Is a Strategic Short Sale an Ethical Question?

Elizabeth - You ask a question that I have wrestled with for a couple years now.  There was a time in this great land, when the motto, "Greed is good" wasn't uttered.  Folks felt an obligation to pay their debts.  However, we are treading in strange waters presently.  We had banks and wall street dabbling in bazaar mortgage products and making risky loans with monthly payments ballooning from interest rates escalation within months of origination.  

Banks packaged these mortgages up, and swapped them as toxic waste.  It was easy in the beginning to blame those who should have known they couldn't afford the house payments, but that's ancient history now.  Currently, we have folks out there, that through no fault of their own have watched the collapsed house of cards halve their home value.  Innocent homeowners, who did everything right, are finding themselves in an arena of lost jobs, and in a financial condition they could have never dreamed of a few years ago. 

I think it likely a "strategic short-sale" has some limitation on it because of the financial declarations homeowners endure to supposedly "qualify" for one.  Whether a homeowner decides to do one or not, should be their personal decision based on their own financial situation, and their own moral fortitude for enduring one.  Obviously banks weren't too concerned about the morality of their workings that led up to the meltdown.

One caveat however.  I don't think Realtors should be pushing or advising strategic short-sales.  Representation should only occur once a homeowner has come to that decision on their own.

Oh yes, the scummy types.  The worse case I knew about was with a 1960s house with original owners.  The folks had became older and needed family to move in and help care for them.  They had a granddaughter with husband and kids.  They moved in.  Although the house had been totally paid off, the granddaughter managed to get on title with the grandparents.  In 2005 they originated a new mortgage to pay for home improvements and "toys".  They totally remodeled the kitchen and baths, put in a koi pond and an elaborate outdoor living area.  Then came the new 27 foot boat, new cars.  One for the grand daughter, and one for her husband.  There were trips to Europe for granddaughter, husband and kids.  Grandparents were left behind.  You probably know the rest of the story - granddaughter's husband lost his job, interest rates on the mortgage went up along with payments.

They began stripping the property of its materials.  They took out the new kitchen cabinets and they actually sold the rocks and stones from the backyard oasis.  They even stripped the copper wiring and light fixtures.  

They didn't do a strategic anything, they just stripped and bailed.  When the house came on the market as a foreclosure, it's value was about half what was owed on it.   It sold to a contractor/flipper for $110,000.  He did a great job of rehabbing the place and bringing it back to its former glory.  It sold again, a few months later for $160,000.  That was still only about half what the home would have been valued in 2005.