Strategic default

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Strategic default is the intentional act of walking away from a real-estate-secured loan as described by author Doug French in Walk Away: The Rise and Fall of the Home-Ownership Myth. It involves carefully weighing the costs of continuing to make payments on an underwater loan vs. the impact of a foreclosure on one's credit. Firms have long used strategic default as a means of preserving capital and maintaining share-holder profits when it becomes clear that paying a note will hurt them financially over the long run. Recently, due to significant losses in home values as a result of the bursting of the real-estate bubble, individual homeowners are opting to use strategic default as well.