Is foreclosure immoral if you can pay?

[sehrwunderbar]

When you bought the house, $444k was a good price. I don’t see why all of a sudden you think that you can just walk away. Bad business decisions will happen, but you walking away will not fix the situation. It would be immoral to walk away, especially since you CAN pay for the mortgage.

Just because the market eventually fell does not mean you should just sue someone because they will not modify your loan, as was suggested by another poster. You got into a contract fully knowing that the market could change at any point. You home could be worth $1M in 10 years, who knows? It was worth it for you to purchase when you did and you should not think that just because prices around you are going down that you deserve anything other than the contract you previously signed.

 

[Doc_Keele]

Hi, I’ve got a house that is super-upside down. Bought it for 444k, now worth 260k. Market crashed just two months after I bought it. Yes, I *could *make the payments, but a number of people are saying “just walk away.” As it turns out, they won’t kick you out of your house for many months while you don’t pay. Some stay in their houses for as long as 8 months. What do you think of the morality of this?

I tried calling my bank (the stingiest of all, Bank of America) to modify, they won’t (not a Freddie/Fannie loan).

Does foreclosure mean something different in the US? As in England & Wales it means that you have no further obligations - but it is something that the mortgagee initiates not the mortgagor, and it is almost never done when the mortgagor is in negative equity.

 

[Cristiano]

Does foreclosure mean something different in the US? As in England & Wales it means that you have no further obligations - but it is something that the mortgagee initiates not the mortgagor, and it is almost never done when the mortgagor is in negative equity.

From what you state is quite different. In the USA foreclosure is when the bank re-posses your house, and it can be for different reasons.

 

[Doc_Keele]

Yes, we have that too, it’s just separate and distinct from foreclosure - although a possession order is separate from the power of sale (so when the house is not being occupied, the bank can sell it without the mortgagors even knowing!).

 

[JimG]

A foreclosure judgment results in the mortgage being reduced to a judgment, and a sale of the property by the lender. Normally, the proceeds of the foreclosure sale will be applied to the judgment, and what’s left is a deficiency judgment. The lender might not seek a deficiency judgment, or might elect not to enforce it, or the foreclosure court might require that the holder bid the total amount of the debt to acquire the home, thus resulting in a zero deficiency.

(The loan holder cannot generally be made whole by bidding the full amount of the debt, because the home is not worth that much. So on resale, they take a loss, unless the mortgage is insured by PMI or by a Federal or quasi-federal agency.)

 

[Just_Lurking]

A foreclosure judgment results in the mortgage being reduced to a judgment, and a sale of the property by the lender. Normally, the proceeds of the foreclosure sale will be applied to the judgment, and what’s left is a deficiency judgment.

Foreclosure laws vary by state. In “non-recourse” states, the lender cannot seek a deficiency judgment.

 

[JimG]

Foreclosure laws vary by state. In “non-recourse” states, the lender cannot seek a deficiency judgment.

That’s true. The fact remains that if they end up with the house, they will have an asset not worth enough to cover the debt.

 

[Ridgerunner]

Asset values go up and they go down. There is no reason to believe your present negative equity position will remain that way forever.

Whether the lender can get a deficiency judgment or not, your credit will be trashed. But I would sure want to know I am in a “non-recourse” state before I did it anyway.

I have seen these lenders sell off these shortfalls for pennies on the dollar to some of the harshest people you have ever seen; people who WILL chase you down and, if it comes to it, garnish your wages or seize your assets or both.

Finally, for every dollar of debt you will be “escaping” (if you really do) somebody else has to make it up, one way or another. It’s just not right.

 

[TheAdvocate]

Very true–if it’s between feeding your children and paying the mortgage, take care of your children first, every time.

That’s not the OP’s situation, though. He has the money, and just doesn’t want to pay it because his debt is now an unprofitable investment. I didn’t get the sense that anyone is suffering here.

Well, let me offer some clarity. Money has been very tight. In order to pay the mortgage, I’ve had to claim 16 exemptions on my employee form (whatever they’re called). To make ends meet, I had to cash out my Roth IRA (there was only about 4,400 bucks, but still…) For this first time since owning the house, I will actually owe taxes. Money is tight, my wife and I argue about money a lot. And we don’t even have children!

So, yes…I CAN afford the payments–technically. But at what cost? I write this because I don’t want people to think that I am comfortably able to make the payments and I am just refusing because I don’t like my situation financially. So this is a bit more of a moral dilemma than it seems from my original posting.

 

[TheAdvocate]

Found this on a different message board:

*When you sign your mortgage agreement, you are signing a document that states the following in as many long Latinesque words as possible:

“I am borrowing money from this lender to buy a house. So long as I continue to make my monthly payments per this agreement, title to the house rests in me. If I fail to make my monthly payments per this agreement, title to the house reverts to the lender.”

If a borrower stops making their payments for whatever reason and walks away, they are not violating their mortgage agreement. They are acknowledging that their cessation of payment means that they no longer own the house, the bank does.

There is nothing immoral or unethical about walking away from this situation. This is a rational action in full compliance with the terms of the mortgage agreement. *

Any thoughts?

 

[PaulinVA]

So, whether you are upside down or not isn’t the real issue. The issue is that you are having trouble paying your mortgage, and want to know if you can walk away from it.

Walk away from the house, ruin your credit, never own a house again? Why would anyone do that voluntarily?

I know a sale won’t help - I assume that you don’t have the difference between a sale price and what’s owed on the mortgage. Have you been aggressively pursuing any government program you might be eligible for?

 

[LilyM]

Found this on a different message board:

*When you sign your mortgage agreement, you are signing a document that states the following in as many long Latinesque words as possible:

“I am borrowing money from this lender to buy a house. So long as I continue to make my monthly payments per this agreement, title to the house rests in me. If I fail to make my monthly payments per this agreement, title to the house reverts to the lender.”

If a borrower stops making their payments for whatever reason and walks away, they are not violating their mortgage agreement. They are acknowledging that their cessation of payment means that they no longer own the house, the bank does.

There is nothing immoral or unethical about walking away from this situation. This is a rational action in full compliance with the terms of the mortgage agreement. *

Any thoughts?

There’s secular morals and then there’s Catholic morality, of course. I’m sure you’re aware of the difference between the two. Many non-Catholics consider things that the Church frowns upon to be perfectly moral. Was this on another Catholic message board perchance?

I’m not at all saying that it’s immoral in your case - if it’s really putting as big a strain on your marriage as you suggest, I’d say it’s probably not immoral for you anyway. Just want you to be aware that everything a message board tells you is moral isn’t necessarily OK by the Church.

Have you discussed this with your priest? It’s probably best to go to him for advice, as you can go into details that you might not want to divulge on here.

 

[didymus]

Hi, I’ve got a house that is super-upside down. Bought it for 444k, now worth 260k. Market crashed just two months after I bought it. Yes, I *could *make the payments, but a number of people are saying “just walk away.” As it turns out, they won’t kick you out of your house for many months while you don’t pay. Some stay in their houses for as long as 8 months. What do you think of the morality of this?

I tried calling my bank (the stingiest of all, Bank of America) to modify, they won’t (not a Freddie/Fannie loan).

Why does the house being underwater matter to you? Presumably you bought it to live in, not as an investment property. If anyone should be upset it is BoA 'cuz their security for a $444K house has gone down in value. If you can use the decreased value of the house to negotiate a new deal, fine. Otherwise, I’d say both law & morality say pay what you owe.

Here’s a bit of a different scenario from Jimmy Akins’s blog:

I’d like to hear your thoughts on what (if any) ethical obligations are due to a mortage contract in the current environment. I bought a home, and it’s now severely underwater; worth maybe 50 - 60% of the purchase price. The payments are affordable to me for now, but much better homes can be had for much less now. Banks are not very accommodating to restructuring loans; many people in this situation are choosing to walk away. It makes a lot of financial sense to do so.

While at least I’m on a fixed-rate mortgage, it still features several of the creative financing schemes so popular at the time. Payments for now are 100% interest – not a penny is going to pay off the house itself (not that I would want to sink any more money into it than I have to). Then there’s a big balloon payment due in a few years, and monthly payments go up at that time as well. So this mortgage is a ticking time bomb. The balloon payment is a few years off, but it’s doubtful that the value will recover sufficiently by then, barring rampant inflation.

I’d say this guy has a lot better case for walking away than you do.

 

[Newbie2]

Yes, it is immoral to do what you are suggesting. You have an obligation to pay your debts.

You went into the deal with your eyes wide open. You knew that you were committing to a 30 year mortgage with $444K in principle. Markets go up. Markets go down. Just because your house is now worth less than you would like it to be does not mean you have no obligation to pay back the money you borrowed, with the interest you agreed to.

You don’t like your deal now. Well, that’s too bad. You made the deal. It is dishonest and immoral to “walk away”. It is stealing from the bank that loaned you the money.

Exactomundo

However, you are definitely in a gray area.

You really have the obligation to legally do the necessary actions to balance your unfair situation.

.

HUH???

OP said he could make the payments. How on earth is that a grey area, if he entered into a contract that said he would pay 444K or whatever for his house?

Unfair situation? WHAT???

The OP could have bought a less expensive house, no? The OP could have made a killing if real estate skyrocketed, no? The OP could have rented instead of bought, no? Instead, he bought a house for a price that he apparently thought was fair at the time. No guarantees that the house would retain its value, I’ll bet.

How is this in any way, shape or form unfair??

To walk away and leave the bank and the bank’s customers holding the bag is what would be unfair.

Morally, the OP is obligated to continue to make payments, and should keep seeking out other refinancing options.

 

[TheAdvocate]

Why does the house being underwater matter to you? Presumably you bought it to live in, not as an investment property. If anyone should be upset it is BoA 'cuz their security for a $444K house has gone down in value. If you can use the decreased value of the house to negotiate a new deal, fine. Otherwise, I’d say both law & morality say pay what you owe.

Here’s a bit of a different scenario from Jimmy Akins’s blog:

I’d say this guy has a lot better case for walking away than you do.

Does he? And how would you know that? Do you know the type of loan I have? No, you don’t. By the way, my situation is exactly like his. Interest only for the first 10 years, and then after that it balloons. Almoast exactly the same Oh, and did he mention any hardship? Nope. Did he mention not being able to make the payments if he wanted to? Nope.

 

[1ke]

Any thoughts?

This person is doing moral and linguistic gymnastics in an attempt to rationalize and justify their behavior.

It is not moral to walk away from a contract and an agreement you made because you no longer like your deal.

Based on what you said in the post just above this, you cannot really afford the house you are in. I don’t know why you would take out a $444K loan that you cannot afford, especially since you can’t even afford the interest-only part. Did you think money would magically grow on the trees in your back yard?

I just don’t get that.

But, that is water under the bridge. You are (hopefully) wiser now.

Look, you are clearly treading water financially. You should seek some counseling-- perhaps the Hope network (888 995 HOPE) can help you understand your options and what programs you might qualify for. I believe that Obama’s latest program is for those underwater in their mortgage. Perhaps you will be able to get a write down.

Maybe you can find a program or negotiate something with your servicer.

Good luck.