Is foreclosure immoral if you can pay?

[TheAdvocate]

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).

 

[Cristiano]

Just because they foreclose on you that does not mean that you are exempted from paying the difference between the amount that you owe and what they get out of selling the house. Do you have $184,000 dollars handy to cover it? There are a few people that discovered that only a couple of years after the foreclosure. Be careful, your financial obligation is not going to disappear. You also assumed an obligation when you signed the mortgage and if you can still pay then it is moral and wise for you to do so. I am also wondering why you call the Bank of America “the stingiest of all” when you are the one that does not want to pay for what it is owed. Make sure not to bare false witness.

 

[Moscati]

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From the Catechism:

2410 Promises must be kept and contracts strictly observed to the extent that the commitments made in them are morally just. A significant part of economic and social life depends on the honoring of contracts between physical or moral persons - commercial contracts of purchase or sale, rental or labor contracts. All contracts must be agreed to and executed in good faith.

2411 Contracts are subject to commutative justice which regulates exchanges between persons and between institutions in accordance with a strict respect for their rights. Commutative justice obliges strictly; it requires safeguarding property rights,** paying debts, and fulfilling obligations freely contracted. Without commutative justice, no other form of justice is possible. **
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Unless you can convincingly argue that the commitment you made in the form of your mortgage is somehow morally unjust, I don’t think it would be right to not pay what you owe.

 

[LilyM]

__
From the Catechism:

2410 Promises must be kept and contracts strictly observed to the extent that the commitments made in them are morally just. A significant part of economic and social life depends on the honoring of contracts between physical or moral persons - commercial contracts of purchase or sale, rental or labor contracts. All contracts must be agreed to and executed in good faith.

2411 Contracts are subject to commutative justice which regulates exchanges between persons and between institutions in accordance with a strict respect for their rights. Commutative justice obliges strictly; it requires safeguarding property rights,** paying debts, and fulfilling obligations freely contracted. Without commutative justice, no other form of justice is possible. **
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Unless you can convincingly argue that the commitment you made in the form of your mortgage is somehow morally unjust, I don’t think it would be right to not pay what you owe.

Well, circumstances (such as losing a job, gaining a child or parent you have to support) can make what was a just contract when entered into unjust in present circumstances.

I’d argue you should do your best to abide by your obligations to your mortgage lender, but to remember you have other (greater) obligations to people who are financially dependent on you (spouse, children, dependent parents). I wouldn’t make them suffer unduly for the sake of paying off the mortgage.

 

[TheAdvocate]

Just because they foreclose on you that does not mean that you are exempted from paying the difference between the amount that you owe and what they get out of selling the house. Do you have $184,000 dollars handy to cover it? There are a few people that discovered that only a couple of years after the foreclosure. Be careful, your financial obligation is not going to disappear. You also assumed an obligation when you signed the mortgage and if you can still pay then it is moral and wise for you to do so. I am also wondering why you call the Bank of America “the stingiest of all” when you are the one that does not want to pay for what it is owed. Make sure not to bare false witness.

In California they don’t chase after you. Not worth it to them with all the time, energy, and attorney’s fees.

 

[Cristiano]

In California they don’t chase after you. Not worth it to them with all the time, energy, and attorney’s fees.

They might not do it immediately; however debt does not expire. As I said, you do not know what can happen after a few years. $184,000 it is a lot of money that collecting agencies would like to pocket.

 

[grace_singh]

In California they don’t chase after you. Not worth it to them with all the time, energy, and attorney’s fees.

even if they don’t chase after you, you still ultimately could have and should have paid. it’s not so much a “can-i-get-away-with-it?” issue as a moral issue.

running away does not erradicate the debt, and is still essentially holding back money owed.

 

[1ke]

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).

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.

 

[thistle]

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).

If you are not financially strapped and can make the payments I would say yes its a sin to walk away from your legal obligation. Frankly, its also stupid. The market will turn around sometime and in the future (even if its several years) the value of the property will increase.

 

[Major_Tom]

What do you think of the morality of this?
.

Well, based on the facts that you’ve presented, yes, I think that is immoral. If you walk away out of mere convenience, I am paying the penalty for this. I’m an account holder at Bank of America. Whose user fees will be going up to cover you “just walking away”? Mine. In this case, I think it’s just like shop-lifting. How many small businesses will be unable to secure a loan from B of A because their bottom line is hurt? I’m under-water, too , so you’re not geting much sympathy from me…!

Now, if you were laid off, or suffered some kind of catastrophe, I think that’s a very different scenario…

If you walk away to cover a paper loss, when you are otherwise able to pay, I would say yes that is immoral. That paper loss means absolutely nothing… if you stay in your house. An option is to wait it out like the rest of us…

 

[revert_jen]

I would definitely say you should pay if you can. God has blessed you with the means to pay, and it would be a shame to refuse to do it. There is the contractual issue as others have mentioned, but also there is just being fair.

If you had bought the house at 260K and now it was worth 444K, would you be looking to give the money to someone? “Here, I know we agreed on a price for the house you sold me, but it’s been a few years and the price has gone up a lot, so I want to give you some more.”

Real estate, like all investments, is always something of a gamble. If you are willing to accept the winnings, you have to be willing to accept the losses.

Plus it does really nasty things to your credit, for quite a while.

On a positive note, probably in a few years it will be worth closer to 444K again.

–Jen

 

[JimG]

In California they don’t chase after you. Not worth it to them with all the time, energy, and attorney’s fees.

It may be that in California, the mortgage holder does not seek a deficiency judgment for the balance remaining after applying the proceeds of the foreclosure sale to the mortgage debt. It may also depend on what type of mortgage it is.

If no deficiency judgment is obtained, then it cannot be sought later.

 

[JimG]

If you had bought the house at 260K and now it was worth 444K, would you be looking to give the money to someone? “Here, I know we agreed on a price for the house you sold me, but it’s been a few years and the price has gone up a lot, so I want to give you some more.”

Good point. Everybody loves to have positive equity in the homes, and to make a profit when they sell; nobody like negative equity or selling at a loss.

(I’d like to see some positive equity in my money, but it keeps losing value.)

 

[Zenas]

Without repeating all that has been said, I agree with it. It would be morally wrong to walk away from a debt you willingly made and can afford to pay.

As an attorney who files about 100 consumer bankruptcies a year, I would also make the following observations:

1. BoA probably won’t come after you for the deficiency. They will sell this account to a collection agency who will use every tactic in the book to collect from you.
2. The foreclosure will be a blight on your credit record that will prevent your getting another home loan for many years.
3. If your income is high enough to have qualified you for a $444,000 mortgage loan, there is no way you could qualify to file Chapter 7.
4. If you file Chapter 13, you will be committing all your disposable income to payments under your plan for 5 years. That means no new cars, no vacations, no country club memberships, etc.
5. If you’re really as upside down as you say, try to approach BoA with the idea of a short sale. In order to do this, you need to get a good competent appraisal and put the house on the market. Then when you get your best offer show them the appraisal and demonstrate your efforts to to sell. They won’t accept your offer but there is a good chance they will come down considerably from the contract payoff. Every large community now has Realtors who specialize in short sales. If you accomplish this, you will have saved some money not by breaking your contract but by mutually agreeing to modify your contract.

 

[Major_Tom]

If you had bought the house at 260K and now it was worth 444K, would you be looking to give the money to someone? “Here, I know we agreed on a price for the house you sold me, but it’s been a few years and the price has gone up a lot, so I want to give you some more.”

Niiiiiice…!

 

[1ke]

1. If you’re really as upside down as you say, try to approach BoA with the idea of a short sale. In order to do this, you need to get a good competent appraisal and put the house on the market. Then when you get your best offer show them the appraisal and demonstrate your efforts to to sell. They won’t accept your offer but there is a good chance they will come down considerably from the contract payoff. Every large community now has Realtors who specialize in short sales. If you accomplish this, you will have saved some money not by breaking your contract but by mutually agreeing to modify your contract.

I agree that a short sale is a moral option if the person has to move and cannot sell the house for what is owed.

The OP doesn’t indicate a need to move or anything out of the ordinary. Just that he doesn’t like his deal anymore. In such a case, I still think it is immoral to walk away or even to do a short sale just to “get out” of the deal. The bank is still shorted the money it is owed.

A short sale also has tax and credit report consequences.

 

[Moscati]

Well, circumstances (such as losing a job, gaining a child or parent you have to support) can make what was a just contract when entered into unjust in present circumstances.

I’d argue you should do your best to abide by your obligations to your mortgage lender, but to remember you have other (greater) obligations to people who are financially dependent on you (spouse, children, dependent parents). I wouldn’t make them suffer unduly for the sake of paying off the mortgage.

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.

 

[Cristiano]

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.

It looks like the OP is suffering at the idea that he rushed in a bad investment. Being there, done that, it sucks but it was my fault.

 

[MamaJewel]

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).

From a moral perspective, if both you and all parties involved in the sale of your home had acted in “good faith”, then foreclosure would be immoral if you could pay.

However, you are definitely in a gray area. The recent collapse of financial institutions that resulted in huge corporate bail-outs was due to false documentations, illegal co-mingling of escrow and mortgage funds, as well as abuse of regulations and procedures in the loan process.

BOA received billions in bail-out $$$ (which I think they had paid back by 12/2009). Needless to say, I don’t think you’re going to get uncle Sam to “prop” up the value of your home to it’s original purchase price anytime soon.

It would be very unwise of you to just let the home go into foreclosure without consulting an atty and a tax advisor. Prior to the current economic fiasco, a taxpayer would owe taxes on any balance above the debt disharge. So,if a person had purchased a home for 150,000 and it foreclosed and sold for $75,000,the taxpayer would show $75,000 as income (due to the original loan - the sale amt.) Also,the taxpayer wouldn’t and still isn’t able to take a capital loss with a foreclosure.

You’ve got to protect yourself and be a wise steward with the $ and resources God has provided. From a Christian perspective, that would mean exhausting all legal routes to bring your current housing situation to a state of fairness or justice.

It sounds like you acted on good faith in securing your mortgage. It certainly isn’t your fault that the nation’s financial institutions were aware of what was happening behind the scenes and continued to do business as usual, while leading unsuspecting borrowers into a financial crisis.

BOA certainly should consider modifying your loan. That would be the right thing to do, given the widespread corruption and illegal activity that went on in the over all housing market. (I’m not saying that BOA employees committed the corruption and illegal activities.)

You’re facing such a serious situation that congress made new tax laws to assist people who have gone through what you are dealing with.

The Mortgage Forgiveness Debt Relief Act of 2007 changed the way taxpayers can exclude “income from the discharge of debt” on their main residence

Publication 4681 Cancelled Debts, Foreclosures, Repos, and Abandonments is the new IRS publication that addresses these tax issues. Look it up on the irs.gov website.

Also, if you go to the irs website and type “foreclosure” into the search bar, you will find a plethora of info on foreclosure and the possible tax consequences

From an ethics POV,you shouldn’t just walk away from the debt. You really have the obligation to legally do the necessary actions to balance your unfair situation. This isn’t a simple matter of a buyer being upset about a loss in a standard business transaction. There was a lot of wrong-doing behind the scenes that buyers/borrowers and sellers were unaware of.

Get informed. Know your rights. Learn what the financial and tax consequences will be. Start a class action lawsuit for you and other BOA borrowers who were refused modification, if need be. Contact your congressional representatives. But you’ll have to fight for what is just in this case. Do the right thing and change the system.

 

[Cristiano]

…Get informed. Know your rights. Learn what the financial and tax consequences will be. Start a class action lawsuit for you and other BOA borrowers who were refused modification, if need be. Contact your congressional representatives. But you’ll have to fight for what is just in this case. Do the right thing and change the system.

So you are saying that someone that got into a 444K$ mortgage for something that was overvalued should blame and sue someone else for his short sight in business. His financial situation has not changed but his greed seems to get bigger.