Many or all companies we feature compensate us. Compensation and editorial research influence how products appear on a page. Personal Finance What Is Strategic Default? How Intentional Non-Payment Works (and Doesn’t) Updated Aug 28, 2025 5-min read Written by Timothy Moore, CFEI® Written by Timothy Moore, CFEI® Expertise: Bank accounts, taxes, personal loans, student loans, auto loans, budgeting, money management, home equity Timothy Moore is a Certified Financial Education Instructor (CFEI®) specializing in bank accounts, student loans, taxes, and insurance. His passion is helping readers navigate life on a tight budget. Learn more about Timothy Moore, CFEI® Borrowers who are facing major financial roadblocks and are underwater on a loan—such as owing more on the mortgage than the property is worth—sometimes consider strategic default as a way out. But this method can have negative consequences. Below, we’ll review what strategic default is, how it works, benefits and risks, and alternative strategies. Table of Contents What is strategic default? Reasons to use strategic default Strategic default as debt relief How strategic default works Pros and cons of strategic default Alternatives to strategic default Should you use strategic default? What is strategic default? A strategic default is when a borrower, such as a homeowner or timeshare owner, intentionally stops making payments on their property and turns it over to the lender. Sometimes, bankers refer to this as “jingle mail” because the property owner literally sends the keys to the property to the lender in the mail. Reasons to use strategic default Why would anyone use strategic default? If a homeowner … Owes more on their mortgage than their home is currently worth Doesn’t foresee their property value increasing Can’t afford other bills … they might consider strategic default as a last resort. This was common in the late 2000s, when the housing market crashed. In these scenarios, the homeowner believes that cutting their losses and defaulting on the loan is more advantageous than continuing to make mortgage payments. After all, sinking more money into a low-value property is a terrible investment. Strategic default as debt relief Strategic default isn’t just something homeowners use to walk away from mortgages. Debt relief companies, like National Debt Relief, sometimes build it directly into settlement programs. In these cases, clients stop paying their bills on purpose and instead deposit money into a separate savings account. When the balance is large enough, the debt relief company uses it to negotiate lump-sum settlements with creditors for less than what’s owed. This approach can reduce the total debt burden, but it comes with the same risks as an individual default: damaged credit, aggressive collection attempts, and the possibility of being sued before a settlement is reached. For that reason, debt settlement programs are usually considered a last-resort option, best weighed carefully against alternatives like credit counseling or bankruptcy. How strategic default works If you decide to use strategic default, you’ll stop making mortgage payments and instead use that money for other purposes. According to the Consumer Financial Protection Bureau, legal foreclosure can’t begin until you’re 120 days behind on your mortgage. That’s four months’ worth of mortgage payments that can go toward other needs—and you’ll live “rent-free” until the foreclosure process catches up with you. However, once it does, expect these things to happen: You’ll have to find another place to live. Your credit score will take a beating (up to 160 points) You may have to pay a deficiency judgment (the difference between the sale price of the foreclosed property and what you still owe) You might struggle to qualify for another mortgage for several years. Some homeowners plan ahead for the credit score damage by opening all the credit accounts they need before the foreclosure. Some may even purchase a home with a new mortgage. Commercial property owners may also use this tactic for similar reasons. Timeshare owners have to contend with much stricter real estate contracts, however, and thus should tread carefully with this strategy. You an also technically attempt strategic default on debts such as credit cards and student loans, but it’s most common with mortgages (and generally not a good idea for these other types of debts). Pros and cons of strategic default Strategic default offers immediate relief to borrowers who are struggling, but the cons far outweigh the pros. Pros You can use the money for your mortgage payment toward other bills. You don’t have to worry about being underwater on a loan. The lender may realize what you’re doing and attempt to renegotiate your mortgage to avoid foreclosure. Cons Your credit score will tank after a strategic default, up to 160 points. This can make future loans difficult to get—and much more expensive. You may have to pay a deficiency judgment. Future landlords and mortgage lenders may reject your application when they see the strategic default on your credit report. Potential employers may reject you for a job if they see a strategic default on your credit report. Alternatives to strategic default Strategic defaults may seem like the only way out, but given the damage to your credit score and the potential to have to pay up anyways due to a deficiency judgment, it’s worth taking an alternate route, such as: Mortgage forbearance: Rather than fight your lender through strategic default, contact them to explain your situation to see if they’re willing to work with you. They may grant a temporary mortgage forbearance, during which you don’t have to make payments on the loan so you can get your finances in order. An FHA Title 1 loan: If you’re underwater on the loan because your home is in serious need of upgrades, but you don’t have the equity for a home equity loan or HELOC, you may qualify for an FHA Title 1 loan to rehab your property. The renovations could be enough to increase your property value so you’re not underwater. A short sale: A short sale is when you sell your home for less than you owe on the mortgage. In this case, you’re working with the lender, who agrees to forgive the difference after the sale. (The lender may also get a deficiency judgment that requires you to pay the difference.) A timeshare exit company: If you’re a timeshare owner who wants out, a timeshare exit company can help—but there are other ways to get out of a timeshare that you should try first. These are also a last resort. If you do turn to a timeshare exit company, our top recommendation is the Stonegate Firm, a reputable company that doesn’t use strategic default to help timeshare owners out of contracts. Should you use strategic default? Strategic default is a last-resort strategy that has major consequences, including damage to your credit score and difficulty securing future home loans. You may still wind up owing money through a deficiency judgment. Before moving forward with a strategic default, seek credit counseling to weigh your options, or speak with your financial advisor, if you have one.