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

By
Real Estate Agent with Berkshire Hathaway HomeServices 01238708

Is opting to default on your mortgage wrong? The opinion  and belief of this writers is YES, unlike Professor Brent T.White's advice from the University of Arizona.

 I just read a very disturbing article in the Los Angeles Times, syndicated from the Washington Post about a Law School Professor who teaches at the University of Arizona and his disgraceful advice.

 This professor's advice  to the average person, who is under water in their mortgage is to' default on their mortgage'; under the guise of writing a "new academic paper" he suggests, that you should not feel guilty about defaulting on your mortgage. He does not think it is morally wrong to do that, and goes further that the estimated 15 million US homeowners, who are underwater on their mortgages, should stiff their lenders.

 I am outraged at the lack of ethics, principles and morals this Law school professor has. It is bad enough that he lacks all that, what is disturbing me more, that he has a platform: The University of Arizona, which is allowing him to distribute his incendiary message to the masses under the guise of a scholarly paper.

 In addition to the lack of principals, he is giving bad advice to people that have limited understanding what defaulting on a mortgage will translate to their economic report card and, that a Bankruptcy  will stay with them for at least ten years. There are serious consequences to borrowers who walk away from their mortgage obligations from a contractual as well as economic aspect. 

 I suggest to anyone who has read the article I am referencing by Professor Brent T. White or just my summary or the Newspaper's version, should be outraged and complain vehemently to the University of Arizona about the poor advice their Professor is giving

If you are a consumer  who is considering buying  or selling  a home, investment real estate, vacation homes, or beach properties in Southern California, Los Angeles, Century City, Westwood, West Hollywood, Beverly Hills, Culver City, Marina Del Rey, Venice or Malibu. Feel Free to give me a call at 310.486.1002 (USA) or email me at EndreBarath@TheMLS.Com  or visit one of my websites at http://www.endrebarath.com  Your Pet Friendly Realtor. I contribute a portion of My commission to Local Animal Rescue Organizations.hat you think:

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Rainmaker
175,133
Randy Landis
Retired in Samar - Tupelo, MS
Overseas Retirement Consultant

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).

 

Nov 29, 2009 10:51 AM #1
Rainmaker
230,370
Haris Dedic
RE/MAX Villager 847-878-2588 - Glenview, IL
Glenview Real Estate - Chicago North Shore

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

Nov 29, 2009 12:38 PM #2
Rainmaker
8,566
Eric Johnson
Property Source Realty, Phoenix AZ - Goodyear, AZ

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!

Nov 29, 2009 01:32 PM #3
Ambassador
884,960
Janna Scharf
Keller Williams Realty Coeur d'Alene - Coeur d'Alene, ID
Coeur d'Alene Idaho Real Estate Expert

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

Nov 29, 2009 04:30 PM #4
Ambassador
1,154,790
Craig Rutman
Helping people in transition - Cary, NC
Raleigh, Cary, Apex area Realtor

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.

Nov 30, 2009 01:06 AM #5
Rainmaker
545,096
Toula Rosebrock
Diane Turton, Realtors, Forked River, NJ - Lacey Township, NJ
Broker/Sales Associate, Realtor, Lacey Township,

ToulaRosebrock,com

Hi Endre:

I agree...it's despicable!

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

Nov 30, 2009 01:54 AM #6
Rainer
46,064
Jessica Steele
Welcome Home Realty - Surprise, AZ

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!

Nov 30, 2009 02:23 PM #7
Rainmaker
3,204,843
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Randy, I agree with you the University of Arizona should at the minimum admonish this Professor. I am almost wondering about his ethics, morals as well as lack of consideration for the poor people that are in financial dire straights.

Dec 01, 2009 08:08 AM #8
Rainmaker
3,204,843
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Haris, you are so right it is clearly not about his schooling, it goes much deeper to his poor ethics and lack of moral fiber in my humble opinion.

Dec 01, 2009 08:09 AM #9
Rainmaker
3,204,843
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Janna, you are so right Tenured Professors are like many Judges that are there for life and it takes so much effort to remove them from their position of authority.

Dec 01, 2009 08:11 AM #10
Rainmaker
3,204,843
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Craig, you pegged it right it should be the last option. Not only does it hurt the individual, this action now hurts every taxpayer as well, since it is our tax money that is holding up the banks....

Dec 01, 2009 08:13 AM #11
Rainmaker
3,204,843
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Toula, if accountants and attorneys are giving advise like this we are in more serious trouble then I thought. I was outraged at this one Professor and to hear that it is rampant WOW. I am speachless.

Dec 01, 2009 08:15 AM #12
Rainmaker
3,204,843
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Erik, well put, he lacks the knowledge and spreading bad information to people that need it most. It should be criminal. I see you read the article too. How frustrating.

Dec 01, 2009 08:19 AM #13
Rainmaker
3,204,843
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Jessica, absolutely if they are to preach on their soap box it would be nice if they actually understood the ramifications of their actions.

Dec 01, 2009 08:20 AM #14
Rainmaker
140,298
David Krushinsky
Dk Home Loans, LLC - Peoria, AZ
AZ MB-0949619 MLO NMLS #202115

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??   

Dec 03, 2009 03:44 AM #15
Rainmaker
3,204,843
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

David, Thank you for your comment. I am sure you understand that two wrongs do not make a right. Just because there are politicians, bankers and and individuals who are unethical that does not justify that everyone can NOW  live without a moral compass.As a mortgage lender you should be concerned that a University Professor is recommending "all 15 million people that are under water on their mortgage" to "stiff their lender" It should be the last option and not the ONLY option. Or do you recommend we go back a few thousand years when there was the law of the jungle?

Dec 03, 2009 10:57 AM #16
Anonymous
Nik Peterson

Of course, someone should walk away when it makes financial sense to do so. To impose moral judgement on a individual during a six year stretch in which mortgage lenders and appraisers were negaged in substantial fraud and in which banks have using stimuls money to hand out bonuses rather than lend.

You can honestly push moral guilt onto to those underwater?

There is no way in hell any propsective buyer should ever consider any one of you to represent me in a transaction as you argue not for the best option available to your client but the best one conditional upon the strange constraints of morality. Only Dave K above made any financial sense.

And note, I have been paying on four fied rate mortgages throughout this crisis and ahve made out OK. But for my fellow homeowner? Sorry, we don;t hunt naivete in our neck of the woods. They shold always do what is in their best interest.

 

Nik

Jan 08, 2010 02:29 AM #17
Rainmaker
3,204,843
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Nik, Thank you for your comment, a society needs a moral compass. As I responded to David two wrongs do not equal a right. Foremost what I said was walking away should be the Last Option NOT the ONLY option. Hope this clears it up.

Jan 08, 2010 06:44 AM #18
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Endre Barath, Jr.

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