Is It Ever Okay - To Just Walk Away . . . When You Can Afford Not To?

I agree with you Margaret.  It is unacceptable to walk away because your property is not worth what you want it to be worth.  A better option is to sell your house and move on the right way, not be becoming a part of foreclosure polls.  Great post!

This is certainly a hot button topic in 2010. Certainly, the bottom line is that foreclosures impact the banks which ultimately impacts our national economy. So a strategic default (or any default) impacts us all.

If you had a 500 thousand dollar mortgage and the value of your house suddenly crashed to 325 thousand what would you do ? The three or four years it'll take to rebuild the credit isn't enough time to reclaim the lost equity unless you win the lottery.

I guess it would depend on what a person thinks their signature is worth. When people buy homes they are fully aware that the homes could lose value. I can understand when people simply can't pay, and lose their homes despite their best efforts, but when people default "strategically", then it makes a mockery of those people who had no choice.

I suppose if someone values money more than they value their word and committment, then a strategic default may just be the option for them.

So now you know the reason for:

 --The Obama administration's recent announcements about loan mod policy

 --the BOFA deciding to start allowing principal reductions to people who are underwater in a big way

 --actions by other lenders to do the same.

They all feel they have no choice.

Consumers are finally doing what banks and other businesses do regularly when business goes awful.

The term strategic defaults has been invented by the banking industry to try to put a negative spin on this type of default.  But when the banks do it on their own real property ....they use entirely different terminology.  Because, afterall that's "just business".

Individuals doing it...why it's a moral failing.

Baloney!

Show me a REALTOR who was saying to his/her buyer clients back in 2006:  

"Now I want you to be sure to keep in mind as you buy this house that it's entirely possible it will go down in value."                               (By two or three times your initial equity.)

And I'll show you an agent with a very short memory.

People who stay in their homes and pay off that big debt will, in many parts of the country, likely not see that value come back for 10 or 20 years.

Where's the moral high ground in that?  Are REALTORS telling clients the truth about that?

We are going through historic times. We are in a mortgage market which we have never experienced. Strategic default is a new concept. To say that it is wrong is too simplistic an answer. Why is it o.k. for a huge developer to walk away from their loan obligation because the property they bought to redevelop has plunged in value, but an individual who have seen the same value plunge on their home is wrong in walking away? In the developer's case, it is a good business decision. In the individual homeowner's case, is it not a business decision, also?

But it is more than a business decision. Our parents and grandparents would say that there is a moral obligation to repay a mortgage loan as well as a legal obligation. They never found themselves in the situation that millions of home owners are in now.

I am not trying to justify strategic foreclosure. There are many shades of gray in regard to the circumstances of those who walk away.

Well written post as a follow up to the Chicago, IL tribune article.  I couldn't agree more that strategic defaults are not ethical and should be considered cheating and stealing.  I'm sure in many cases they will be held accountable.

In these situations:

"I'm not talking about truly distressed, underwater, under- or non- employed people who  have no other option but foreclosure." 

. . . I would agree that many are forced into situations that they otherwise would have avoided simply due to the facts that they simply can not make the payments.  The mortgage modifications, overall, are not working.  People that have tried to modify have in many cases made 7 - 12 payments on their '3 month trial plan' and have still not received a modification from their lender.

It seems that many people that truly need the help don't get it.  The ones that don't truly need the help just 'strategically' walk away and throw ethics to the wind.  As you say, they have 'cheated and stolen'.

I think we need to stop making moral judgements against a decision that we have no idea the circumstances that led to the "strategic" default.  Should a 70 year old woman who had moved into her dream retirement home with her husband, who has now passed away, spend what little life savings she has to cover the short so she can move closer to her family?  Or should she stay put so that someone won't point a finger at her and suggest that she has "cheated and stolen."  Walking away has long term implications and I would seriously doubt that anyone is doing it just for fun. 

I agree with you 100 percent. I don't understand these people and their thinking. I had a couple approach me who purchased their home two years ago. They wanted to purchase another cheaper home before they ruined their credit by walking away from the one they had.  I couldn't believe what I was hearing.  They weren't distressed or underwater they just decided that to get out from under the current one, this was the way to do it.  They didn't think the bank would come after them because so many were doing it. Think again is what I told them, they were making a huge mistake.  I wondered what they were smoking. After talking with them about it for three weeks they decided not to do it.  I do believe if you are not truly distressed and just walk away you are stealing.

If you have lost your job or had a death of a spouse and are underwater, you  have no other option. My heart goes out to you. Do what you need to do to get your life back.

It's hard to expect borrowers to hold to the standards you ascribe to in your post when banks don't ascribe to or hold to ANY moral standard.  Strategic defaults are going to force the lending industry, ie banks, to come up with a plan that is real.  I have several friends who started the loan mod process over one year ago and are still waiting.  What kind of crap is that?  And you expect homeowners to take the high moral ground?  I couldn't disagree with your opinion more!

Margaret, this is certainly a true point of debate!  I believe if you have the ability to pay & you DON'T NEED to move or sell, then stick it out!

What if this started to happen with automobiles or any other consumer debt?  "That meal I put on my credit card wasn't worth $12.95! I could have made that at home for $3.50! There's no way I'm paying that credit card bill!"

Credit card companies were jacking up interest rates by 2 or threefold with one late payment not too long ago.  Advanta, one of my credit card companies did this to me and I paid them off and closed my account, but not until I paid a few months of 33% interest.  I received a refund for part of the interest when several card holders filed complaints and a class action law suit.  Now, because of that, B of A for one has sent out notices telling the new rules and regulations they must follow in regards to credit cards and one is, they can not raise your interest rate with one late payment.  Hurray, one small victory for the little guy. 

Strategic defaults and foreclosures in general are going to FORCE the banks to get their heads out of their a$$ and realize they are screwing their "customers" (who by the way pay an exhorbitant amount to borrow that money, both up front in fees and in the interest the banks so wonderfully load up front), and their customers aren't taking it anymore. 

I believe that if banks do what is morally and ethically right by their customers, they will see the tide turn, but what I hear over and over is tired and upset people frustrated with the lack of response, assistance, help, caring, or even recognition from their bank/lender.  Banks are reaping what they've sown!

Margaret,

More homeowners are now thinking like business owners are. If things don't look right financially, that is they are underwater, they make a long-term assessment and are increasingly pulling a strategic default. That's best for them in this situation, hard to argue against it.

Margaret ~ I understand both sides of the story.  I don't like the morals of the the strategic defaults though.  Who would have ever dreamed that our country would be in the "mess" it's in?