Is Opting to Default on Your Mortgage Wrong?Outrageously Bad Economic Advice

I totally agree that just walking away from a mortgage obligation and stiffing your lender is wrong. Only in dire circumstances should you default on a note and should only be under extenuating circumstances such a loss of income, disability, ect., and only as a last recourse.  By law, most banks that have received any form of bailout help from the government must offer 'options' such as refinancing or loan modifications to help the homeowner. In some cases, if the lender cannot accomodate these extenuating circumstances, then a possible Deed-in-Lieu could be considered.

The University of Arizona should admonish this professor for providing advice outside of his area of profesional expertise. He is obvioulsly a lawyer, not a CFP (Certified Financial Planner).

Walking away should be the last option. I would think that a person with so much schooling would know better.   

The professor is saying that two moral wrongs equal a legal right (banks not doing loan mods, etc vs borrowers not paying their mortgage). I can find no legal or common sense standing to this position.

Many recourse states lenders will be able to pursue borrowers for the loss plus expenses per the state's law. I doubt he is knowledgable of foreclosure consequences in all 50 states. Thus a cavalier response like "many lenders won't bother pursuing" is shocking to say the least!

This is pretty typical of the outrageous teachings of tenured university professors.  And it's bad advice.

I'm in consensus with you and everyone who's commented. Walking away from your mortgage is just bad advice and should only be considered once ALL other options have been exhausted.

Hi Endre:

I agree...it's despicable!

Several people have told me that their accountant or attorney recommended to default.

I have to agree with all of the above. There are several options out there for people instead of opting to default on their mortgage and "stiff their lender" as was stated above. Becoming educated on all of these options should be the name of the game for all professionals involved in all aspects of real estate right now.

And, before you go preaching, it is probably wise to educate yourself on your subject matter beforehand.

Thanks for the great post!

Endre - So what would your advice be to a borrower owes $220,000 on a home that's worth $70,000.  Should they continue to pay their mortgage?  What if they were advised by legal counsel there is no recourse if they walk away versus do a short sale, where there may be recourse?  Do you think a Realtor telling people to do a short sale is acceptable if they are uneducated about their personal circumstances like the Professor? 

Your title says "Bad Economic Advice".  One could argue that bad economic advice would be to continue paying on an asset that could take 20 years to see the original purchase value versus fixing your credit after foreclosure, which could only take 3-5 years. 

Lenders have loss-mitigation departments, which are staffed and have legal counsel.  Why shouldn't a borrower mitigate their own losses too?  Sometimes it's really just a business decision that one faces.  Many business contracts have been broken by the politicians, the people who run these banks and the banks themselves.  Is it immorral?  Is it ethical?  Are we outraged to hear about it??