Website Says It’s OK to Walk Away – No It Isn’t

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I recently got an email press release from a website that specializes in helping homeowners with something known as a strategic default: walking away from a mortgage, even when you have the ability to pay.

Here’s an excerpt from that email:

They wouldn’t work with me at all, so they basically made the decision to take the property back.” – Jeff Horton (strategic defaulter)

(Website Name) client Jeff Horton opted to strategically default on both his primary and investment properties in Florida late last year. Horton’s property values had each decreased approximately $100K in equity. He has been living mortgage and rent-free for the last 13 months. After months of trying to work out a solution with his lender, rather than drown in Florida’s underwater housing market, he decided a strategic default was his best fiscal option. It was a business decision. Big lenders understand that if they can get away with paying only one person to sign up to 500 foreclosure papers a day they can make more profit. Cue the robo-signing foreclosure auditors.

Bank of America, JP Morgan Chase, and Ally’s greedy lack of oversight throughout the foreclosure process is reminiscent of their irresponsible lending practices in the early 2000’s. How can lenders question a strategic defaulter’s ethics when they themselves are breaking the law and cutting corners to make an extra dollar? Are these the same companies we directly deposit our paychecks with? Horton feels as though his lender gave him no choice.

Since all next week I’ll be presenting a series that agrees with part of what’s in this excerpt – namely that some big banks and the law firms they employed did display a greedy lack of foreclosure oversight – I want to make it clear just how vehemently I disagree with virtually everything else contained in this release.

When you borrow money and put up an asset as collateral, the value of that collateral is irrelevant when it comes to repaying the loan. If it weren’t, any person who takes out a new-car loan should feel justified in defaulting on it, since that collateral drops in value by 15-25 percent the instant it’s driven off the lot. For that matter, anyone whose house has depreciated in value since this crisis began could use that logic to justify a better deal from their lender.

If you owe $500,000 on a house that’s worth $200,000, and see no hope of ever getting back to even, the math could favor walking away. I can understand strategically defaulting – but I can’t understand how people like Jeff Horton, along with the author of this email, can in any way attempt to claim the moral high ground.

They wouldn’t work with me at all, so they basically made the decision to take the property backHorton feels as though his lender gave him no choice.” This is BS of the highest order. The lender isn’t under any legal or moral obligation to alter the terms of your original agreement just because the value of your collateral went south. If that were true, the same logic would justify the lender coming back to Jeff Horton and demanding a higher interest rate and/or a higher mortgage balance if the properties he purchased had radically increased in value.

“How can lenders question a strategic defaulter’s ethics when they themselves are breaking the law and cutting corners to make an extra dollar?” Lenders who broke the law probably can’t question a strategic defaulter’s ethics – but those of us who live up to our obligations and play by the rules can certainly question the ethics of both parties.

While it’s true that some banks have disgraced themselves yet again, pretending that these practices somehow justify defaulting on a loan you’re capable of paying is pathetic. Default if you must – like I said, I don’t blame you for that: it may well be the right thing to do. And if it helps you sleep at night, tell yourself it’s the bank’s fault for not “working with you.” But don’t try to pass that off on me.

I once let a stock broker friend of mine convince me that I should buy $30,000 worth of a company that ultimately went to zero – and it was money I could ill afford to lose. Did I blame him? You bet – at least at first. But after I thought about it, I realized that it was me who was at fault. I was the one who was so greedy that I carelessly acted on his stupid advice, and as a former broker myself, I should have known better. And guess what? Now I do.

You’re the one who bought a house and/or investment property at the top of the market. Time to man up, Jeff Horton.

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Comments & discussion

We welcome your opinions, but let’s keep it civil. Like many businesses, we reserve the right to refuse service to anyone. In our case, that means those who communicate by name-calling, racism, using words designed to hurt others or generally acting like an uninformed bully. Also, comments that include links to email addresses or commercial websites typically aren't posted. This isn't a place to advertise your business.

  • http://www.facebook.com/people/Max-Power/100000627282909 Max Power

    I must disagree. I think it is philosophically defective to place this in a moral context at all, it would be a one-sided morality. Lenders are somehow morally blameless and free to file for bankruptcy reorganization or take whatever other legal advantages they can because they are a legal entity rather than a person, while a borrower lacks integrity for doing the same thing. Where is the morality in that?

    The lenders and borrower made an agreement in the context of all the applicable laws of the relevant jurisdiction, that is part of the deal. Bankruptcy, damages for breach of contract and anti-deficiency statues are part of that body of law. The banks assessed the risks of the secured property. You can’t tell me the bank didn’t take these possibilities into account when deciding on what interest or insurance premiums to charge on the loan.

    If the borrower calculates that it is in his interest to take advantage of these laws, that the net damage to his credit rating and and pocketbook are worth it, it is hokum to try and cast the borrower as immoral or lacking integrity. The means borrower is obligated by moral constraints that no corporate entity is. The borrower is just doing what any lender bank would do were the circumstances reversed. Only the borrower is “morally” obligated here –to give the bank something it could not get from the contract otherwise– and the borrower would be a sucker to do so.

  • http://www.facebook.com/rose.hall1 Rose Hall

    I disagree…if these companies participate in fake financial agreements with the public then the public has every right to walk away from the contract which was obtained illegally

  • Anonymous

    I have to disagree with you big time on this one.

    You would have people paying on an underwater mortgage. Even if the housing crises cost them their job, or caused their hours to be cut. To a point they will have use up all their savings, max out their credit cards to keep making the payments. Then when that has all happened & they are stone broke. They will get foreclosed on anyway.
    A crises that was caused to a great degree, by the same mortage companies & banks, that will foreclose on them & not blink an eye!

    Brilliant. Just brilliant!!!

  • http://pulse.yahoo.com/_MVIAI2MJNDH4B34S5JSHKDB6B4 Steven

    so I guess the rich have no moral obligations toward the poor either? capital is always at someone elses loss, much like in texas hold em.

    this is the letter of the law vs the spirit of the law

    God doesn’t have to redeem your soul either, its not in his contract with you. But He does offer you another opportunity, each day, through grace. Why? ’cause He has compassion for you.

  • Anonymous

    I didn’t buy at the top of the market. I bought 20 years ago when you had to provide documentation of your worth and employment and put a $60,000 downpayment on a $125,000 house. BAC tells me that this same house that was appraised at $235,000 in March of 2008 is now worth $146,000????
    Shove It!

  • http://pulse.yahoo.com/_PB3AUYDUHEIY6H2KBMJQBEI2TQ WalkAwayOk

    Remember this is a business decision and you must treat it as such. Wealthy Americans, politicians, banks and everyone in the real estate industry will tell you that it is your moral obligation to repay your mortgage. At the very same time, these same people are walking away from their mortgages, because it is a good business decision. No one should stay saddled in an underwater house with the hopes that someday the value will be restored. Even the Mortgage Bankers Association has short sold their office building while telling homeowners that they should feel morally obligated to pay. This is just another case of do as I say not as I do. All American’ should consider whether to WalkAwayOk.

  • http://www.facebook.com/people/Mike-Vilche/100001757793060 Mike Vilche

    The banks can kiss my A** and so can the idiot who wrote this artical. I had to move for work and rented out the house that I owe in a different area. The renters missed 2 payments beccause they lost there jobs so I called my bank to see if I could differ a payment and wasn’t aloud. But what did was to break that ONE payment up in 6 and added to my monthly payments. Two days later I get a call from BofA saying that I am in risk of defaulting on my loan because of the one payment, when I talked to the manager I was told that “BofA can’t guarantee not foreclosing your home”, “the agreement is that you will pay us the money not that you can keep your house”. The whole system needs to be changed. Once this house situation is done I pulling my money from BofA and will make sure to tell anyone I can how screwed they are and they will just FUC* YOU when they get a chance.