In order to qualify for federal loan modification assistance, your mortgage balance can be no larger than 105% of the appraised value of your home. So what if your house’s value dropped so much that you owe more than that? (This is referred to as being “underwater”.)
One option that many people are considering is to simply stop paying your mortgage, walk away, and mail your lender the keys. This is especially true in the 27 states in the US that have “non-recourse” mortgages, where the lenders can’t even seek the difference between what you owed and what they auctioned your house for.
Some people view paying your a mortgage as a moral and/or ethical obligation. Others view it simply as a legal contract, where you agreed to borrow money with your house as collateral. The lender takes on the risk of you walking away, in exchange for a certain interest rate. You, on the other hand, must deal with the consequences of a damaged credit history.
For the purposes of this poll, “walking away” means doing so voluntarily before circumstances would force you into foreclosure. What do you think?
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I won’t take a stand either way for now, but will post my own thoughts tomorrow. Elaborate on your choice in the comments below!
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The very basis of capitalism: contracts are legal documents, not moral obligations. There is no morality in capitalism but greed, greed, and more greed.
Haven’t we learned that lesson well enough lately? The GOP has been trying to teach this to us for decades now.
Bucky, your premise is completely wrong. The GOP is mostly concerned with keeping government out of your way.
The problem is people have become less moral than they used to be. There was a day when a man’s word was his bond and people did business with a handshake. Now it looks like there is a significant number of people who would go back on their word even when they have signed a legal contract.
Unfortunately 27 state governments have allowed people to do this without any consequences. If you break a contract you should at least have to make the other party whole again.
@Bucky
I think you’ve got it backwards. If you break a promise to repay the money someone lent to you, you are both a liar and a thief. Many people (apparently not including you) consider these actions to be immoral and supremely greedy.
To correct your comment, SavingFreak, the PRINCIPLED members of the GOP are concerned with keeping government out of one’s way. Most of the GOP forgot about this while Bush was in office, but they seem to have remember now that one of their own isn’t in charge.
I have to agree with Bucky. Corporations follow his line of reasoning all the time, so why should we act any differently? If the rules for corporations change then I will go along. But in the meantime, why be a patsy?
If the contract allows you to walk away from the mortgage and you choose that option due to your own interests you are making a sensible decesion.Anything else would be foolish.
Written contracts are legal documents and amoral. They exist so there is clarity in the underlying agreement so there can be legal recourse if the agreement is broken. The decision of a court to enforce a judgement, or the decision of a bankruptcy judge to break the legal contract, are amoral actions because based upon the legal contract or the bankruptcy laws.
BUT, The underlying promises made by the parties and the intentions to follow through on them are not amoral. The existence of a legal document has no affect on this either way (If I borrow $100 from a friend, the moral correctness of my intentions to pay them back is not effected by the existence or non-existence of a written contract. The contract only exists so there can be reourse after the moral wrong has been committed).
A number of people use the recourse terms of the contracts to say a promise has not been broken in the first place (if you don’t pay, then we get the house back, etc, terms in the contract). But there is always is an initial promise to pay first. The later If/then terms are only to help with the legal recourse after the inital promise to pay has been broken.
I am always shocked by the number of people who justify not paying their credit card/mortgage debts as amoral but would think they are wronged if their job didn’t pay them for last months’ work because they are going to lay them off and file for bankruptcy soon anyway and the boss would rather pay themseleves a little more bonus instead.
This is the reason they should have always demanded 20% downpayments. People who put nothing down have nothing to lose if they walk away, except damaging their credit. The end result if they walk away if they basically rented a house.
If you can afford your mortgage payments why mail in the keys? Would you plan to get another mortgage when prices come down and live in a house that you feel is at the right price level?
I buy stocks on margin, if the investment doesn’t go my way i wish I could mail back the stocks and not get that scary margin call.
I’m biased towards this mortgage crisis as I am not in it, I’m a 20 something sitting on the sidelines waiting for prices to drop and buy.
My example of walking away being same as simply renting, only applies to someone who put zero down, lived in the home and did not put additional money into the home such as construction and repairs.
I like Stricks example of people not thinking twice about not paying their credit card, but feel wronged if their emploeer didnt pay them.
Of course walking away from a mortgage is amoral if not outright immoral, but if the rules of the game allow it, then a person would be a fool to persist in paying if it would be a hardship to himself and his family. In fact, if other people, such as one’s family, are involved, then the whole moral question may come back into play on the side of walking away. This is the impersonal, if not inhuman, economy that we have allowed to develop. Clearly we need a different model.
Wow. So what I am seeing is basically:
1) everybody is doing it, so its not immoral and
2) if the government doesn’t force me to do it, its not immoral
3) if the contract “allows” me to walk away (I guess this means not put you in jail?, not shoot you? because I assure you there is a promise to pay right up front), then its not immoral
I think I just changed my mind about being against big government. It looks like without laws defining morality for today’s society, by definition there would be none.
I chose option 2. I would certainly have chosen that last option, but “Afford the payments somehow” could mean eating cat food and starting a fire in the living room. That, I would not be willing to do if I could cut my monthly living expense in half by renting somewhere else.
If I could afford the bare essentials, in addition to my mortgage, then I’d stay til the bitter end.
walking away from a mortgage is not the same as renting for the time you lived there. why? because walking away from a mortgage hurts your credit, but breaking a rental agreement does not (or does it?).
I am not a home owner and am just embarking on my dreams to be financially independent, so call me crazy but I can see these people’s point of walking away. If you stay, you make mortgage payments on a house that is worth far less than the value of your mortgage. And since no one knows when the value of your home will return to what is was worth when you purchased it, why not just send back the keys to the lender – who was dumb enough in the first place to give you a mortgage. Stick the lender with the burden, maybe that would teach them a lesson.
just my two cents.
You could always find a great company to relocate with who will buy your current home for what you paid. It’s moral and financially prudent.
Check out the USPS – they do it all the time. Haven’t you wondered why stamps are going up up up in price?
http://us.cnn.com/2009/US/03/05/postal.service.relocation/index.html
But of course this requires hard work, creative company selection (i.e., govt, international, etc.), degrees, experience and well, with Obama that gets thrown out the window. Now you can just default and go to the govt to whine like a little baby and get your principal reduced. Gotta love the new paradigm. Make a bad decision, don’t pay, and you’ll be rewarded.
Interesting the blog host is discussing this given I’m sure he’s underwater when you consider any type of commission and state tax/fees/title you’ll pay if you sold anytime in the next 4-5 years.
@SavingFreak:
Defaulting on your mortgage is not going back on your word. The contract you are bound to states the terms of default and what happens to you when you can’t or don’t pay back the money. If you are willing to suffer those consequences (including that lenders will consider you a risk in the future), you have held up your end of the deal.
The bank chooses an interest rate, and conditions of the mortgage based on the possibility I’ll walk away. If they’re charging me more depending on how much of a “risk” I am, why can’t I follow through?
All political and theoretical legal arguments aside, the immediate effect of jingle mail will be a negative credit reporting which will hold the same weight as a bankruptcy in the eyes of lenders. This WILL significantly mpact any ability to get another mortgage, and sometimes even a rental home or apartment, as they all run credit checks nowadays. Also, read your credit cards’ fine print – most if not all have the right to amend your rates higher, lower your limits or even cancel your cards outright upon the discovery of negative credit reporting information. Employers routinely check credit reports too, and if you work in a sensitive industry this could impact your current job or future promotions, etc.
All in all, if you could afford the payments before, and you can afford them now, you should strongly consider all other options first in my opinion – the downside is too severe.
If you are in too deep to make it out, then act wisely after professional counsel and after reviewing all options.
That’s a tough question. In my present situation, I am not “underwater”, so I have to say that I would NOT walk away from my house. However, if I were to be in the situation, I may think otherwise. Chance are, though, I would have really thought my home purchase well enough and taken enough of a calulated risk that I wouldn’t have gotten myself into the situation in the first place. So, ethically and contractually, I would NOT walk away. Hopefully, I will never be in the position to be forced to make the switch in my decision.
Considering that most of the people following your website are more financially responsible than most, I would say the results are perhaps a little biased.
The problem is people have become less moral than they used to be.
No, they haven’t. If anything they’ve become more moral. You don’t see that many slaves around anymore, do you? Are we still burning heretics in the street, or leaving unwanted infants to die of exposure?
There was a day when a man’s word was his bond
Actually, there was never such a day.
and people did business with a handshake.
The day a bank gives me a mortgage on the basis of my handshake is the day I will reciprocate.
@SavingFreak
“The GOP is mostly concerned with keeping government out of your way.”
Okay. Sure. I’ll assume your intelligence so must conclude that either you are nothing but a complete GOP partisan or that you haven’t been paying any attention to anything that has happened in the past twenty years. Here’s a helpful hint for you, SF: the GOP twin mantras of “small government” and “free markets” aren’t policy positions, it’s MARKETING. They don’t want small government, they want ineffectual government. Not at all the same thing. The bigger and more ineffectual the government, the bigger and more profitable the theft (please see the past eight years of the Bush administration for extreme examples).
The financial rules are written by extremely wealthy people to benefit themselves. One obvious example is the law that makes it illegal for bankruptcy judges to change the terms of a mortgage. Unless, of course, someone owns more than one home and then the judge can rewrite the mortgage contract at will.
So the Iraq War widow and his three children are getting evicted from their modest two bedroom and thrown out on the street while the hedge fund manager gets the courts to renegotiate the terms of his NYC penthouse, Aspen ski lodge, Hamptons weekend retreat, and that sweet condo in South Beach.
I’m sorry, but all this huffing and puffing about the morality in our financial system is a sad, sad joke. We, as a country, decided decades ago that we didn’t care about a moral financial system. We just cared about making as much money as possible. We held up gross and excessive monetary success above all other things.
You’ll have to forgive me if I don’t have much concern for the people who profited so unethically suddenly worried about the morality of the system when they aren’t making their blood money billions anymore.
Yes Sir Jeffrey, the bank calculated in both the chances of you being unable to pay (it can happen through no fault of your own, which is why we don’t have debtors prisons) and also the chances of you just immorally deciding not to follow through, when deciding to make you an offer (not choosing) of interest rate and conditions.
So if a uninsured drunk hits you tomorrow, they did not do anything immoral if you were prepared for this by having uninsured driver coverage?
Or, as further proof that everything relates back to Shakespear or Seinfeld, its not immoral to shoplift because they just “write it off”. According to Donald, if there was no police force to throw you in jail, then you’d be fool not to shoplift because the “rules of the game” would allow it.
I give up, reading these comments is depressing. The economy is not the only thing in a downward spiral, the lack of morals in some is used to justify further lack of morals.
The weird part is everyone is justifying breaking the contract based on the lenders’ actions. Sure there are extreme cases of fraud out there (I think they should slam those lenders that change an already “locked” rate at the signing), but how often does the mortgage holder really come back and say “we’ve decided we want out, we don’t like how your risk profile has changed, and we know there is nothing in the contract about this, but we want our money back now, or instead start paying us 20% interest.” (what credit card companies do, and why I don’t get in bed with them, but it is in the agreement with them) or, more to point, “we’ve seen you make 50% appreciation in your house on what was basically our money, we’d like some of that now or we want you to return all of the loan today”
The bank chooses an interest rate, and conditions of the mortgage based on the possibility I’ll walk away. If they’re charging me more depending on how much of a “risk” I am, why can’t I follow through?
And you’re not leaving the bank with nothing — you’re giving them the house back. In a mortgage, what essentially happens is that the bank buys the house for you and allows you to live in it until you repay the loan. If you walk away from the house, you no longer pay the bank, but you are returning to them the house that they bought. If the house at that point happens to be less than the price the bank assumed when it gave out the mortgage, well, that’s the hazard of business.
So if a uninsured drunk hits you tomorrow, they did not do anything immoral if you were prepared for this by having uninsured driver coverage? Or, as further proof that everything relates back to Shakespear or Seinfeld, its not immoral to shoplift because they just “write it off”. According to Donald, if there was no police force to throw you in jail, then you’d be fool not to shoplift because the “rules of the game” would allow it.
These analogies don’t work, though, because you’re not in an arms-lenght contractual situation with those parties. You’ve entered into no agreement with them. In the case of a mortgage, both the borrower and the bank have feely entered into a contract and have (theoretically) assessed the risks of non-performance and built those risks into the contract. In fact, the mortgage contract includes remedies for breach (including forfeiture of collateral assets, i.e. the house) which plainly shows that breach is part of the agreed-upon contractual possibilities.
To simply, here’s what happens:
Buyer: Please lend me $100.
Bank: Why?
Buyer: I want to buy a house.
Bank: What if you can’t pay me back the $100 once you have the house?
Buyer: The house will be my collateral for the loan. If I can’t pay you back the money, take the house.
Bank: OK, I will give you $100.
Buyer: And I’ll use that money to buy a house.
Bank: And you’ll then pay me back that $100 plus interest.
Buyer: OK, deal.
Bank: Deal.
I have to agree with Dave… walking away, especially if you can afford to pay the mortgage is just wrong ….”a liar and a thief”. Individual accountability is part of what is wrong in society. People are looking for someone else to take the blame or to take care of them instead of standing up and being responsible for their actions.
We must remember that these morals are based in our puritan history in the U.S. These are #1) That debt is mostly bad but #2) if you have to carry debt then you must pay it back. Benjamin Franklin espoused these values in his autobiography as being essential to get ahead in life and business. So this gets at why many people are fervently “for” the moral value of paying back debt under all circumstances.
The many people who would walk away when underwater and unable to afford payment, however, are not necessarily acting immorally because their debtor is a large agency whom they have no personal contact with. Furthermore, the consequences to them of not paying it are not as large as it would have been back in Franklin’s day when it could make or break your small business. Even Franklin tied his morals to things that would help him personally.
If I truly could no longer make payments, I would probably try to work something out with the lender and actually ask them what they would prefer. In some cases they might rather I left than for them to have to go through all the hassle of foreclosing.
For example, If you signed a contract that you would save the world, you would still default, no matter how much it bothered you (unless you are superman and perfect). The morality of such a move is irrelevant, you are forced to default. It was foolish to sign the contract, but once you are there, there is nothing you can do.
I suppose it comes down to how you interpret “make the payment somehow.” If all my family has to starve to death in order to make the payment, I am sorry, keeping my family alive takes priority.
Walking away is an easy way out. Doesn’t matter who is at fault, in the end you made a mistake and now have to deal with the consequences. But do people really think about the consequences? Short-sale, forclosure, bankruptcy can all effect your credit for some period of time but in fact, it can ruin your credit for a lifetime. When you don’t have a credit history for a long period of time, banks have an idea what might had occured. So, the question is, would you walk away if it met your credit would be ruin indefinitely?
Well I am at 45% debt to income and I can make the payments, but I also don’t have credit card debt. I do have a car payment and I eat a lot of rice. My loan is for $372,000 and my house is worth about $170,000 at this point. This isn’t a poll scenario for me, its my real life and I have decided to walk. If this was a normal housing bubble 20-30% I’d probably stick it out. I was never planning to walk until my house was worth less than half of what I paid. I have tired to work out a deal with countrywide, but so far the only modification they have given me would raise my monthly payment by $400. This would put me over 50% debt to income. I know a lot of people think you have an obligation but put yourself in the position of someone who has lost 4 years income on their house in less than 2 years time.
To all the people making this into a moral issue and American has changed you are foolish. There is no precedent in this country to the current housing bubble. Even in the great depression home values didn’t fall the way they are now. You can’t make a moral comparison to something that has never happened. In that time frame people still had to put 20% down which greatly changes a decision such as walking away. I don’t think anything has changed, but people like to say it has to look more scornfully at this doing what they consider immoral.
@Eric
You say that “walking away is an easy way out” but then go on to point out that in fact, it isn’t so easy because it carries very heavy consequences.
@Everyone
I understand that many people have grave ethical qualms about just “walking away” from a mortgage. Despite what I have written, I will admit to very mixed thoughts and feelings about the topic.
Basically, however, the question we are all trying to ask is: how do you behave ethically within an inherently very immoral system?
I don’t have any easy answers.
I do believe that our entire financial system is based on one simple (and incorrect) idea: greed is good.
If we live in a society that is premised on the rule that greed is good, shouldn’t we all behave accordingly? Is it inherently immoral to behave otherwise?
And to those that think of a mortgage as a moral obligation, what do you do when that moral obligation is in conflict with other moral obligations? Let’s assume that through no fault of your own you are suddenly unable to work. Your supplemental disability insurance company just went belly-up so you don’t have that expected (and prudently planned for) income. You have a moral obligation to pay the mortgage. But you also have a moral obligation to provide food, clothing and shelter to your children. Can’t do both. What do you do? Your moral obligations are in conflict — how do you resolve that?
I would never walk away from paying, unless it really came down to:
if I pay the mortgage the family dies of hunger.
Wow. There lots of smart people here. I am happy to be in your company. Specifically, i agree with NY Guy. Putting 20% down seems like a good rule. On the other hand, I bought my first house in 1997 with 2.5% down using a gov. program for 1st time buyers. I was very naive but it all worked out – I made a modest profit when I sold three years later.
If I had the misfortune to be 10 years younger, it seems I could have easily ended up in a world of hurt doing the exact same thing in 2007 with the banks and the governments (fha) approval.
I think we all have a moral obgligation to pay our debts; fiscal and otherwise. Unfortunately some people are going to be unable to do so and I do not assign blame to them (the homeowners). The guilty are the so called smart people running the banks that found a way to break through the traditional safeguards so they could stack up more profit and earn bigger bonuses.
The thruth is it depends on your circumstances. If this is a home I lived in I would not walk away from the mortgage (if I could afford it) because it’s a roof over my head and that’s mainly the reason for my purchase. In addition I wouldn’t want to destroy my credit. I would be pissed that the lack of responsibility of others is directly affecting me, but still happy that it’s not me. On the other hand if I’m carrying an investment property that it’s becoming worthless..I would dump it. Why should I continue to pay for a de-valued property? They are bailing everone else but me because my account is not delinquent, so I have to bail myself out.
# Sir Jeffrey Says:
March 11th, 2009 at 7:41 am
The bank chooses an interest rate, and conditions of the mortgage based on the possibility I’ll walk away. If they’re charging me more depending on how much of a “risk” I am, why can’t I follow through?
exactly. the lender takes a risk on people. they charge you for that. you are paying them extra in case you should walk away. if a bank borrows money at 0.25% like today, and lends me the money at 5.25%, they are making 5% for being a middleman. they are betting i wont walk away.
if the lender wouldnt be moral whatsoever with me, why would i be with them. they would throw me out of the house in a heartbeat.
Well, this is my first post to this blog. I have been reading it for several weeks and find it interesting, at least from a sociological perspective.
I regards to the poll: My answer is, walk away if it makes financial sense. Who cares about and “moral” obligation. As others have pointed out, business is not moral, it is about profits. All loans have risk, that is why mortgages are secured loans and the rates are higher than the Fed lending rates. For those who preach about moral obligation, etc, I understand the feelings but do not let those judge sound financial decisions. The banks, the mortgage industry, the real estate industry, and the consumer (home owner) were all in on the overinflated housing market. They all knew the risks and bet that they would not be left holding the bag.
As far as the credit argument goes, who cares. FICO is a joke and just an obscure tool to rook people out of their money. If it was so beneficial it would be more transparent and deterministic for the borrower — I need to do X to get a score of Y to get a loan with Z terms.
Just to be clear, we did not buy. We could have, but I am not paying $800k for a shit box here is socal. We rent.
Mortgages are more than a man being good on his word. A mortgage is actually bonded by the the property and not a just man’s word. Credit card debt is more about being good on just your promise. While I personally find morally questionable to walk away from a mortgage, in some regards it’s part of contract. You don’t pay, the bank gets the house. That’s part of the legal contract….
Obviously, if I were a lender I would NEVER give anybody a loan that simply walked away from their mortgage – when in fact they could afford the mortgage. I hope people that do this have an extremely difficult time obtaining a new mortgage (or any loan for that matter). Now, if you lose a job or have some other valid reason that you can no longer make the mortgage payment, then that’s a different story. No, buying the house at the wrong time is NOT a valid reason to walk away.
A lot of us make stupid financial moves. Live up to your mistakes. Do the RIGHT thing. Have some CHARACTER!
The 19% that say they’ll walk away even though they can easily make the payments are the reason this country is in the crapper. Greed has ruined our financial system – from the bottom (individual like these 19%) to the top (ie. Madoff-like).
I’d still pay the mortgage if I was able. No amount of worthless fiat paper dollars can compare to owning real estate.
I basically agree w/ the pro-walk argument (lol)
Wouldn’t it make sense for the bank to consider a reset as opposed to dealing with having to resale?
After all, the rates are calculated according to risks taken.
I want to walk away from my mortgage on 2nd home (investment property) that has fallen below mortgage.
How can I do that? What are the negatives?
Thanks,
Vic
In my mind it’s like having a lease on a rental property. You agree in the beginning that you will pay x dollars a month for x months for the use of the home. Down the road if circumstances change you may not want to stay in the home (ex. get a job in a different city) or aren’t able to afford the rent (ex. lose job, health issues). In that case if you can’t find someone to sub lease or the landlord wont let you sublease a sane person will break the lease. You will lose your deposit and the landlord will lose his income stream but it happens every day. I can’t imagine anyone paying the rent if they don’t live there any more they just move on. It doesn’t seem much different from a house. If the bank (landlord) doesn’t require a big enough down payment (security deposit) that it hurts and if you need to leave bad enough and can’t sell (sublet) or can’t aford it and the lender won’t negotiate or the house isn’t worth what you are paying for it (you find the rental is cockroach infested and you have drug dealers next door) then you should send them the keys. Just like any sane renter would do.
Does 2nd home (investment property) mortgage qualify for Non Recourse?
Thanks,
Vic
More practically, doesn’t walking away from a mortgage completely damage your ability to borrow money in the future? I don’t really see why people would do this unless they simply couldn’t pay.
I just read yesterday from another blog that the 105% thing isn’t true anymore. They have quietly announced that they’re doing 5/1 ARM loans for loan modifications.
If you can pay your debts you should. If you can’t pay your debts then you really have no choice but to default.
I voted for the in between option. I’d only walk away from a home if I couldn’t afford the payments. And by that I mean that I really couldn’t aford it and I’m flat broke where essentially the only options are to pay the mortgage or stop eating. If the choices are walk away from a mortgage or go bankrupt then I’ll walk away from a mortgage.
If I had any cash in the bank and/or the ability to pay the mortgage then I’d keep doing so.
Really, if you are in the second choice situation and you are having difficulties with the payments, most likely a foreclosure is in your future anyways. Something will happen to deplete your emergency fund (if you had one to begin with) and then you are already struggling and the first missed payment happens. Another ’emergency’ happens, and there goes the second. You would be wise to walk away in that situation in my eyes. Struggling with a lost cause only makes the pain worse, especially in this market where we all know that property prices are going further and further down. Getting out from being underwater so you can qualify for help is not a reality. Maybe you aren’t to the point of having to declare bankruptcy and could make a go of “restructuring your life” without this massive overhead.
I take issue with everyone saying that people who choose this issue are all bad. Maybe you had a nice job when you got this loan and believed you could handle it. In December, I went from being in a nice possition, to getting laid off with no jobs available. Having a degree, I don’t qualify for educational assistance, yet there are no more jobs in my area of expertise. I could choose to live on unemployment for the max period or take a lower possition that basically replaces the unemployment which is less than 1/3 the orriginal income. Now that you are only making that much money, you are definately not in the possition you were in orriginally.
Would I be a bad person to walk away, knowing that foreclosure was in the future and was something I couldn’t avoid? Would you really expect someone to rack up more debt (credit cards) to try to service the orriginal debt? That’s just foolish. Wouldn’t it be better if you sit down and plan out that you can survive if you can go back to renting NOW? Or would you rather them wait until they have maxed out every bit of credit they had, then declare bankruptcy and most likely have to enter a shelter (where is their rental deposit going to come from now?). Having worked with people in that very situation (homeless shelter, no money for a deposit or the first months rent), I don’t see the sense in trying to hold on to the bitter end.
Granted, I am not in that situation, I am not walking away from any debt. In my situation I was able to adjust my lifestyle to fit the new income, but I could see how someone who was orriginally well off could easily get overwhelmed without it being their fault. When they took on that debt, they had every intention of paying it off, but life is not always predictable.
I think the 3 poll options are not clearly capturing the proposed question. Why would ANYONE walk away from their mortgage, other than the fact that they could no longer afford it?
I think there should be these 2 poll options instead:
1. Would you walk away from your mortgage, if you couldn’t afford it?
2. Or would you stay and face foreclosure?
Most people (atleast l like to think this way) who would or do walk away, do so because of true hardship. The few who would or do walk away for any other reason, give the provision a very bad name.
When I borrowed someone else’s money to buy my house I agreed to pay the mortgage company back with interest. It isn’t dependant on legalities or what I can get away with. It isn’t dependant upon my investment turning out well. It doesn’t matter if the other party doesn’t take the high road. It’s immaterial that the contract was sold to another party.
I find it quite disturbing that we have gone from a society that values doing what is right to one that is only concerned with what can be legally gotten away with.
Vic, you cannot walk away from a mortgage just because your investment doesn’t look like a good one anymore. Sorry, I don’t care about what the law says- that’s my opinion.
having an investment property means you are obviously wealthy (at least compared to most) so I suggest you buck up and honor your commitments.
To add to my previous comment. IMHO it doesn’t matter whether the reason you can’t afford your mortgage is because your spouse lost a job, your spouse died, you lost a job, you made a bad decision in the first place when getting the home, or you’re UNDERWATER because of the current real estate crisis.
Either you can or CAN’T afford your mortgage. And the proposed question (or poll) from Jonathan comes into play.
If you think that walking away from a mortgage is immoral, there’s something I simply must know:
– Have you replaced your standard light bulbs with CFLs?
– Do you recycle (always, no exceptions)?
– Do you compost?
– Do you use re-usable grocery bags?
– If you’ve upgraded your appliances recently, did you buy Energy Star?
There’s more where that came from, but you get the point: if you are carelessly using limited resources, there’s a strong argument to be made that you are doing much more – and certainly more lasting – damage to our way of life than the folks who are mailing in their keys.
I have a question (love your blog btw) a friend of mine IS considering walking away from his house and condo. He purchased a condo in 2006 for 245 now worth about 130, and then a house in 2007 for 475 which is now worth 245. He CAN afford both, however with student loans, two car loans and three kids, can’t you see how attractive walking away would be? I certainly can. This is a huge loss! And of course the banks won’t help because he can afford his payments. What would you suggest he do?
it’s called a secured debt – the house is the collateral
you walk, they keep the house
that is the cost of doing business for the bank – that is why they charge interest.
the banksters have absconded with our (taxpayer) money, why then should the taxpayer show some moral rectitude and stay to the bitter end. Please, that’s what the ruthless and smart banksters want you to do. It’s a trap.
Stay because you love the house, the neighborhood, etc. But if it is a purely financial decision and you have 0% down or are deep underwater – mail in the keys and walk away. The banksters were only too happy to rig the system in their favor – you would be stupid not play by the rules that they put in place.
You lose the house, they lose the income stream. Its called a contract.
Sadie, you mentioned purchased a condo in 2006 and a house in 2007. If I assume your friend got a 30 year fixed loan, then there are still over 25 years of payments left. In 25 years, I am extremely confident that they will be worth more. I would not worry about what somebody else today claims to say the house is worth. Just as some people say a stock investment that’s down in value is only a loss on paper, that same applies to your friend’s property. If your friend walks now, they turn a temporary paper loss into a permanent one. Also, the credit score is damaged.
As long as the property is not sold, your friend has not lost a penny. On top of that, your friend may also be able to get a tax break and deduct the mortgage interest.
If a lot of people start walking away from their mortgages, then not only are the bank’s screwed, but so are the bank’s own creditors – that is, individual depositors and bondholders.
As more and more individuals walk away, very quickly, bonds from financial institutions that were originally considered “high-grade” would get rated to Junk status. Word would spread to the general public, who would quickly move to withdraw their holdings from the banks, creating a bank run, and killing the modern-day economy as we know it.
That is the way I see it.. But maybe i’m missing something.
I love being a homeowner so much. I can’t fathom walking away no matter how much trouble I was having making the payments. I would sell everything I owned, take in renters, and work five jobs before I walked away from my house.
Your options are:
1. Don’t walk away – keep a good credit score
2. Walk away early, voluntarily
3. Get forced out, involuntarily
If option #1 is an option, that’s what I’d do. Additionally, I’d do everything in my power to keep #3 from being inevitable. However, there’s only so much you can do and if #3 will happen, you might as well do #2 to at least save some cash.
Some people may say that’s immoral and you should always pay the mortgage as long as you can. However, wouldn’t it also be immoral if you gave your last dime to the bank so that you couldn’t feed your family and then the bank evicts you anyway? Either way, #2 or #3 are not good options – therefore try really hard to stay with #1.
@John
“If a lot of people start walking away from their mortgages … creating a bank run, and killing the modern-day economy as we know it.”
I’ve got to wonder if you’ve seen a paper anytime in the last six months? Bank failures … subprime mortgages … greed … corruption … TARP funds … billions and billions in government bailout … more greed … more corruption … more billions in government money … more bank failures …
Have you been paying any attention?
The current “value” of the house has zero to do with the contract you signed where you agree to pay the mortgage. If you can afford to pay the mortgage, continue paying it.
This line of reasoning just doesn’t make sense to me. Close to 100% of things you would buy using credit cards will go down in value. Are you going to say – “Crap that big screen TV is worth half of what it was worth last year, so I guess I’ll just not pay for it”. Sadly, many people say this exact same thing and it’s the reason this economy is in the shape it is.
Response to Diane:
If nobody could be trusted to keep their word, your environmental problem would be solved. Within 200 years what was left of the human race would all be subsistence farmers, hunters and gatherers once more.
It’s hard for me to believe that anyone thinks recycling is as important than integrity.
I have walked away from my mortgage that has gone from 421,000 to 225,000 and still dropping. I did not want any help from the gov. and attempted to refi/work with servicer without success. With the money saved while living in the house with no payments for 8 months, rent 1,450.00 less than my mortgage, savings, and investments in crude oil, I will be well prepared to purchase a house for half to two thirds of my last purchase price 4-5 years from now with a Fannie Mae or conventional loan after the market has stabilized and my credit is rebuilt. Financially speaking it is a very smart plan. Morally speaking, please don’t throw any stones from glass houses. Or we may have arguments of people breaking other contracts such as agreeing to drive the speed limit or taking longer breaks and/or lunches than allowed at work, not to mention a plethora of other morally incorrect things everyone does everyday, myself included.
Lets look on the other side of this transaction.
When a corporate entity wants to get out of their obligations, as a result of bad business decisions or other, they declare bankruptcy, chapter 11 (reorg).
They get to keep their jobs, assets, operations, receivables, etc. Creditors get partially screwed, shareholders get totally screwed.
Mortgages and loans are strictly contracts to make money on. If one side can effectively walk away, why not the homeowner?
Until we get rid of chapter 11, what stops the greedy corporation from doing what they want? Only full liquidation should be permitted, we’d would see an end to most bankruptcies.
Banks are walking away from foreclosures in many areas almost as fast as people are walking away from their mortgages.
Why?
The banks give you the house with a signature. They invest no money, it simply gets logged and printed into existence. The loan does not come from deposits. Many here need to understand how fractional reserve banking works.
The costs of maintaining and getting rid of a foreclosed home is becoming more expensive than simply taking the “loss”. Even if a person walks away from a mortgage..the bank has still made a profit from any payments the person made…as the original loan was simply a log entry that got printed into existence.
If your family can’t eat, it would be stupid to pay the house note, if you can find a rental elsewhere.
Quick sale might be a better option than forclosure/walking away.
I find it very interesting that people even consider it immoral to walk away from a mortgage, regardless if the borrower were able to pay it or not. Also, being “able to pay” the mortgage is highly subjective. Sell your car and walk 5 miles to work and continue to make a few more months of payments? At least you’re making your payments. Feed your children snicker bars all day and not the more expensive fresh fruits and vegetables? At least you’re making your payments.
Here’s a question. If I were a home owner and my property went up 20-40%, would my lender bend over backwards to help me in the event that I could not longer pay my mortgage (disability, divorce, etc)? I do not think they would. They would take back the property that appreciated 20-40% and tell me tough luck.
When a teacher had a job and bought a house, but now after two years was pink slipped due to state funding, what choice does one have? We are in this boat. I need to move where my parents are willing to let us take over the payments on a house just to have a place for my wife and three children to have a roof over our heads. I am very upset about this, but how can I pay my mortgage of $2,000 a month when I will not have a job next school year. We need to move out of CA because there are no teaching jobs available. My mother was pink slipped last year, so she retired, but I am just starting. Who would have ever thought this would happen after going to college for over six years and student loans to pay, and now no job. I am hoping to find a job teaching in another state, even if it is only part time. What is this world coming to? God help us ALL, you may be next!
P.S. I called my lender about a loan modification and he laughed at me!
Not all of us are bad and deadbeats! I get so tired of hearing that! When your spouse of over 40 years gets catastrophic cancer and at one time you had your home paid for but now you are not working. I am even a nurse and my husband’s cancer demanded he have round the clock care, that our ‘insurance’ had done away with?
Yes I grasped at straws and was hooked into a sub-prime loan. I had planned to try and save it to pay the home back off again.
Now try taking a couple that had worked all their life for the American dream and it is all falling apart.
His deductibles and co-pays were well above $150000.00.
(Sure loose change for hard working middle class that at their highest annual salary was less than $70000.00)
My deceased husband wanted to give back to the country his knowledge. Little did we know STERS would ruin our lives forever.
It is a horror story! Now I am left with less than 1/3 rd (of what we made together) to try and pay a mortgage that in January that upped it $400.00 more each month leaving me less than $400.00 for food, utilities, insurance.
We did not use credit cards! I am being sued every way there is. I have wished for death so I don’t have to endure any more of this.
But don’t call everyone deadbeats and people that want to walk away from their home. I surely don’t however just the above can tell you I can’t afford it.
Had it not been for his cancer I would have still had the paid in full deed in my hands.
Now the market has fallen apart and my savings to pay the house off gone!
Everyone says wait it will come back, well when you are 65 and disabled yourself (My doctor refuses to allow me to work because of a car accident) you don’t have time to wait for the market to come back.
just look up and read some of the hardships. There are thousands and thousands and mostly to do with medical deductable and co-pays.
How anyone can receive many many bills stating the insurance paid this amount and you owe $75000.00 for the radiation treatments is beyond me.
My phone rings non-stop for these bill! Oh if you have insurance they want you very much and give you all kinds of hope, but they fail to tell you they will hound you for life for one deductibles and co-pays.
Anyone that says they like our heath care system ‘needs their head examined’
I would never wish what some of us have/are going through, but until it happens to you, you will never understand.
If I had my stock-market money back that disappeared in weeks, I could pay my house and even the medical bills!
Don’t judge until you have been there.
Who is the Crook?
The bankers loaned the money to make their Millions and the Government has not protected our jobs in Detroit! Our homes are not worth $%^%. If you owe 100K and your house is not worth that and never will be, why would you continue to throw good money after bad. Get out!! whatever it takes. Gov sent your job overseas and the greedy leaders of the banks have gotten theirs. Dont let anyone lay a guilt trip on you, this is not your fault. Cut your losses and protect yourself and your family. Screw the banks!! They caused it and Bush protected his OIL buddies at the cost of American Automotive jobs. If tarriffs were in place, Americans could compete! Instead we will all work for Walmart for minimum wage.
Banks make the money they lend you even if you do walk away. My house was bought for 300k 7 yrs ago. It is now worth 210k. I have paid 206k already for the house with my payments each month. If I stay in the house for 30 yrs like the mortgage says, I will have paid 884k for a house that was originally 300k. That is not 5% interest, it is almost 300% interest. If I walk away from my house and the bank gets 200k for it, they will have made $406k on a house that was bought for 300. Poor banks. They can suck it.
Financial services have taken a caveat emptor approach to the services offered. Acting out of self interest and the interest of share holders is the reason given.
I should act in my own self interest as well, which would be to walk away from a bad deal. The contract is, in fact, still honored, the bank would get the house.
So, my house is now worth 120,000 less than I owe on it and I have been laid off for almost a year. My mortgage payments total $2500 a month and my wife brings home $2400. My unemployment benefits run out next month. I started discussing this with Bank of America right after I got laid off last April. I tried everything to communicate with them; keeping track of every conversation, email, registered letters etc. All they have done is use creative ways to collect the debt and call it “negotiating”. They claim I don’t qualify for any of the “hardship” programs. I have sent them spreadsheets, tax returns, pay stubs and a myriad of other documentation multiple times (faxed, mailed, certified mail, FedX) and they claim they need more or can’t find it; they switch personell when I get close to a dialog with any of them that starts to become meanningful. They have worked me in a circle for 10 months. When I stopped paying in July it was pretty much at their encouragement because they kept saying I couldn’t qualify for assistance until I was three months behind (which they later waffled on). Now my credit is ruined, I can’t afford to stay in the house and we have to go live with relatives. I tried the moral approach, now it’s time to get down and dirty.
Funny that when the owners of NY’s Stuyvesent Town recently defaulted on their 5+ BILLION loan, no one mentioned how immoral they were.
Morality never was an issue at all for the big corporations and bankers involved in the deal.
It was just good business.
Now that the Supreme Court has declared that corporations are legally no different than people, let’s start letting actual people play by the same legal/business rules as coporations.
@Tim
I feel for you buddy, but why would you leave until the Sheriff throws you out? DO NOT LEAVE, you’ll have more bargining power this way. Good Luck.
both my myself and hubby are in a sinking ship. I had to leave my job back in 2005 after 23 years leaving under good terms to take care of my sick mom who had alzteimers. All the money from the sale of her home in new york went to medical bills and nursing home cost. We brought her to florida in 2007 to live with us, only to find out she was to ill we had to place her in a assiting living in florida she pased away in late 2009.I lost everything paying for her care. My husband had trible by pass in 2008, after he was getting ready to go back to work his job of 22 years closed down to the bad economy. For over a year he has been looking for work. No one wants to work with us because we have no staple job. The credit cards (two) went high to pay for medical cost and we have a mortage. My hubby receives unemployment/very small pension/ and is using his ira to help out. We have never lived above our means. I feel like running away…..We dont want to lose everything we worked so hard to have .