Strategic mortgage defaults: Is walking away morally/ethically wrong?

Hi everyone. My name is Melinda Fulmer and I'm working on a story for MSN Real Estate about the debate over homeowners who can afford their mortage, but are choosing to walk away because they longer think their underwater home is a good investment. Is it morally or ethically wrong to do this in your opinion? I'm looking for people to quote in my article. Post or PM me. My deadline is EOD Thursday (1/28.)
  • January 25 2010 - US
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Answers (6)

Profile picture for sunnyview
Hello. I think that this is an important issue so I am glad that you are planning to write about it. There have been many recent discussions on the board about it with many different opinions herehere and here. Most lenders seem to feel that owners should not walk away if they are able to pay. Realtor opinions are mixed on the matter. Regular folks on the board are also mixed. I think people have to put their family and financial future first before the interests of the banks, but that is just my own opinion.

If you need contacts for your article, you may want to consider emailing several people in the threads links above and asking if they would be willing to comment for your article. I am sure that most would be happy to talk to you about their opinion and there are several home owners in the threads above who are facing this difficult decision. Hope the links help.
  • January 25 2010
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Profile picture for CubsfaninWA
This is an issue that well be a hot topic for many people.  I can understand why the lenders say you have to stay if you can afford, you are defaulting on them and they ain't getting paid.  As for the Realtors and the "common" Folk it comes down to the school of thought as to what a house is?  Is it a house or is it a home?  A home is a place that you not only have a finicial investment into but also a personal investment.  Is this wood and nails building a place where you have raised a family?  Did you design the home or pick out everything that went into it?  Do you redesign the building to become your "Dream Home"?  Or is this a building that provides shelter and a sound return on investment?

To most people a house only becomes a home when you put personal feelings into it otherwise a house will never be a home.
  • January 25 2010
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Profile picture for BMFPitt
A mortgage is a contract with explicit and implicit ways to void by the house buyer.  Both sides involved knew or should have known the risks involved, and both parties should do what is in their best interest.

I would never fault someone who felt the need to pay their mortgage even if it was financially unwise to do so, but in most states that is a choice, not an obligation.  A lender's duty to his shareholders is to make loans where they are protected against loss by having a significant enough down payment.  If they chose not to do so, it it their own fault.  If  casino had a roulette wheel paying 40:1 odds (there are only 38 numbers), no one should feel guilty for playing each number and taking their money.

The government's interference is another matter, of course.  I believe it is morally wrong to lobby for the government to bail you out, but if it happens anyway then it isn't wrong to take what you can get.  I think those who enacted the $8000 buyer's bribe should be hung for treason, but I'm getting mine to offset part of what it is costing me in future taxes and increased house prices.

Just send me an email if you have more specific questions or want attribution.
  • January 25 2010
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Thanks for your thoughts. Has anyone watched a friend/neighbor/co-worker enjoy a lavish lifestyle while not making payments and waiting to move out of their foreclosed home?

This, I think is hard to swallow for a lot of people.....
  • January 28 2010
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Profile picture for jal74
Melinda

When you do you're article, please remember to be specific.  Only (I believe) 13 states are non-recourse.  There is no such thing as "strategic" defaulting in a recourse state.  If you do not understand this, please let us know and we will educate you on the matter.

Thus outside of California and 12 other states, this is a total non-issue.

Regards
  • January 28 2010
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Profile picture for CubsfaninWA
I can tell you the story about the home I rented recently:

We relocated from Kansas to Washington and decided to rent a house will we looked for one to purchase.  After searching around we found a nice home that would fit in our budget and contacted the landlord to see if the place was still available and if we could tour the house.  We arrived at the house a little and waited for the landlord to show up and she pulls up in a Benz and aplogized for being late but she had some paperwork to finish up at her job at a bank where she worked.  As we toured the home we asked the normal questions like, how does the fireplace work, where is the filter's for the furance and such.  She had no clue about anything in the home as informed us that she lived on the lake not far from here (an exclusive part of town) and bought this property as an investment.  We signed a year long lease and moved in.  About 3 months later we found a home and was ready to "bite the bullet" and see how much it would cost us to break our lease.  I contacted the landlord to ask about the cost of breaking our lease and she stated that there would be none since she was placing the property up for sale anyways.  I was thrilled to hear this and didn't give it a second thought, until....I recieved a notice from the sheriff that the house was in foreclosure and would be auctioned off in two months.  It seems that the landlord stopped paying the mortgage in Dec (two full months before we even moved in.  The previous occupants had moved out just a week before.)  The landlord had been collecting rent for 8 months with no intention of paying the mortgage.

After I did some research I discovered that the home was purchased for way more than the current value and she just decide to stragically default and collect the money till they took the property away.

Now does this seem fair?
  • January 28 2010
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