# Is walking away from your mortgage unethical? **URL:** \ **Category:** Great Debates\ **Created:** [January 8, 2010, 4:07pm UTC](https://boards.straightdope.com/t/is-walking-away-from-your-mortgage-unethical/524169 "2010-01-08T16:07:38Z")\ **Posts on this page:** 20\ **Page:** 4
**Author:** ![brickbacon](https://avatars.discourse-cdn.com/v4/letter/b/898d66/32.png) [@brickbacon](https://boards.straightdope.com/u/brickbacon)\ **Post date:** [January 9, 2010, 8:47am UTC](https://boards.straightdope.com/t/is-walking-away-from-your-mortgage-unethical/524169/61 "2010-01-09T08:47:00Z")
> [@CJJ](#): > > Suppose relatives or friends loaned me some cash to purchase a big ticket item with the expressed wish that the money be paid back but not an enforceable legal contract (e.g. the terms of repayment were vague–“we’ll set up something when you get back on your feet”–or the debtor has a solid belief that the lender will not make a serious legal effort to recoup the funds). I think most folks would consider it unethical to stiff the (admittedly naive) lender, and that I would be taking advantage of the relative/friend who loaned me the money. But the salient point is that your friend/relative did something for you based on their relationship with you, not to make money. It’s a decision primarily based on emotions. That’s far different from a business loaning you money with the sole purpose of making money. Of course the “ethics” are different. One situation is guided by social norms, whereas the other is guided by business norms. The profit motive and structured contracts, for the most part, only exist in situations guided by business norms. The problem is that businesses want to have it both ways. > [@E72521](#): > > Maybe defaulting on a mortgage is ethical, but leaving your neighbors with an eyesore that diminishes the value of their hard work, isn’t. People used to care about shit like that. We’re doomed. Businesses used to care about shit like that too (or so they say). If a property becomes an eyesore, take that up with the current property owner (the bank). ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [January 9, 2010, 1:01pm UTC](https://boards.straightdope.com/t/is-walking-away-from-your-mortgage-unethical/524169/62 "2010-01-09T13:01:10Z")
> [@Voyager](#): > > Do you mean cases where the supposed lienholder is unable to prove who if anyone now has legal ownership of the loan, and where a judge basically canceled it? > > That is perfectly ethical, for a couple of reasons. One, if the lienholder cannot prove ownership, perhaps they do not own the loan. If you pay them, then you are ripping off the entity with legal ownership. This is actually happening, and [courts are upholding it.](http://www.nytimes.com/2007/11/15/business/15lend.html?_r=1) > [@](#): > > A federal judge in Ohio has ruled against a longstanding foreclosure practice, potentially creating an obstacle for lenders trying to reclaim properties from troubled borrowers and raising questions about the legal standing of investors in mortgage securities pools. > > Judge Christopher A. Boyko of Federal District Court in Cleveland dismissed 14 foreclosure cases brought on behalf of mortgage investors, ruling that they had failed to prove that they owned the properties they were trying to seize. ---
**Author:** ![MichaelQReilly](https://avatars.discourse-cdn.com/v4/letter/m/df705f/32.png) [@MichaelQReilly](https://boards.straightdope.com/u/MichaelQReilly)\ **Post date:** [January 9, 2010, 1:12pm UTC](https://boards.straightdope.com/t/is-walking-away-from-your-mortgage-unethical/524169/63 "2010-01-09T13:12:12Z")
> [@Rafe\_Hollister](#): > > Walking away from a mortgage is not unethical; it’s just stupid. However, there are other options. The short sale was mentioned and it is a reasonable alternative due to depressed home values and income reduction or the requirement to move. If you simply walk away, the home will be foreclosed and sold to the highest bidder. Then it is GUARANTEED that you will be sued if the home brings less than the mortgage balance. Also, if the home brings more than the balance, the mortgage company will not send you a check for the excess proceeds. Yeah. It’s dumb. This is almost entirely incorrect. First, not all states allow lenders recourse to the borrower’s other assets to recover the balance of the loan. Second, in states that actually do, it has generally been pretty rare that banks actually attempt to recover the balance or, in cases where they do, are able to actually recover anything. ---
**Author:** ![RickJay](https://avatars.discourse-cdn.com/v4/letter/r/bb73d2/32.png) [@RickJay](https://boards.straightdope.com/u/RickJay)\ **Post date:** [January 9, 2010, 2:11pm UTC](https://boards.straightdope.com/t/is-walking-away-from-your-mortgage-unethical/524169/64 "2010-01-09T14:11:24Z")
> [@CJJ](#): > > Now suppose you have the exact same same situation, except my friend/relative has smartly written out the terms of the loan and included a clause which states that if I failed to meet my obligation I’d have to surrender the big ticket item. I decide to exercise this clause, stop payment, and surrender the item. Assume this is perfectly legal (i.e. there is no possible penalty to me other than loss of the property and hard feelings)–is it still ethical? I would answer “No”, and I suspect many others would do the same; to put it bluntly, it’s a little tougher to screw over someone with whom you already have an ethical relationship, even if this particular obligation is purely a legal one > > To me, the key point in the article is that the loan itself is often chopped up and resold dozens of times… I agree with your first point above, and want to respond to both it and the second stub. First of all, what you describe is unethical because even though there’s a contract in that situation, there remains a preexisting relationship with unwritten obligations, which centre around the understanding that we will have an ongoing responsibility to care for each other’s welfare. A contract doesn’t wholly supersede that unless you agree you aren’t friends anymore. That’s not the case with my bank. The relationship with my bank is purely business, and in fact there is a common understanding that they will interpret their side of the relationship to the absolute limit of their advantage in the words of the contract. It’s perfectly ethical for me to do the same. The understanding is that that’s how it works - both sides expect the other to push to et as much as they can out of it. That’s not the case with me and a friend if oneg borrows money from the other (though we’re illustrating why friends should not loan each other money.) As to the second, an interesting point; I live in Canada, where things are often quite the same as they are in the USA but a key difference is that our banks DON’T chop up the mortgages so much. > [@](#): > > Ethics, it seems, is fueled by an empathy for one’s fellow man, and corporations have done such a good job of isolating themselves from their customers that they shouldn’t be surprised when these same customers embrace traditionally “unethical” behavior. Some corporations, perhaps. This is a pedantic nitpick, but a “corporation” is a legal concept, not a synonym for “big business.” Lots of businesses run by people that are very attentive to their social obligations are corporations. Heck, there are corporations that are formally not-for-profit or charities. ---
**Author:** ![Smitty](https://avatars.discourse-cdn.com/v4/letter/s/e274bd/32.png) [@Smitty](https://boards.straightdope.com/u/Smitty)\ **Post date:** [January 9, 2010, 2:22pm UTC](https://boards.straightdope.com/t/is-walking-away-from-your-mortgage-unethical/524169/65 "2010-01-09T14:22:51Z")
> [@Kimstu](#): > > If a business folds due to lack of funds and can’t pay off its corporate credit card(s), I seriously doubt that the CC company tries to shame anybody who isn’t legally obligated to pay the debt into paying it anyway. And if they tried it, I bet they’d get a big horse laugh for their pains. > > Any other examples of financial situations where individuals are typically pressured to go against their own interests for the sake of being “honorable”, but businesses are not? Oh, that very thing happened to me. I was an authorized user on a company credit card. About 2 years after I left, I got a call from a collection company wanting me to pay for the charges since the company closed. You are VERY right about the horse laugh part, though. I told him EXACTLY where he stuff his request. ---
**Author:** ![mack](https://avatars.discourse-cdn.com/v4/letter/m/b19c9b/32.png) [@mack](https://boards.straightdope.com/u/mack)\ **Post date:** [January 9, 2010, 2:36pm UTC](https://boards.straightdope.com/t/is-walking-away-from-your-mortgage-unethical/524169/66 "2010-01-09T14:36:00Z")
> [@Fear\_Itself](#): > > This is actually happening, and [courts are upholding it.](http://www.nytimes.com/2007/11/15/business/15lend.html?_r=1) Interesting article. I suppose it would have caused more of a stir had it come out a year later. Does anybody know what happened next? Can a person in this case keep the house and continue not paying the mortgage consequence-free? > [@](#): > > “Judge, you just don’t understand how things work” I suspect this is what’s known in legal parlance as “a bad move”. ---
**Author:** ![YogSothoth](https://avatars.discourse-cdn.com/v4/letter/y/8edcca/32.png) [@YogSothoth](https://boards.straightdope.com/u/YogSothoth)\ **Post date:** [January 9, 2010, 5:06pm UTC](https://boards.straightdope.com/t/is-walking-away-from-your-mortgage-unethical/524169/67 "2010-01-09T17:06:01Z")
I wish people wouldn’t buy homes in order to flip them. Just live in them, then you shouldn’t care how much it’s worth ---
**Author:** ![MPB\_in\_Salt\_Lake](https://avatars.discourse-cdn.com/v4/letter/m/c0e974/32.png) [@MPB\_in\_Salt\_Lake](https://boards.straightdope.com/u/MPB_in_Salt_Lake)\ **Post date:** [January 9, 2010, 6:21pm UTC](https://boards.straightdope.com/t/is-walking-away-from-your-mortgage-unethical/524169/68 "2010-01-09T18:21:51Z")
> [@mack](#): > > Interesting article. I suppose it would have caused more of a stir had it come out a year later. > > Does anybody know what happened next? Can a person in this case keep the house and continue not paying the mortgage consequence-free? > > I suspect this is what’s known in legal parlance as “a bad move”. I see that snake oil peddler par excellence and high-king charlatan of the late night infomercial Kevin Trudeau is using this one single ruling as a way to peddle his “Debt Cures” book, and of course he implies that this is a certain, no-fail way for EVERY mortgage holder in the US to stop paying their note yet still retain possession of the house… ---
**Author:** ![Digital\_Stimulus](https://avatars.discourse-cdn.com/v4/letter/d/aeb1de/32.png) [@Digital\_Stimulus](https://boards.straightdope.com/u/Digital_Stimulus)\ **Post date:** [January 9, 2010, 6:34pm UTC](https://boards.straightdope.com/t/is-walking-away-from-your-mortgage-unethical/524169/69 "2010-01-09T18:34:14Z")
> [@RickJay](#): > > This is a pedantic nitpick, but a “corporation” is a legal concept, not a synonym for “big business.” Lots of businesses run by people that are very attentive to their social obligations are corporations. Heck, there are corporations that are formally not-for-profit or charities. “Legal concept” is not a nitpick – it’s exactly on point. Corporations are not, in actuality, people, and attributing “ethics” to them is misguided. That some/many/most corporations **are** run ethically is orthogonal to the fact that they are businesses. Rather, a corporation’s ethical business practices are due to people running them – fueled by empathy, as supposed by **CJJ** \*. At any arbitrary moment or in any given situation, the policies and practices of a corporation is solely attributable to whomever is making the decisions, not the business itself. ---
**Author:** ![Delayed\_Reflex](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/delayed_reflex/32/3172_2.png) [@Delayed\_Reflex](https://boards.straightdope.com/u/Delayed_Reflex)\ **Post date:** [January 9, 2010, 11:02pm UTC](https://boards.straightdope.com/t/is-walking-away-from-your-mortgage-unethical/524169/70 "2010-01-09T23:02:01Z")
> [@Kimstu](#): > > Correct, [more or less](http://www.enotes.com/everyday-law-encyclopedia/corporations): > > So while it’s not literally true that a corporation is formally obliged by the terms of its charter to break the law if the profit will justify the expense, the fiduciary duty to maximize profit does override pretty much all other considerations (and in practice, it frequently overrides considerations of legality too). > > A corporate director or executive simply **does not have the choice** to pursue a course of action that will be financially disadvantageous to the corporation, just because s/he thinks that course of action would be the most ethical thing to do. Can’t an executive or director of a corporate justify ethical actions by claiming that they _are_ in the corporation’s best interests financially? For example, in the case of where a company can take a $100,000 profit and pay a $10,000 fine by breaking the law, it may cause MORE than $100,000 drop in value of the company due to bad media coverage resulting in tarnished reputation, investor rebuke, etc. Because investors and consumers CAN and DO care about ethics, sometimes it IS in the corporation’s best interest to be ethical. Otherwise, why do companies follow things like environmental regulations? I don’t think you can completely de-couple ethics from profit when the latter may depend on the former. > [@Digital Stimulus](#): > > That some/many/most corporations are run ethically is orthogonal to the fact that they are businesses. Rather, a corporation’s ethical business practices are due to people running them – fueled by empathy, as supposed by CJJ\*. At any arbitrary moment or in any given situation, the policies and practices of a corporation is solely attributable to whomever is making the decisions, not the business itself. I don’t fully agree. As I mentioned, public & investor opinion can make ethical business practices a business requirement, so it’s not just the executives’/employees’ empathy that is responsible for corporations acting ethically. However, I do agree that some businesses can be run _more_ ethically than others based on the individuals at the helm. This could be due to their own personal ethics, or whether they feel acting ethically will ultimately give them an advantage in the marketplace, or both. ---
**Author:** ![RickJay](https://avatars.discourse-cdn.com/v4/letter/r/bb73d2/32.png) [@RickJay](https://boards.straightdope.com/u/RickJay)\ **Post date:** [January 9, 2010, 11:38pm UTC](https://boards.straightdope.com/t/is-walking-away-from-your-mortgage-unethical/524169/71 "2010-01-09T23:38:27Z")
> [@Kimstu](#): > > A corporate director or executive simply **does not have the choice** to pursue a course of action that will be financially disadvantageous to the corporation, just because s/he thinks that course of action would be the most ethical thing to do. Incidentally… horsecrap. Of course they have the choice to do so. If the shareholders don’t like it (assuming they even notice) then the director was explain why they did it. If that means they get voted off the board, so be it. They have a choice. The idea that no corporate executive can make an ethical choice is ludicrous. ---
**Author:** ![Digital\_Stimulus](https://avatars.discourse-cdn.com/v4/letter/d/aeb1de/32.png) [@Digital\_Stimulus](https://boards.straightdope.com/u/Digital_Stimulus)\ **Post date:** [January 10, 2010, 12:14am UTC](https://boards.straightdope.com/t/is-walking-away-from-your-mortgage-unethical/524169/72 "2010-01-10T00:14:31Z")
> [@Delayed\_Reflex](#): > > I don’t fully agree. As I mentioned, public & investor opinion can make ethical business practices a business requirement, so it’s not just the executives’/employees’ empathy that is responsible for corporations acting ethically. However, I do agree that some businesses can be run _more_ ethically than others based on the individuals at the helm. This could be due to their own personal ethics, or whether they feel acting ethically will ultimately give them an advantage in the marketplace, or both. Clearly, you don’t have to agree with me, in full or even in part. But I’ll point out that I said business and ethics are [orthogonal](http://www.google.com/search?hl=en&defl=en&q=define:orthogonal&ei=pQ9JS73oDYvasgPas5yRBw&sa=X&oi=glossary_definition&ct=title&ved=0CAYQkAE). That is, “ethics” have nothing to do with business **as business** , unless and until someone (or many someones, in the case of a BoD, investors, etc.) in control makes it so. As you mention, ethics may very well be a good (or even necessary) business _strategy_, but then it’s just another method of obtaining or increasing returns. Furthermore, I’ll note that the above: (1) makes absolutely no judgment, positive or negative, about “individuals at the helm” and (2) is not a bug, it’s a feature, as anything else interferes with the reason for establishing the legal fiction in the first place. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [January 10, 2010, 12:37am UTC](https://boards.straightdope.com/t/is-walking-away-from-your-mortgage-unethical/524169/73 "2010-01-10T00:37:49Z")
> [@mack](#): > > Interesting article. I suppose it would have caused more of a stir had it come out a year later. > > Does anybody know what happened next? Can a person in this case keep the house and continue not paying the mortgage consequence-free? I’d assume this is being appealed, because there seem to be a lot of instances of this kind of thing. The Times Business pages are covering this extensively, with some of the anti-ripoff banks columnists having a good chuckle. I ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [January 10, 2010, 2:23am UTC](https://boards.straightdope.com/t/is-walking-away-from-your-mortgage-unethical/524169/74 "2010-01-10T02:23:07Z")
I feel like the people who wonder if they owe a 2 week notice to a company if they are going to quit. Yet the company will lay you off or fire you with no notice, and escort you into the parking lot. You owe them what they owe you. Banks did some horrible things. They created weird mortgages , then chopped them up, sold them and then sold insurance on them that they could never back. Fuck them. They are thieves and liars. ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [January 10, 2010, 5:10pm UTC](https://boards.straightdope.com/t/is-walking-away-from-your-mortgage-unethical/524169/75 "2010-01-10T17:10:12Z")
Walking away from your underwater mortgage is a good business decision. ---
**Author:** ![John\_Mace](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/john_mace/32/185_2.png) [@John\_Mace](https://boards.straightdope.com/u/John_Mace)\ **Post date:** [January 10, 2010, 6:17pm UTC](https://boards.straightdope.com/t/is-walking-away-from-your-mortgage-unethical/524169/76 "2010-01-10T18:17:29Z")
Interesting timing for this article in this week’s NYT Sunday Magazine: [Walk Away From Your Mortgage!](http://www.nytimes.com/2010/01/10/magazine/10FOB-wwln-t.html?ref=magazine) ---
**Author:** ![MOIDALIZE](https://avatars.discourse-cdn.com/v4/letter/m/e274bd/32.png) [@MOIDALIZE](https://boards.straightdope.com/u/MOIDALIZE)\ **Post date:** [January 10, 2010, 6:32pm UTC](https://boards.straightdope.com/t/is-walking-away-from-your-mortgage-unethical/524169/77 "2010-01-10T18:32:33Z")
Yeah, that’s the same link that’s in the OP. ---
**Author:** ![John\_Mace](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/john_mace/32/185_2.png) [@John\_Mace](https://boards.straightdope.com/u/John_Mace)\ **Post date:** [January 10, 2010, 7:26pm UTC](https://boards.straightdope.com/t/is-walking-away-from-your-mortgage-unethical/524169/78 "2010-01-10T19:26:45Z")
:smack: I guess I should have checked. I just assumed that since it was in today’s NYT, that it was new. ---
**Author:** ![Kimstu](https://avatars.discourse-cdn.com/v4/letter/k/ecd19e/32.png) [@Kimstu](https://boards.straightdope.com/u/Kimstu)\ **Post date:** [January 10, 2010, 8:06pm UTC](https://boards.straightdope.com/t/is-walking-away-from-your-mortgage-unethical/524169/79 "2010-01-10T20:06:19Z")
> [@RickJay](#): > > > [@Kimstu](#): > > > > A corporate director or executive simply does not have the choice to pursue a course of action that will be financially disadvantageous to the corporation, just because s/he thinks that course of action would be the most ethical thing to do. > > […] Of course they have the choice to do so. If the shareholders don’t like it (assuming they even notice) then the director was explain why they did it. If that means they get voted off the board, so be it. They have a choice. Read more carefully the quoted excerpt that I was talking about in my post: > [@](#): > > Directors […] have a FIDUCIARY duty to act in the best interests of the corporation. These fiduciary duties require the directors to act with care toward the corporation, to act with loyalty toward the corporation, and to act within the confines of the law. A director who breaches this fiduciary duty may be sued by the shareholders and held personally liable for damages to the corporation. In terms of their contractual duty to the corporation they work for, corporate directors, as I correctly said, _DO NOT HAVE THE CHOICE_ to pursue a financially disadvantageous course of action just because they think it would be the ethical thing to do. Of course, it is trivially and obviously true that directors as human beings can still make a _personal_ choice to _VIOLATE their contractual duty to their employer_ for ethical reasons, and take the consequences in terms of getting fired and/or sued for it. I didn’t bother to point that out in my post because I thought it would be evident that I was talking about the choices available to corporate directors _in pursuance of their contractual obligations_—since, after all, those are the choices that determine how most corporations are actually going to be run. ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [January 10, 2010, 8:23pm UTC](https://boards.straightdope.com/t/is-walking-away-from-your-mortgage-unethical/524169/80 "2010-01-10T20:23:22Z")
[http://www.nytimes.com/2007/05/22/science/earth/22ander.html?\_r=1](http://www.nytimes.com/2007/05/22/science/earth/22ander.html?_r=1) Doing right and making money are not mutually exclusive. Ray Anderson head of a carpet company decided to do the right thing and they make fine profits. They also go to bed at night knowing they are helping by not poisoning the environment so badly. [Previous page](https://boards.straightdope.com/t/is-walking-away-from-your-mortgage-unethical/524169.md?page=3) [Next page](https://boards.straightdope.com/t/is-walking-away-from-your-mortgage-unethical/524169.md?page=5)