Aftermath of 'walking away' from a mortgage?

[md2000]

@Rhythmdvl

Sorry, I didn’t realize you were an Occupier–that you agree with the loose idea that profit maximization should not be the primary focus of a corporation’s board of directors and officers, and that shareholders should be able to sue for breach of duty when a corporation’s decision-making body elects to follow a fiscally prudent and technically legal, yet morally questionable, path.

I tend to agree with you that it would be a better world in many respects, though I’m not sure I agree with you that the sharp curtailment in material wealth and a vastly reduced standard of living would be worth it.

Technically, almost all of us are occupiers then.

Otherwise, there’s nothing wrong financially with slave trade, King Leopold’s Congo, drug trafficking,Somalian piracy, selling cigarettes to children, or any other profit-maximizing ventures. (Notice I didn’t mention Nazis. Godwin would be happy.)

Seriously - there’s the difference between “can’t pay the mortgage” and “can but won’t pay the mortgage”. One might argue that (unlikesome eaxmples above) it’s perfectly legal. Legal does not equal moral.

Consider this - suppose you have one of those “take it on a 30 day trial, money back guarantee” options - for, say a new car or new TV. You take the item for 30 days with no intention to keep it, just get a free ride (literally). Are you being immoral? technically, you are lying because the return policy says (usually) “if you are not satisfied…” You had no intenton of being satisfied, you took the item under false pretences.

(Costco had something similar with flat-screen TV’s - 1 year no question return policy does not apply to TVs now. People would buy the TV for $2000, return it after a year because the same thing was $799 now, take the full refund and buy a new one. Is that moral? Being a dick can get you ahead in the short run.)

To get back to the OP - if the couple cannot possibly afford their house in the current circumstances, then walking away really is their only choice. Making contingency arrangements (i.e. getting an apartment lease before their credit would make it impossible) is just good planning. What is not good is simply letting the problem pile up, after that, instead of notifying the bank.

First, it piles up the debt owing. If that is a state where the bank can come after them for the balance - bad idea to maximize the balance owing. Also, it gives the bank a chance to try and sell a property that’s fresh, has not sat empty, possibly vandalized for a year or two once you add up (a) realize the money is stopped for good and (b) begin and finish the foreclosure process. Plus, see comments about a debt being written off without bankruptcy being considered income. Plus, I’m not sure if the bank’s “duty to mitigate” kicks in (IANAL). I’ve told you “take the house”. If you the bank then dither around so as to make the net result more costly than it could have been, then the loss is your fault not mine.

Theoretically, if you tell the bank your problem and try to work through it, and it is in fact a problem, you really can’t aford the payments, the bank may be more helpful than if you simply screw them over. OTOH, nothing stops the bank people from being royal dicks anyway. YMMV. Only one way to find out, but odds are being straight with them will get better results.

This all assumes they are walking because they CANNOT afford it, not walking to avoid paying twice as much for the house as its worth. If the latter case, the bank may decide to come after them.

Is it the case the bank MUST foreclose, or could they simply get a judgement and garnishee for outstanding amounts if the owners have the income?

[Frylock]

@Fotheringay-Phipps

It’s very possible that you and I have nothing to talk about.

But it should be clear that my position is that the reponsibility to pay people back money that they loaned you is not solely based on your “breaching a mutually-agreed contract” - that this obligation would be present (though hard to enforce) even if there were no contract. And that the “mutually-agreed penalties” are in addition to a moral obligation to pay others back their money and not a replacement for it.

In that context, looking at repayment solely in terms of how it benefits you is fundamentally similar to the other examples that I outlined.

I do not think there is any moral obligation to pay others back money you borrowed from them. All of the obligations involved are purely legal and practical, not moral.

If there is a legal and practical way not to pay the money back, there is nothing wrong with this.

But note that if a friend agrees verbally to “loan” me a hundred dollars, then I am legally on the hook for it (not to mention practically assuming I value his friendship) since the word “loan” in informal contexts is understood to imply an obligation to pay back.

But in formal contexts with lawyer-authored contracts etc, everything is assumed to be spelled out on paper and in the legal code. And everyone agrees to be bound by those rules and no others. Unwritten moral codes are not valid in this context.

[Frylock]

@Keeve

Yes. Why not?

Are you suggesting that certain activities should be off-limits if I act as an individual, but okay if I act as an employee of a corporation? Why would that be? Can you give an example?

Example: Suppose I advertised that my car was for sale, but I did not name a price in the ad. Now suppose that I had some legal way to wiretap your phone, and I intercepted a call in which you said, “I’ll pay up to X, but no more.” Now suppose that X is way more than I was going to ask, but now that I know your budget, that’s how much I ask you for.

To me, that seems to be an example of morally wrong cheating. It would be wrong for individuals, and equally wrong for businesses. I just don’t see the difference.

Don’t websites like cars.com allow me to do exactly this, in reverse? (I.e. I’m “legally wiretapping” the corporations rather than them “legally wiretapping” me.) Does it seem immoral to you for me to use what amounts to inside information about what a car manufacturer sells its cars to sales agents for in order to strongarm the lowest price possible out of the sales agent?

[Frylock]

In no-recourse states, does the contract language state that the homebuyer “will pay the money back” or any words to that effect? Or does it state, rather that the homebuyer “will pay the money back or lose the house?”

[Fotheringay-Phipps]

@Frylock

I do not think there is any moral obligation to pay others back money you borrowed from them. All of the obligations involved are purely legal and practical, not moral.

If there is a legal and practical way not to pay the money back, there is nothing wrong with this.

But note that if a friend agrees verbally to “loan” me a hundred dollars, then I am legally on the hook for it (not to mention practically assuming I value his friendship) since the word “loan” in informal contexts is understood to imply an obligation to pay back.

But in formal contexts with lawyer-authored contracts etc, everything is assumed to be spelled out on paper and in the legal code. And everyone agrees to be bound by those rules and no others. Unwritten moral codes are not valid in this context.

Your final sentence seems to contradict the rest of your post, since you’re otherwise arguing that there is no moral imperative to repay, not that such moral codes are invalid.

But I’m not sure if you really mean what you seem to be saying. If you found yourself in place where there were no laws, would you say that there was no reason to pay back any loan? Or do you just mean that since things are written out in contracts, this precludes any other considerations (e.g. moral ones) from applying? (The latter is what many have been arguing in this thread.)

@Frylock

In no-recourse states, does the contract language state that the homebuyer “will pay the money back” or any words to that effect? Or does it state, rather that the homebuyer “will pay the money back or lose the house?”

This is an important question, and one that Keeve posted earlier. I strongly suspect that it says the first version (but my mortgages are not no-recourse, so I can’t confirm).

[Keeve]

@Frylock

Don’t websites like cars.com allow me to do exactly this, in reverse? (I.e. I’m “legally wiretapping” the corporations rather than them “legally wiretapping” me.) Does it seem immoral to you for me to use what amounts to inside information about what a car manufacturer sells its cars to sales agents for in order to strongarm the lowest price possible out of the sales agent?

Ditto for Consumer Reports et al. I’ve often wondered where they get their information about “dealers invoice” prices and so on. The commercials for Progressive.com auto insurance are very surprising – Do car insurers really make their rates accessible to the competition for public access?

The answers to these questions will answer yours. If it is above-board, it is honest. If it is smoke and mirrors, it is dishonest. Good people may view the same facts differently.

[Frylock]

@Fotheringay-Phipps

Your final sentence seems to contradict the rest of your post, since you’re otherwise arguing that there is no moral imperative to repay, not that such moral codes are invalid.

When I said they were not valid, I was trying to say there are none that apply. Sorry to be confusing.

But I’m not sure if you really mean what you seem to be saying. If you found yourself in place where there were no laws, would you say that there was no reason to pay back any loan? Or do you just mean that since things are written out in contracts, this precludes any other considerations (e.g. moral ones) from applying? (The latter is what many have been arguing in this thread.)

Practical concerns still apply in the absence of legal concerns. If I say I’ll pay someone back and I don’t, I’m probably going to be in trouble.

That said, I do think I overstated my belief. If you say “I’ll pay you back,” in an informal context at least, you’ve incurred a (defeasible, but clear) moral obligation to follow through.

Instead I’ll say something that is probably even more counterintuitive. The thing is, the meaning of a contract is not always clear, even to someone who (thinks he) understand(s) every word in it. This is not just because they can be complex or use technical terminology, but also because the norms that govern their application are different from the norms that govern the application of everyday colloquial agreements. I claim that signing a contract which says “undersigned agrees to pay” is, counterintuitively, not necessarily a promise to pay in the same sense as “I’ll pay you back” said to a friend is a promise to pay. Signatories to the contract understand (or should understand) that the norms that apply (and hence the meaning of the language of the contract) are purely legal ones, not moral ones.

“I agree to pay” means one thing in a colloquial context, and another thing in a contractual context.

The difference in meaning is that in the colloquial context, the person is actually promising to pay, while in the contractual context, the person is promising either to pay or suffer the legal or contractual consequences.

ETA: This explains why legal disagreements between close friends or family members can get so clusterfucky–people are confusing the norms that apply in a contractual context with the norms that apply in an interpersonal context, and so failing to understand how they should think (and feel!) about various claims that are made.

[Keeve]

@Frylock

The difference in meaning is that in the colloquial context, the person is actually promising to pay, while in the contractual context, the person is promising either to pay or suffer the legal or contractual consequences.

if you’re right, that pretty much overturns what I was trying to suggest above in #36. Any easy-to-find references?

[Frylock]

@Keeve

if you’re right, that pretty much overturns what I was trying to suggest above in #36. Any easy-to-find references?

Haha this is GQ isn’t it? Oops.

Sorry, I’m philosophizing, not relating objective facts. My bad!

[Frylock]

FWIW here is a link to an article by a law professor in which he discusses his own theory as to what we’re doing when we sign a contract, and he refers to other theories along the way. The four theories referred to are:

Contract as Tort
Contract as Efficiency
Contract as Promise
Contract as Consent to be Legally Bound

I don’t really understand what the first two amount to (especially the second)–I’d have to read the referenced works I guess, and I can see either of the two views being given in this thread as fitting either a “promise” view or a “consent” view.

[Angel_of_the_Lord]

ArrMatey! as you (I think) know, my ex-husband and I had to do the same thing in the same state a few years ago. You know, 'cause of the divorce and all. The house sold for less than what was owed on the mortgage (about 20K less, IIRC). I took a credit hit, but no one came after me.

They should be fine, though they might’ve been better off if they’d tried to sell the place first. The only reason I didn’t is…well. You know that part, I think.