Employers these days are taking advantage of social media and using it to check up on potential employees. For employers it really is a buyer’s market. Blogging, Facebook, tweeting may be all the rage and letting it all hang out may be acceptable to many folks. Yet employment options are still conservative and pretty retro. No need for a potential employer to pay for a background check. They merely run a vanity search on Google and get the base info they need.
Hell, when we got a new boss more than a year ago, a number of us were able to compile quite a dossier of the guy weeks before he showed up.
A couple of weeks ago I was discussing stuff with him and the subject came up. I showed him several deep web search engines and he was amazed at how easy it is to dig up stuff on people, all for free. Mind you this guy isn’t some power surfer leaving breadcrumbs everywhere. He’s actually hard to locate, unless you know some things that are not common knowledge (we had that info). He and his wife even have a protected Facebook page, under a different name. He asked how I had found it. I told him based on the known info we had, including a couple of obscure photos on the web, I had used the photo name and tracked it to his Facebook page. Yup it can be done.
Still the entire process is used by potential employers. It may not seem fair but in this economy, all bets are off. I remember dinging potential employees if their resumes had typos. Today, if your Facebook page indicates something amiss, or not fitting in with our “corporate” culture, no matter how good the resume, but it’s been circular filed.
Based on the sheriff’s notice later posted on the ex-neighbor’s garage door, it appears he took out an equity loan against the home to the tune of about $50,000 and just blew the money. Of course he still had his mortgage on the home. We don’t know what prompted such behavior so one might give him the benefit of the doubt. Then again, he and his family literally walked away in the middle of the night. Within weeks another family moved in. We all assumed he must have rented out the home to either begin reducing the debt, or something else. Again it’s just pure speculation but about six months after this unknown family moved in, we watched the police show up with one of the kids (teenager) late one afternoon. That night that family moved out under cover of darkness.
What they left behind was six months of garbage (they had never subscribed to the weekly trash and recycling pickup), and a very dirty house. Their next door neighbor said the entire backyard (perhaps 30x60 feet) was some four to six feet deep in trash. We then knew why they hadn’t subscribed to the trash pickup. The bank must have spent bucks just to have the exterior trash hauled away and the yard clean up. Until that trash was cleaned out the neighborhood has quite a few four-footed visitors. While the bank was contracting to have the interior of the home cleaned, it attracted two-legged visitors. I know the police were called because I was one of the callers.
Long story short but the home was eventually sold more than two years after it had been abandoned. I doubt the new owners knew what had happened. They got a steal of a home (for 150k) the previous deadbeat owner had purchased five years earlier for $300k. The house is only ten years old and prior to this mess, had been in excellent condition.
The numbers above are legit. The county publishes all property GIS records online going back at least ten years. So it’s easy to see all the tax records, house liens, mortgage details, etc. of every home in the county. You can see when the property taxes are paid, whether they were paid late (and penalties assessed), etc. The previous owner had kept up with all payments until one day they stopped and bundled his family out of here. The sheriff’s notice later posted to the garage door filled in missing details.
You’re most welcome to call our neighborhood very elitist and self-centered. All of us take care of our homes, lawns, gardens and each other. We have retired folks, young working couples and everything in between. We have annual Fourth of July picnics together. Even folks who’ve since moved away actually come back to the neighborhood to stay in touch and make it to the annual picnic, among other smaller parties the rest of the year.
We know this abandonment affected our own property values because we can track them. Yeah, the economy and property values were going down anyway. But the sharp drop in values a couple of months after our ex-neighbor bailed doesn’t fit with the overall drop in values nor the the comparison with other homes blocks away.
That legally binding document also allows for someone to walk away. The banks are perfectly willing to lend money even though that is a possibility because the potential for profit on their part is greater.
It is a good and ethical business decision to walk away from an underwater mortgage.
He didn’t “bail” on the legally-binding document. He chose one of the options available to him, as outlined in that legally-binding document: he decided that, rather than continue to repay the bank in monthly installments, he would hand over the house to the bank in lieu of his mortgage payments. That is, i’ll bet, exactly the conditions stipulated in his mortgage.
It amazes me how, in cases like this, the person who decides to give up the house is the only one who suffers any moral opprobrium. What about the bank, which accepted the house as collateral for the loan? Recent studies suggest that most banks relied on far-too-optimistic forecasts, especially in a market where they continued to write ridiculous amounts of sub-prime mortgages.
Your book example is also ludicrous in its oversimplification, and its complete lack of any relation to the sort of losses that people have suffered in the housing crisis. If the guy’s house price was likely to bounce back up with the sort of speed your example suggests, you might have a point, but in many areas the complete collapse of the market means that, even under the best possible scenario, people are never going to regain their equity.
I’m going to copy below a post i made about this issue some time back on these boards. It’s based on a paper published by Brent White, a professor of law at the University of Arizona. The paper is titled “Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis,” Arizona Legal Studies, Discussion Paper No. 09-35, and is available for download from the Social Science Research Network.
It’s a 54-page paper, but it’s straightforward and easy to read, and i would encourage anyone interested in this issue to take a look at it. White talks about the moral pressure to keep up payments on mortgages in the United States, and makes the argument that many Americans who are still paying their mortgages would be far better off just walking away. A key part of his argument is that:
He has a rather illuminating hypothetical example, in which he discusses a couple from the town of Salinas, California (badly hit by the mortgage crisis) who bought a home in 2006 for $585,000 (the average price for a 3-bedroom, 1,380 square foot home in Salinas at that time). Their house is now, according to White, worth about $187,000. They are paying $4,300 a month on a house that would currently sell with a mortgage of about $1,200 a month.
Bolding mine. You still happy with you book analogy, Gary? I realize that plenty of underwater mortgages are not quite as bad as this particular example, but in this case i would walk away in a heartbeat.
White has quite a bit to say about moral and ethical pressures on homeowners. He recognizes that people invest not only money in their homes, but also emotional capital, and that people often keep up payments because they want a home of their own, and because they see value in the simple fact of being a homeowner. Furthermore,
Section V of his paper, entitled “The Social Control of the Housing Crisis,” talks about how financial institutions, the media, and even the government rely on, and exacerbate these moral qualms in an attempt to get people to keep up payments, even in situations where the people would be far better off simply walking away from their house.
He also talks about how lending institutions’ practices place pressure on people who are having trouble affording their payments. For example, he discusses the response of lenders when borrowers get in touch to try and renegotiate payments. Rather than actually trying to sit down with the borrower to work something out, the lender will often simply stonewall, refusing to communicate and ignoring the borrower’s pleas, because lenders know that most borrowers will do everything they can to make the next payment, even if it means sacrificing something else. The social pressure to avoid default works in the lender’s favor, because the borrower doesn’t want to be seen as a deadbeat, and often doesn’t even realize that walking away might be in his or her own best interest.
White also talks about the lenders’ control over credit scores, arguing:
The whole credit system, White says, “operates largely outside legal process as a norm enforcer.”
White places considerable blame on lending institutions who, he says,
Which is pretty much the point i was making at the beginning of this post: the banks themselves fucked this up as much as the defaulters.
Central to White’s position is that, while lenders and other institutions like government place moral pressure on borrowers to keep up with their payments, those same lenders themselves make decisions based only on their own financial interest, and feel no moral obligation to the borrowers outside of what is required by the law and their contracts. White says that
White argues that this results in an “asymmetry of moral norms,” in which borrowers are held by the system to higher moral standards of rectitude than lenders.
He argues that borrowers also need to focus on the economic issues, and do what is in their own best interests, rather than succumbing to the moral pressure exerted by certain institutions and social groups. In short, borrowers need to make the same sorts of cost/benefit analysis as lenders, and need to try and push aside the moral pressures and the social stigma attached to defaulting on their mortgages.
He also, at the end, offers suggestions for changing public policy practices and laws to make things easier for borrowers. For example:
White concludes his paper:
It’s also worth noting that, if they think it’s in their best interests, large corporations will hand back the keys in exactly the same way as Joe Homeowner. Earlier this year, the investment group that paid $5.4 billion for Stuyvesant Town and Peter Cooper Village in Manhattan in 2006 decided that the declining value of the development (it’s now worth about $1.8 billion) made their continued operation and continued servicing of the finance obligations unfeasible, and they basically handed the keys over to their creditors.
A family member did this. Took his $4500 a month mortgage payment and threw it all in savings once he got a couple hundred thousand upside down. His mortgage lender gave him his move out date, he packed up all his stuff and when the day came he moved his crap into a loft apartment, jumped on a plane and spend 13 months traveling the world on the money he banked.
Exactly. When Goldman Sachs and BankofAmerica start making decisions that significantly hurt their bottom line because ‘it’s the right thing to do’ or because it helps their neighbors, then I’ll agree that homeowners should, too.
I’m not saying I’d lend money to the guy who stupidly borrowed more than he could afford for a wildly overpriced house in what was clearly a bubble market, of course.
And I understand that having an abandoned house hurts a neighborhood, so understand your frustration at the familiy that moved out. But, on the other hand, if the family stopped paying the mortgage, the bank now owns the property. So why aren’t you pissed at the bank for leaving it empty and abandoned?
We have laws that say, “Driving drunk is illegal. If you do it, you will suffer the following penalties.” That doesn’t constitute permission to drive drunk. Similarly, adding a clause to a mortgage that says “if you default on this agreement, the penalties will be A, B, and C” does not constitute permission to default on this agreement.
If you’re willing to walk away from the mortgage, you’d probably be willing to walk away from other agreements you sign with an employer. That would make me highly hesitant to hire you.
I used monthly fluctuations, but they could have just as easily been yearly. You provided pages of justification for bailing out, but never addressed my primary point:
A person found a house he liked and wanted to live in. He worked out a monthly payment that he could live with. An appraiser gave the house a lower value.
It’s still the same house. It’s still the same payments. It’ll still be paid off at the same time. He hasn’t lost any money. But he chose to default on the loan and accept the penalties.
Can you walk away without any repercussions? The straight answer is “no”.
However, the world isn’t always that perfect. For example, your credit rating could be hurt and employers might think twice about hiring someone who has such a blot on their credit record.
In theory, the bank can seize your property, sell it, and then in some states, sue you for the remainder of what you owe. But, then you can’t get blood from a turnip. If you don’t have the money to pay for your monthly mortgage, you probably aren’t worth suing in court. And, when you really get down to it, you can’t be thrown in jail for not paying your mortgage unless fraud was involved.
However, if enough of society reneges on their mortgage obligations, the social stigma becomes less. What if the guy who’s hiring you have friends and relatives who also stopped paying their mortgage? He might not think that not paying your mortgage is a job disqualifying act.
Also imagine you are thinking of issuing someone credit. They have a stellar credit record except they got their house repossessed. Your initial reaction might be that these people are big credit risks, but you get thousands of application like this, so it’s a big market. And, since they’re not paying for an overpriced house anymore, they have plenty of money to pay back their obligations too. Heck, these people are in sounder financial shape than the ones who kept their underwater houses.
Businesses do it all the time. Stuyvesant Town was purchased by Tishman Venture at the peak of the real estate boom. Tishman Venture has just handed back the keys and reneged on the deal. Happens all the time in the commercial real estate market.
For a while, many bankers feared what they called jingle mail. This would be where the mortgage holder – instead of enclosing their monthly payment – simply mailed back the keys to the house.
And, there are many people who have stopped paying their mortgages, and no one has seized their property or filed charges because no one is even sure who the mortgage holder is because of the turmoil in the market and the way mortgage obligations were commodized in the secondary markets. Your mortgage could be held by thousands of investors in a multi-layered CDO who cannot take action against you and is probably suing the supervisor of the CDO who is suppose to watch out for the investors interest and is responsible for filing foreclosures.
In fact, you can use the threat of not paying your mortgage as a tool to renegotiate your mortgage and maybe lower the payments to make it affordable.
A good resource for this is NPR’s Planet Money which has covered this issue many a times.
Who’s saying that’s not immoral too? If you enter into a contract, you have an obligation, if you can, to follow the terms of the contract to the best of your ability. Obviously, if you can’t, you can’t, but that’s different from choosing to break your word because you can financially benefit from doing so.
And also, who says there’s no moral approbation accruing to the banks? It was reprehensible for banks to give mortgages to people that they knew they couldn’t afford, setting up balloon mortgages the way they did, and preying on the ignorance of the borrowers.
I disagree with your analogy. Drunk driving is the subject of a law, which says “you may not drive while drunk.” It’s not subject to agreement between the driver and the government.
A loan between a bank and a prospective homeowner, on the other hand, is a contract. There are laws concerning the creation of this contract (disclosure of additional fees, total payments, etc.). However, as long as the contract was created legally, it’s entirely up to the lender and the homeowner to meet the terms of the contract. If the contract says, “If the owner doesn’t make the payments, the lender may seize the property,” it most certainly is the same as permission to default on the agreement.
Whether or not such a default is free of repercussions is left as an exercise to the reader.
Since we don’t govern ourselves by a Priestly Class who interpret God’s Will for us, we’ve pretty much given up on moral principles when it comes to contractual business agreements.
A contract is a legal agreement and that’s it. As an agreement, it covers situations when one side or the other is unable to fulfill their obligations.
We are use to businesses doing this all the time. The Stuyvesant Town deal only made headlines because of its size and timing. Tish walked away from the deal just as many homeowners were debating doing the same thing.
If there is a problem, it is because banks are use to businesses doing this, and plan for it while banks simply assumed homeowners would keep making payments no matter how detrimental it was to their financial health. Thus, when Tish gave up on the deal, the banks might have been unhappy (they wanted the billions), but were expecting it. When Mr. Smith does the same thing, the bank is just shocked and may not have planned for it.
Economists are mixed on this issue. Some say that reneging home owners help bring an otherwise over inflated market to its right level and thus will help end this recession quicker.
Others say that the fact homeowners are now walking away from loans will mean that banks will now have to assume that it will happen and plan accordingly. Thus, it might be harder for all homeowners to get loans in the future.
As cwthree has correctly pointed out, there’s a sharp difference between a criminal law, on the one hand, and a voluntary contract drawn up by two equal parties, on the other. If one party agrees to hold a particular item as collateral for the loan, then it’s that party’s responsibility to make a reasonable assessment of whether that item will cover the remaining value of the loan in the event that payments stop.
It’s really not much different, in principle, than taking your Fender Stratocaster to the pawn shop and asking for a loan. The guy behind the counter gives you money, you give him your guitar, and when you repay the loan plus the interest you get your guitar back. And both parties know, going in, that if you fail to repay the loan, the pawnshop owner will stick a price tag on that Fender and sell it, keeping the money for himself.
Again, you have th arrangement wrong. He might have “walked away from” the house, but he didn’t “walk away from” the agreement. He honored the agreement by handing over the house, exactly as stipulated in the contract. Paying the mortgage OR giving the bank the house constitute fulfillment of the contract.
The question of whether he’s lost any actual money or not is silly and irrelevant.
You’re right that he chose to default on the loan and accept the penalties. He handed over the house, which is exactly what the loan agreement stipulated. What i don’t understand is why you seem to think he should suffer further penalites despite the fact that he complied with the conditions of his contract.
But what you call “break[ing] your word” is, in the case of someone who hands over the keys, exactly the same as “follow[ing] the terms of the contract.”
The mortgage contract states that you will pay the bank $X a month for $Y months, until the loan is paid off, and that if you do not make your payments, the bank has the right to take the house in lieu of the money you owe.
Do you get the concept here? In signing the mortgage, you have made a promise to make the payments or hand over the house. Handing over the house does NOT constitute a breaking of your word; it constitutes compliance with the contract you have signed.
I am somewhat in sympathy with your position mhendo, but I think you are carrying the argument too far. The home buyers do sign something called a promissory note. The key word there is “promissory.” They are promising to pay.
So yes, by defaulting, they are breaking that “promise” (and accepting the agreed-upon consequences, as you correctly note).
What moral fault may be assigned for the broken promise is, I suppose, up to the individual, but I don’t think the decision to accept the consequences for breaking the agreement is the same thing as “honoring the agreement.”
To add to what the others have said, drunk driving affects people not involved in the contract between you and the government for your license. A mortgage agreement is signed by all parties affected. If the bank wished to force someone to keep paying under any circumstances, they could add that to the contract and see who would borrow money from them. That’s the difference between a bank and a loan shark - if you don’t pay they take the property and not it on your credit report - they don’t break your legs.
As for employers, most employment is at will. I can leave at any time, and they can lay me off at any time. Is your business different?
You plan on holding on to your tech stocks until they reach 2000 levels again? Someone who bought at the top in a really bad market is not going to get whole again any time soon. There is a name for the fallacy that you haven’t lost money until you sell, and it explains why so many people ride the market down long past the point where a good investor would have taken losses and gotten out. This is why the investment assets of companies are valued at where they are now - not when they were bought or where the company hope they reach next year.
Yes, it’s a promissory note. But every contract contains a promise of one sort or another, whether you call it a promissory note or not. And the contract clearly spells out the conditions under which each party enters the agreement. The bank agrees to provide the money, and it also agrees that, if the borrower does not pay (for whatever reason) it gets the house.
As for the moral question you pose, my position is that we should hold homeowners just as morally responsible for such a decision as we would hold a business that makes a decision in its own financial interests.
As White notes in the article i summarized above, the biggest problem with all this, on a national level, is that homeowners are held to higher moral standards than corporations. They are constantly berated by banks, by politicians, and by bureaucrats for doing exactly what businesses do every day: cutting their losses and starting over.
And yet, in the same article, you have a spokesperson for CalPERS, the country’s largest municipal pension fund, describing his organization’s decision to cut its losses on the Stuyvesant Town/Cooper Village deal:
That’s how all the other investors in StuyTown/Cooper felt as well, and it’s how business is done all the time. And, despite periodic bleating about the greed of banks (mostly by hypocrites who are happy about what the banks do when times are good), most Americans seem happy enough with this (very capitalistic) business model.
I simply want to know why it is, in American culture, that the little guy who’s buying a house is faced with moral condemnation when he acts in exactly the same way as the multi-billion dollar investment group that’s buying a housing development or a set of office buildings.
I agree with this to an extent, but there is a considerable moral difference between walking away because you can benefit financially, and walking away because it minimizes the financial harm you will experience. Many people are in the latter position in the current economy. As a previous poster quoted, 60 years to regain your lost equity is rather excessive financial harm. The bank that made that contract deserves to share the fruits of the risk they undertook. But, like the Wombat says, I would be leery of doing business with a former homeowner who showed the poor judgment of buying that heavily into such an inflated bubble market.
May I speculate? There are many thousands of folks getting home loans. If more folks walked away from a bad home investment like a buisness might, the banks are going to react to the (now) increased risks by changing some of the terms, like higher interest rates, or fewer loan approvals. This hurts other potential borrowers.
Why should someone suffer from a higher interest rate because other people gambled, and lost, on property values? I realise it happens all the time, but I’m talking about the emotional reasoning that may happen after being forked over on a home loan.
I think LSLGuy answered the OP completely so I’ll just jump straight into the moral debate with everybody else.
It continues to astound me that people think the poor innocent banks are being taken advantage of by those wily homeowners who are caught up in the declining market. One player is supposed to be a trained professional in mortgages, the other is often in the game for the first time. If banks continue to find themselves disadvantaged by their generous natures and the ruthless business practices of their borrowers they may want to consult an attorney the next time they write up a contract.