Is Walking Away From A Mortgage Irresponsible
A very interesting phenomena has been taking place. A number of public figures are being quoted in the press with statements related to the responsibilities of homeowners that are underwater on their properties (meaning owing more than the property is worth) to take the moral high ground in their decision making process.
A few examples:
John Courson is the president and C.E.O. of the Mortgage Bankers Association. He was quoted by The Wall Street Journal as saying that homeowners that are considering defaulting on their mortgages really need to consider the message that they are sending to "their family and their kids and their friends" by undertaking such as action.
Former Treasury Secretary Henry M. Paulson Jr. was quoted stating that "any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator - and one who is not honoring his obligation."
President Obama has been urging homeowners to follow the "responsible" course.
Meanwhile, we see corporations walk away from financial responsibilities all the time. Are they ever told to take the moral high ground in their decisions? No. Typically what you'll hear in response is that its "just business".
Homeowners on the other hand, are held to a higher accountability. Walking away from a mortgage? What is that teaching our children? Leaving neighbors to contend with a vacant home... our vacant home on their block, what with all the weeds and leaves and deferred maintenance? And what about the lessons that we received in our youth... to always pay our debts?
Why is it okay for corporations to act one way but the general public can't? Why is it "just business" for corporations but not for homeowners?
Realize that a mortgage in and of itself is a business agreement to relinquish the home if the payments aren't made. Sure, we do sign a a promissory note, which is a promise to pay. But that note comes with a mortgage. And the mortgage explicitly states that the penalty for nonpayment is to surrender the property. Should it not be considered a business decision? To walk away from a property that has dramatically declined in value?
And what about bankruptcy? It allows a debtor to walk away. So why can't a homeowner?
The housing boom and bust - which for all intents and purposes was created by more than just market forces (in the form of Federal Reserve monetary policy), left over 10 million homeowners with properties that are of less value than what they owe on them. So it stands to reason that a rising number of homeowners are making the conscious decision to walk away. And while there may be plenty of talk about the shame in doing so, just consider Morgan Stanley. The investment bank recently decided to stop making payments on five San Francisco office buildings. Should there be shame in doing so? Or is it simply "just business"?
If you happen to be underwater to such a degree that it could take a decade to right itself, don't be swayed by moral obligation. Do what is in the best interest of your family. Make sound financial decisions. If it makes more sense to walk from your property, speak to an attorney. You want to negotiate that you will give the property back to them in clean marketable condition provided that you are released from any further obligation. You may just get your wish.
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