You didn’t realize that “if you don’t pay the mortage, the bank will reposess the house” is something that is spelled out in the contract negotiated and agreed by both the homeowner and the bank?
The war is over; ignorance has full land, sea, air, and orbital control of the battlefield.
You also seem to be alone is confusing “feeling” with “thinking” (in this specific case – in general, you are, alas, solidly in the majority in that regard).
Well, then, it’s a good thing that nobody signs such documents. People do sign documents that specify that one of the following will happen: 1)pay such-and-such amount until such-and-such date and retain possession of the house, or 2)stop paying before such-and-such date and lose possession.
Assuming that you’re capable of learning from experience, your next loan will not include a clause (like that in a standard mortgage) giving the borrower this alternative option for resolving the loan. Or you’ll be more careful about making such loans secured by assets that do not hold their value.
As has been said, walking away from a house that is underwater is not breaking the contract, nor is it immoral. Is it immoral to pay off the loan early? In some cases there is a penalty in the contract for that. After all, by paying off early you are paying less interest to the bank. You agreed to pay X% of interest over the life of the loan and if you pay of early you are depriving the bank of that income. Every mortgage contract I have ever seen has a section specifically spelling out early payment. I would never sign one that had a penalty, but I know it is possible. If the penalty was less than what I would save in interest, why shouldn’t I pay off the loan early and save the money? If that is not immoral, how does exercising the early pay off clause differ from exercising the foreclosure clause?
I would consider it unethical to take out a negative amortization or no down payment loan with the intent of walking away if you new that the property value would fall (say if you bribed the appraiser or where going to use the property in a way that would lower the value).
I would also consider it unethical or immoral to renege on a personal loan secured only by my word. Because than I am breaking my word. Which I would not be doing if I walked away from a secured debt (such as a car or house loan) because in that case I gave my word to pay back the debt or turn over the property. As long as do not intentionally decrease the value of the property, I am still fulfilling my obligations and my word is good.
Jonathan
Oh, and by the way on the laptop thing. Unsecured debt is different than secured debt and I don’t think any lender would allow you to use a laptop for security, just because they depreciate so quickly*. In unsecured debt your agreement is just to pay back on the terms given. It even usually spells out that if you fail to pay you can be sued or even prosecuted. Completely secured debt you agree to pay or hand over the security. In some cases (depending both on law and on contract) you may be liable for any difference, in which case the difference is similar to unsecured debt.
*This is one reason that car loans are 2-6 years usually while mortgages can be up to 50 years. I would be surprised if any lender, today, even in store credit, would use any electronics as security for a term of more than a year.
They **are **fulfilling the contract. The contract allows for forfeiture of the house if the loan isn’t repaid. Both sides agreed to this.
I think it is OK to exercise any clause in a contract that I have signed. If that means walking away from a mortgage, pre-paying a mortgage, refinancing a mortgage - no sweat.
I also think it is OK for the lender to exercise any clause as well. If I have (foolishly) singed a VAR - then they can raise the rates on me.
I finally think it is fine that the results of our transactions be transmitted to the appropriate credit reporting agencies. Open reporting of my borrowing activities is fine for other lenders to review.
A business entity that I am involved with did a walk away from a property with two notes attached. We tried to negotiate some terms, we found a buyer with contingencies - but the primary lender did not want to deal with the contingencies. After doing our best to unload the now under-water property, we walked away. The primary note holder got stuck with a property that they later unloaded for $250k, after lending $400k against it. The secondary note holder, who had the right to come after more of the business entity’s assets renegotiated the loan terms after reviewing the remaining assets. They went for a flat repayment plan of 80% of the loan value.
It was just business, nothing personal, nothing moral - just business.
I also just did a refinance of my home, signing contracts with pages and declarations numbering in the hundreds. I kept a copy, and if there is a fiscal advantage to me to exercise any clause in that contract - I will. I expect the lender to do no less.
But do you think it is fine for employers and insurers (in a non-credit related way) to review your credit report?
Interesting question. Given the budget authority I have at my employer, I have no issue with them doing a credit check on me as part of the hiring process.
I can see justification for an insurance company, if there is actuarial data that links credit score to claims issues.
I have not thought too deeply on that subject, however.
I actually don’t have a problem with Trump and Pickens doing this sort of thing. It’s a business arrangement. I don’t think it is as depressing to pick on these media hounds when they do what they do to avoid going real broke, rather than just broke on paper.
Yes, we have a very different sense of morality. In general, I am prohibited by my religion from casually judging people. I fail many times in that. I happen to agree with this proscription “Judge not lest ye be judged” the more I get older and the more I see of life, the more I see wisdom in that.
And yes, I really think that the situation you describe does not exist. When Trump declared his bankruptcies, his choice was to do that or pay all of his real money, still owe money and be a poor person. That would be immoral to his family. His creditors, banks, he did not owe moral duties to.
In theory, but the reality is quite different:
In Georgia, what happens is the bank sells the foreclosed property at auction on the courthouse steps. It’s true that if the property brings more than the mortgage balance in that auction, the bank must refund the balance to the borrower. However, that’s not what usually happens. It’s not an auction in any *real *sense. There is no set time for the auction, only a set day. The bank’s attorney can show up unannounced at any time during that day and begin conducting the auction. Often this is done in a quiet speaking voice of which bystanders take no notice. They often don’t realize there’s even an “auction” happening. (If you ever arrive at a courthouse and see a lawyer standing on the steps quietly reading something aloud, with no apparent audience, well, you are witnessing a foreclosure “auction.”)
What usually happens is that the bank bids on the property itself, in the exact amount of the outstanding balance on the mortgage. In most cases, the bank is the only bidder, and picks up the property for the price of the balance of the mortgage, even if that balance is substantially less than the real value of the house. The bank is then free to turn around and list the property with a broker, realizing a substantial profit by selling the house for its true market value.
And believe me, the bank does all this with no moral qualms about taking advantage of the foreclosed borrower.
It’s futile trying to argue with people who don’t understand agreements. If its business, then you have a contract, and you just send the papers to the legal department and let them sort it out. If its social, you just make a polite excuse and never speak to them again.
There’s no point trying to explain to them that for all their self-righteousness and sense of moral superiority, they are the ones in the wrong. They don’t understand that “I’m doing exactly what we agreed” trumps “I’ve changed my mind and I want you to do what I want now, because I think that’s what’s ‘right’”. :rolleyes:
Where I live these auctions happen every business day. Contra Costa County, California is one of the busiest foreclosure areas. There is a set time. It does not require a lawyer to hold the auction, some guy in jeans does it. They do change the time and date willy nilly by announcing it at the auction, which I understand is not kosher unless there is agreement. They do it without agreement, but stand there and lie and say there is. I know this because I saw them do it to one of my clients.
Now that is illegal, it is unethical and it is immoral. But that doesn’t excuse immorality on the part of someone else. It is the lie about the truth at that time and the intentions that is immoral. It is immoral to enter into a contract without any intention to perform: that is fraud. To have circumstances change and do something else isn’t necessarily immoral. I suppose there could be circumstances that make it a new fraud, but deciding that different bills are more important isn’t immoral, it is a morally neutral decision.
On an informal level, if the choice is between losing a home to a banking institution and not paying one’s family member back a loan or delaying that payment, and the family member cannot be put off because of their tight circumstances, it would seem to me that even the backyard speculating crowd would say that it is more immoral to put off the family member rather than the bank.
But again, the OP has posited a situation reported in the news that rich people are simply deciding not to pay stuff that they have the cash flow to pay. I think that is bad reporting or propaganda because I don’t think the situation exists except as a hypothetical, kinda like the Higgs Boson or Bigfoot. Not yet actually observed in the wild.
“In the wrong” is what we are talking about. Does it have the moral equivalent of say, losing a basketball game, or throwing a basketball game? Losing a chess game, playing below ability, cheating or conceding? I noticed that your post could be read to support or attack either position in the debate. Maybe that isn’t the best metaphor, but tipping over the king is an expected outcome. Doing it while not in what both sides agree is a losing position is a disagreement.
I am quite amazed by many of the comments in this thread.
If I take an informal loan from my Aunt Esther, and then don’t pay it back when she needs the money for medicine, we have an issue of morality.
If I make a financial contract with a bank, then I am bound by the terms of that agreement. Morality has nothing to do with it. If my behavior relative to that contract fits the definition of criminal fraud, then I may be prosecuted, but again, morality has nothing to do with it.
After forfeiting my home, whether I still owe the bank is a matter of contract and state law. Again, morality has nothing to do with it.
It’s routine for business subsidiaries to fail, with parent organizations not redeeming debt. Donald Trump is a renowned money-maker who has disappointed many fellow investors but emerges with his own personal wealth. What do those who speak of “morality” think of that? That morality applies only to the little guys? That it’s OK to renounce a $50 million debt, but not a $50,000 debt?
Some blamed the recent financial crisis on “greed” – that’s like blaming 9/11 on the chemical properties of jet fuel. Mixing morality into finance is a recipe for confusion.
You have made it quite clear that you are offended.
However, this is Great Debates and not the BBQ Pit and whether or not you are offended is not germane to this discussion. You have also gone a long way towartd making this discussion personal, which is quite unnecessary as well as treading far too close the the line of personal insults.
Back it off and leave the personal comments out of Great Debates.
[ /Moderating ]
I never have, but I live in an “at will” state, so I could have quit, or been fired from, all my past jobs for any reason.
I guess intent counts for nothing then. The banks aren’t saying, “Either pay the mortgage or we’ll take back the house, either way is OK with us.” The, “…or we’ll take back the house,” is meant both as an incentive for the borrower to pay the mortgage and as a way for the bank to protect itself in case the borrower defaults on the loan.
I don’t condone that either.
Just because something is legal doesn’t necessarily make it right or ethical, just like something being illegal doesn’t necessarily make something wrong or unethical.
According to your logic, in order not to judge then you must think that everything is OK. If you see somebody robbing a store, you can’t say it’s wrong because that’s a judgment. If you see somebody mugging somebody else, you can’t condone it because then you’d be judging.
I am not second stone, but I do try not to judge too much. OTOH, I judge the hell out of people who are breaking the law, as in your example. Why are you trying to use examples of illegal actions as a comparison to something that is not illegal? Of course strategic default is not the optimal condition, but that does not mean that its immoral.
People and banks don’t sign agreements they’re not okay with - unless they don’t understand what they’re signing, or were coerced into it. Are you suggesting that either is the case here?
Yes, I know that no-one is coerced. But just because the bank includes a clause to take back the house upon default of payment in order to protect themselves doesn’t mean that they’re happy if somebody defaults on the loan. Especially if it’s not because the person can’t afford it.