With every indication pointing to continuing fall in home values in a majority of metropolitan areas, the problem of strategic defaults is likely to increase. A “strategic default” is a situation where the owner decides that it is more in their financial interest to walk away from a property than to continue to pay on a mortgage that is more than the value of the property. These owners have the means to continue to pay, but not the will.

In areas where home values have fallen dramatically it is estimated that as many as one in four foreclosures are triggered by a strategic default where the homeowner feels that the loss of 160 points or more in credit score, and possible financial ramifications imposed by the courts is somehow less onerous than continuing to pay an over valued mortgage.

First American CoreLogic estimates that 5.3 million U.S. households have mortgage balances at least 20% higher than their homes’ value, and 2.2 million of those households are at least 50% under water. The worst problems are in California, Arizona, Nevada, Florida and Michigan.

There are a couple of issues for the Short Sale Investor to consider in determining whether to help people who have weak cases when it comes to hardship. For one, it is less likely that a lender will accept a Short Sale when the homeowner is still able to pay. Secondly, if it is accepted, the lender is likely to refuse to waive a deficiency judgment, although it may be possible to negotiate a no- or low-interest unsecured loan for the remaining debt, and that may be vastly less punitive and less damaging for the homeowner’s credit than if the home goes into foreclosure.

There are ethical concerns, however, that should be considered. With so many homeowners in genuine hardship, consider whether you want to spend your time helping someone who is making a strategic decision rather than one made out of necessity. There are so many others who really need our help that, frankly, the better move, and the one most likely to resonate with loss mitigators, will be to help those in greatest need first.