When IS it time to walk away from your mortgage?

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http://www.huffingtonpost.com/dylan-ratigan/who-pays_b_624149.html

Ratigan makes a good point about looking at it as a business transaction. Those of us long term unemployed are finding it not only hard to make the mortgage but tempting to move where the jobs are better. Nevermin that if this were a dealing stock you might sell. Does it then make sense to hold and keep investing?

Not talking about the morality of it and I'm not considering it myself. Just thought it was an interesting question to ask.

Typically, the contract you signed is that you'll make payments of X dollars every month. In exchange, you get to keep the house. If you decide not to pay anymore, you can surrender the keys. It's in black and white in the contract.

Looking at this as anything other than a pure business transaction is very foolish, because I guarantee you that the bank and the original source of the loan would f*ck you over sideways in a heartbeat if the situation were reversed. They'd LOVE to have you stay in the house and make them a profit, while not getting any profit yourself.

The lender assumed most of the risk because they assumed there wasn't any, but they're the experts. You aren't. Unless you were in the minority that was aware that there was a housing bubble, you're not taking advantage of anyone to exercise your rights under the contract.

If you were one of the few that knew house prices were going to crash, and took out a loan anyway, gambling that you could get in and out before the bubble popped, then there's an argument that you were being fraudulent when you took the money. But if you weren't, well... they were the experts, and they were supposed to know better.

Yeah, we had a post on this some months back. You need to add into the potential fallout that the mortgage will trash your credit rating for a few years in addition to what Malor laid out, but a cash-only person living in an apartment not decided on his credit rating and living in a state where car insurance isn't dictated by credit rating doesn't really care about said credit rating, anyway.

It is very easy to make good business decisions if you disregard morality.

Malor wrote:
Looking at this as anything other than a pure business transaction is very foolish, because I guarantee you that the bank and the original source of the loan would f*ck you over sideways in a heartbeat if the situation were reversed. They'd LOVE to have you stay in the house and make them a profit, while not getting any profit yourself.

I tried not to base my ethics on the ethics of banks.

LobsterMobster wrote:
It is very easy to make good business decisions if you disregard morality.

Exactly what I was going to post, I am not sure how we can have this discussion without morals coming into it. Otherwise it is a simple financial calculation, right?

LeapingGnome wrote:
LobsterMobster wrote:
It is very easy to make good business decisions if you disregard morality.

Exactly what I was going to post, I am not sure how we can have this discussion without morals coming into it. Otherwise it is a simple financial calculation, right?

Why would it be more than a simple financial calculation? What's good for the goose is good for the gander and all that.

I have a friend who's trying get out from underneath her underwater home and some other debt but can't declare bankruptcy until she get's squared away on her mortgage. She tried working with the company that owned her mortgage to get an adjustment for nearly a year. After months of sending and resending her paperwork to various people within the company that always seemed to know nothing about her situation she was finally able to make some progress. The mortgage company sent her some new paperwork that would reduce her interest rate significantly and, with a hefty payment, get her current on her mortgage so she could proceed with bankruptcy proceedings. Two days after she completed the paperwork and sent it back she was informed that her mortgage had been sold to another company and she has to start the process all over again.

Banks and owners of the mortgages have a huge incentive to keep people in limbo and paying on underwater mortgages. After all, as long as people pay the financial institutions don't have to revalue the asset, which they have leveraged to hell and back in other investments. Heck, they'll gladly have people stay in a home without paying the mortgage for months, just as long as they don't have to admit its real value.

Thinking of it as an ethical issue, when the other side doesn't, is wishful thinking taken to an extreme.

If you want to chain yourself to the bank and work on their behalf, that's an arrangement that the bank will be very happy about.

Just don't even vaguely think that they'd return the favor.

America has proven time and again that ethics have no place in business. The myth that it does is a huge factor in how more powerful singular entities control large amounts of individually weaker (but cumulatively stronger) entities.

You shoud be careful depending on your state's laws. In some states the bank is an owner of the property, others they have a lien. The foreclosure and eviction process varies wildly. But in all instances, if you default at some point the bank can have an officer of the court remove you and all of your property to a dumpster. I see far too many people default and ignore to not warn of the risk. Having an eviction judgment against you can kill any chance you have to even rent.

OG_Slinger wrote:
Why would it be more than a simple financial calculation? What's good for the goose is good for the gander and all that.

Malor wrote:
Thinking of it as an ethical issue, when the other side doesn't, is wishful thinking taken to an extreme.

There is a double standard. What's good for the goose is not good for the gander, and a principle you can suspend - for any reason - is not a principle.

Our capitalist culture is based on myths of subversion and repercussion. We are told to be moral, but morality makes us less competitive. We are told that the path to the top is hard word, diligence and a positive attitude while those already at the top profit from our hard work, benefit from our diligence and don't want to hear us complain.

It is the same as the parent telling the child that lying is bad. Morality aside, a truthful child makes a parent's job easier. You could say that the whole of morality is to make life easier for those who could be wronged, or for those who get to define morality.

Thing is, it works. Most of us don't need to worry about being murdered. We benefit from the trust others place in us, as a reward for honesty. Whether you want to call morality an artificial method of control or a true objective "good," we do feel that it is good to be moral and we do take comfort in being moral, even when we suffer for it. And, as with most social constructs, the "why" is not really all that important. It is a fact that we consider some things to be moral and some things immoral. By virtue of that alone, our society has made value judgments. If you do something immoral you will be perceived as immoral, even if you disagree with that assessment. That's why sociopaths tend to get themselves into trouble every once in a while.

If you walk away from a mortgage, are you doing evil because it is too hard to do good, or are you subverting an unjust system created to protect the banks? That is a personal question with personal ramifications. Its answer does not change the reality of your situation. All it does is determine whether you think it's fair or unfair when you are punished for your trespass.

Is it a personal question? Once again, this isn't specific and this isn't me asking for myself. I just thought this article was interesting in proposing that people might be making this personal when it's just business in the end.

Malor wrote:
Thinking of it as an ethical issue, when the other side doesn't, is wishful thinking taken to an extreme.

If you want to chain yourself to the bank and work on their behalf, that's an arrangement that the bank will be very happy about.

Just don't even vaguely think that they'd return the favor.


I completely agree with Malor. In what way is it unethical to walk away from a mortgage? The only way I could see it being unethical is if you were not properly maintaining it or intentionally devalued it and then walked away. You and the bank agreed on a value, you paid your end when you lived there and then returned it to them when you couldn't afford it. Not only that sometimes there is simply nothing else to do. My parents taxes went up 400 dollars a month while the value of their house has gone down. Since the taxes and the value of the house are essentially outside of their control if they were in a different place it would be far and away the best idea to walk away from the house.

On the other side of this when my father was out of work for a year he went to the bank, while my family was making full mortgage payments, and tried to work out a new payment plan they would do nothing for us. It make no sense to play a game where you have no control of the rules and an unsympathetic partner.

If you do, don't expect to be able to buy another house for a very long time unless you can pay in cash. The latter is something I'm sure Ratigan can affford to do. And frankly, a house is an investment and if a person is underwater, it has been my experience that that person didn't do their due diligence and walked into what theeir mind thought was a sure thing when it wasn't.

If the only one you hurt from walking away from a mortgage was the bank, I wouldn't have much issue with it. However, by defaulting you kinda screw your neighbors and your community too. Their property values go down, the neighborhood looks less appealing with a yard gone to sh*t...

Is it unethical to place a burden on a community this way? Probably not. But I think it's important to keep in mind that the bankers and one's credit score are not the only ones hurt by the situation.

That's because when you have the money, you make the rules. The fact is, in borrowing money for a home (as nearly everybody has to do), you are submitting to the whims of the loan maker. That's why it may be morally acceptable to walk away, and even mathematically the right thing to do, but it most likely won't benefit you in the long run. That's because you're going to need another loan at some point, and banks will only loan to those they stand to profit from.

NathanialG wrote:
On the other side of this when my father was out of work for a year he went to the bank, while my family was making full mortgage payments, and tried to work out a new payment plan they would do nothing for us.

Well it was 'just business' after all. What, did you expect them to have an ethical obligation to try to help your dad? It's just business!

How about if the bank had said we'll cover your mortgage, just go kill a puppy every day. Hey, it's just business, a simple financial calculation!

Bullion Cube wrote:
If the only one you hurt from walking away from a mortgage was the bank, I wouldn't have much issue with it. However, by defaulting you kinda screw your neighbors and your community too. Their property values go down, the neighborhood looks less appealing with a yard gone to sh*t...

Is it unethical to place a burden on a community this way? Probably not. But I think it's important to keep in mind that the bankers and one's credit score are not the only ones hurt by the situation.

Given the over-inflated price of housing, yes, it is ethical. That's what free markets are all about. The other members of the community had the opportunity to make tens of thousands of dollars above what their houses should have been worth when the market peaked. That they didn't do so is not the responsibility of the individual who now finds themselves with an underwater mortgage.

I always consider a house an investment, but the problem with the market the past 10 years is that people thought of it as a business. It's not a business (Flip that House has to be one of the most evil TV shows in the history of television). However, since everybody has treated it as a business the past 10 years and raised housing far beyond what most people can afford, it now has to be corrected. Once it is corrected, then we can (hopefully) go back to viewing our houses not as an ATM machine, a money making scheme or as a business, but as the place where we live, raise our children and grow old.

Remember to that for those who were intelligent enough to get a fixed rate mortgage, there is minimal payment escalation. Those people also probably don't care too much if their house is worth less than they owe, because they're still making approximately the same payments they agreed to (escrow weirdness notwithstanding -- I love how my house value can decrease but my property taxes somehow increase).

But then, people with fixed rate mortgages aren't really a part of the problem.

The housing industry isn't a free market. The government had, and continues to have, a huge role in the housing market. Maybe more involvement than in any other industry. It would be nice if that would stop, but it ain't going to happen any more than corn subsidies are going to go away.

Why does a mortgage have this ethical component? Do people feel the same way about other contracts? The divorce rate would say "no." There are a ton of contracts we feel it is perfectly ok to walk away from. What makes home ownership something different?

Funkenpants wrote:
The housing industry isn't a free market. The government had, and continues to have, a huge role in the housing market. Maybe more involvement than in any other industry. It would be nice if that would stop, but it ain't going to happen any more than corn subsidies are going to go away.

Ok, so how does that relate to the morality of leaving a mortgage?

farley3k wrote:
Ok, so how does that relate to the morality of leaving a mortgage?

It's not longer a free market transaction. The government now owns/insures a huge number of mortgages in this country. So when you stick it to The Man, you stick it to everyone paying taxes. I don't know if that makes it immoral, but it does complicate the idea that by bailing, the only people you are disturbing are the bankers and investors who gave you the loan.

The transaction is still subject to free market forces. And affordable housing is, ultimately, going to be better for the next generation. Even though our generation will have to foot the bill on it, we were the ones who mucked things up.

Yeah, we had a post on this some months back. You need to add into the potential fallout that the mortgage will trash your credit rating for a few years in addition to what Malor laid out, but a cash-only person living in an apartment not decided on his credit rating and living in a state where car insurance isn't dictated by credit rating doesn't really care about said credit rating, anyway.
Also keep in mind that except in a few states where the practice is illegal (WA, Hawaii and other Leftist People's Republics) credit checks are being used more and more as a precondition of employment.

Bullion Cube wrote:
If the only one you hurt from walking away from a mortgage was the bank, I wouldn't have much issue with it. However, by defaulting you kinda screw your neighbors and your community too. Their property values go down, the neighborhood looks less appealing with a yard gone to sh*t...

Is it unethical to place a burden on a community this way? Probably not. But I think it's important to keep in mind that the bankers and one's credit score are not the only ones hurt by the situation.

If you're at the point where you're considering walking away from your mortgage it's a pretty safe bet that the property values of everyone in your neighborhood are already in the tank. You walking away isn't going to change the fact that no one will pay what you, your neighbors, or the banks think your houses are worth.

LobsterMobster wrote:
There is a double standard. What's good for the goose is not good for the gander, and a principle you can suspend - for any reason - is not a principle.

Then where is all the moral rage about the mortgage brokers that purposely misrepresented (aka, lied) people's incomes to get them into houses they couldn't afford or the bankers who still handed out money for no documentation loans, completely bypassing their fiduciary responsibility? They are people who did something just as naughty, actually much, much naughtier because they did it thousands of times.

We're at the point where working for a corporation allows people to completely suspend their morality and ethics and duck all responsibility for their actions. That's really not good for a society.

OG_Slinger wrote:
Then where is all the moral rage about the mortgage brokers that purposely misrepresented (aka, lied) people's incomes to get them into houses they couldn't afford or the bankers who still handed out money for no documentation loans, completely bypassing their fiduciary responsibility? They are people who did something just as naughty, actually much, much naughtier because they did it thousands of times.

There was plenty of that. It went away because the banks get to make the rules.

LeapingGnome wrote:
NathanialG wrote:
On the other side of this when my father was out of work for a year he went to the bank, while my family was making full mortgage payments, and tried to work out a new payment plan they would do nothing for us.

Well it was 'just business' after all. What, did you expect them to have an ethical obligation to try to help your dad? It's just business!

How about if the bank had said we'll cover your mortgage, just go kill a puppy every day. Hey, it's just business, a simple financial calculation!


I while working in a kill shelter for dogs would have provided a public service I don't know if that would have persuaded the bank to do anything. Good thought though.

The answer really is:

Whenever you want.

But you have to be willing to take the fallout.

Oh, probably around next March for us.

We got screwed by the sellers of our house. They put up a sunroom on a porch that wasn't attached to the house (sunroom's attached, porch isn't), and it's slowly walking away from the house as the soil expands and contracts. They signed a concrete liability waiver with the sunroom company, indicating they knew there could be a problem, but never mentioned any of this in the seller's disclosure. Neither us, our realtor, our broker, insurance agent, nor two inspectors noticed anything wrong with it. We did our due diligence, and still got bitten on the ass.

It also turns out, neither they nor the sunroom company got the thing permitted or inspected, which is why nobody involved found anything wrong with permits or inspections. There simply weren't any to find, because it was built without the city's knowledge. The city now wants us to tear it down.

Sued the sellers under the DTPA, spent around $15K on three attorneys who just took our money and didn't do sh*t except bitch at my wife for asking too many repeat questions that would've been unnecessary if they'd just answered them, and then had to drop it because we couldn't afford the $2K/month and were on the verge of divorce. Now we're getting ready to sue our former attorneys to get our money back.

We're in an odd position now. Neither of us want to stay in the house. Aside from the sunroom, it's a very nice house, but tearing the sunroom down or disclosing the problems when we sell is going to cost us ~$25K. Our area has been relatively unaffected by the downturn, and our house's appraisal is around $166K; we bought it for $173K and owe $164K on it, so we've got around $2K in equity. Neither of us want to be there anymore; it doesn't feel like home, and is full of bad memories of how we got f*cked. We're not technically underwater, but we will be once we tear down the sunroom or disclose it, not to mention it needs a new roof and carpet, and could probably stand a new A/C.

My first thought is a short sale, but apparently I make way too much money for that to be an option. Other options are deed-in-lieu or strategic default, but the problem with all three of these is that I've been told that if you've had one of them in the past 4 years, it's an automatic rejection when applying for an FHA mortgage.

We don't want to rent (and can't with 5 cats). I'm saving $1K a month, and along with our current savings and a $15K retention bonus I'm getting in February, we should have a healthy down payment for a new house. I had thought of buying a new house with that, then defaulting on this one or handing the keys to the bank, but I've been told they won't even consider a deed-in-lieu unless you've already missed payments. I'm pretty sure I'd be nailed for mortgage fraud if I just stopped paying, and I don't want to screw my excellent credit score until we're safely in a new house.

What the hell should we do? If we can't sell the house for what we owe, then what? Will BoA let the sale go through and let me pay off the difference?

Actually, morals and ethical behavior are very important to business. They are ignored at your peril. What do you do when you found out a salesperson cheated you, or the guy at the garage didn't tell you your car needed a fix because it was almost out of warranty? Businesses which ignore these will always be less efficient than those that do, even though they may be profitable.

There are ways to get onerous mortgages reduced. That's a win-win for the both the business and the consumer. Don't get me wrong - if the mortgage lender won't budge, then you don't need to worry about the ethics of the situation either. But if you like your house and neighborhood, you might have some luck simply going through the numbers with them. They will probably make more money from you over time at a lower rate than by trying to maintain and sell the property themselves.

But the idea that all businesses are immoral and unethical and that's the nature of capitalistic success is based ultimately on outdated understandings of capitalism.

What the hell should we do? If we can't sell the house for what we owe, then what? Will BoA let the sale go through and let me pay off the difference?
Judging by the house that is STILL in foreclosure next door, BofA won't even notice you haven't been paying for a year and will do absolutely nothing about it for years after that.

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