranges (as provided by the National Association of Realtors CRS Course 111 ); 990: highest calculable credit score. 900: 15% of borrowers have a credit score at 990 or above. 740: a rough number around which people are usually able to get a good, competitive loan. 680: the average credit score. 501: lowest calculable score. 500: 18% of people have a credit score of 500 or below. Let’s imagine that you have a credit score of 740 and own your home, but are having trouble making your payments (which may actually be causing your credit score to drop in the meantime). … Before making any decision to pursue a short sale, a foreclosure, a strategic default, or to file for bankruptcy, it is in your best interest to consult with a licensed Realtor, your tax accountant, and an attorney.