Which wont happen if they dont sell/default right now.
I see a difference between the OP’s situation and those examples – the first two are illegal, and the last seems like an obvious over-reaction. Maybe some see walking away from an upside-down mortgage as an obvious over-reaction also, but I don’t see it that way.
Businesses breach contracts all the time – they are aware of the penalties for doing so, but it makes monetary sense to do so, maybe because the services or product they agreed to purchase are no longer needed, so they pay the liquidated damages and get out of the contract. Or they make cost-benefit analyses to make a product that’s not 100% safe, but it costs less to settle personal injury lawsuits than it does to make a completely safe product. It seems to me such companies have a moral obligation not to hurt anybody, or similarly to honor their contracts. Yet society seems okay with them basing decisions purely on numbers and how much money they’re going to make. Why can’t individual consumers and homeowners be allowed to make similar decisions based largely on what benefits them and their family?
Because it isn’t right.
Right, which is why KidScruffy’s hyperbole about the OP sacrificing his family’s needs in order to keep his promise to repay the bank is irrelevant.
There’s mildly upside down. And that happens (usually temporarily in the short term) in anything where values fluctuate, cars, houses, investments, businesses, careers, relationships.
Then there is Titanic level upside down. Man the lifeboats, we are gonna die (financially), every man for himself (screw the women, children, and the bank!).
My impression is the OP is much closer to the former than the later.
And business morality and legal issues aside, as I and others noted, walking away from this house may end up costing the OP more in other ways than just staying put will.
And, of course they need to see a real lawyer and/or financial advisor to get the straight dope for their particular situation.
And I love how people think that because it’s a big faceless corporation it’s okay. What if it isn’t Wachovia, but your local credit union? Would it be okay if it was money you borrowed from an individual stranger? A distant relative?
Not to mention that doing this based on a simple inconvenience distorts the market for the rest of us. A good deal of the money used to keep banks solvent in this market is going to end up coming out of the pockets of taxpayers, either diretly through taxes, or indirectly through increased fees, interest, and other ways the banks have of making these costs up.
Whatever. Perhaps you need to define sacrifice. Kids sharing a bedroom isn’t a sacrifice. Losing one of your doors in a three car garage isn’t a sacrifice.
Foreclosures can take a long time, and all during that the OP could be socking away the mortgage payment he could make. But that’s dishonest, sleazy and so completely unethical, I can’t even stand it.
Do your relatives charge you usurious rates as a part of a business model to make a profit because they know that a certain percentage of people will default?
All the more reason not to default for the rest of us. If you don’t steal, maybe they won’t raise the prices for honest folk, eh?
What on earth is so strange and bizarre to people about just plain “you made a promise”?
I won’t even loan money to my relatives any more because of the default rate. So my honest relatives who might pay me back are now screwed because my irresponsible relatives would rather go to Cabo than pay down their debt to me.
The usurious interest rates were step one. Step two is “you just don’t get our money” which causes a credit crunch. Maybe you remember something like that from last fall?
I didn’t make a promise. I signed a legal document stating that I would do X, and if I didn’t do X then Y would happen. If I decide that Y happening is better than continuing to do X, then I can do that.
I never pledged that I would do X forever and forever even to the detriment of my family.
Why do you treat a business deal like a marriage vow?
Ahhh…the old if its legal its moral school of thought…I doubt you are so enlightened when the shoes on the other foot.
OP, could you rent the house you own to someone else while pursuing a new place for yourself?
I think it’s important, as you mention, that there’s a wide range of degrees of upside-downedness (hmmm, that may not be a word…); and that a line has to be drawn somewhere. But I think it’s also important to realize that reasonable minds are going to differ as to where that line should be drawn.
I have to admit, I’m somewhat playing devil’s advocate here – I’ve never counseled someone in the OP’s situation. Most of the people in my office (I practice Bankruptcy) are between $50-$150,000 upside down on their home (I’m in California), received a 3-day/month unpaid furlough (state employees), got laid off or hours cut, or got hit with unexpected medical expenses. But as emotional as these people are, I try to get them to think rationally and “businesslike” when they address their financial situation. I often tell them that from my perspective, it makes sense to walk away from a house that’s $100,000 upside-down and won’t have any equity for 10 or more years. But I also tell them that it’s their decision, and they have to factor in the emotional cost of losing a house their kids are growing up in and they have invested time and money in. What I DON’T tell them is to consider the moral cost of breaching a contract that they signed onto; and definitely don’t consider how the loan officer’s feelings are going to be hurt when they find out that someone has broken their word.
But maybe I should.
You are also counseling people in bankruptcy - there credit is already trashed - or its going to be. And, while sending the keys in may not be getting you into heaven in regards to ethical behavior, there are really just a bunch of “someone is going to get screwed” choices when you are so broke and upside down in a mortgage - not a lot of “I’ll be able to keep all my commitments” happening in those situations. It could be arguably more ethical in a utilitarian sense to cut your losses early, and recreate a sustainable financial life than to try and maintain an unsustainable one.
So then it especially makes sense for us to walk away now that we’re a single-income and upside-down by $260,000?
Oh, and morality goes two ways. Unfortunately, the lender has shown themselves to be less than stellar in that regard more than once - conveniently “not receiving” documents (Hmm, let me check the FedEx tracking on that…it was delivered to your office last Tuesday.) or giving bad advice tailor-made for pushing people into foreclosure like “Don’t make your monthly payments for two months. Then we can start the loan modification process.” (Conveniently not saying what two 60-day lates do to credit scores.)
Turns out we get a letter in the mail from the bank with info on Obama’s new housing plan and how fannie mae can help us either basically start from scratch or, if we don’t want to keep the house, help us work something out to be able to get rid of it without having to wait months and months for it to sell or having to go through forclosure so we are going to check that option out.
When I first started this thread my moral obligation to the bank didn’t even cross my mind but the topic is really interesting.
First, if any of this matters, the bank I got the mortgage from immediately sold it to Wells Fargo. Does this make a difference in anyone’s opinion? I mean Wells Fargo bought my loan as an investment, knowing that investments have risks. I had no say in it, not that it matters to me much, but I didn’t promise Wells Fargo anything. I can invest in a start up company and lose all my money when the company tanks but nobody is going to feel morally obligated to give me my money back and I wouldn’t expect them to. It’s business. Even if the original mortgage company kept my loan, I still don’t know how obligated I would feel to them. They didn’t say “Hey, we’re going to give you the lowest interest rate possible even though your credit is less than perfect because you seem like a nice family and we want to do right by you”. I’m not going to go into the whole Big Corporations Are Evil thing, but I was a number to them. I was a credit score and a monthly payment. They are making me pay mostly interest for however many years with very little going toward the principal until near the end of the loan when I’m finally paying mostly principal and less on the interest. Do I have a problem with this? No. I knew how it was going into it and it was ok with me. My point is, when it came to giving me a loan, the bank wasn’t doing me any favors. They weren’t being really good friends helping me out. They were making a business decision, as was I in essence. Sometimes business decisions are good, sometimes they are bad. If they come after me for breaking the deal, that would be something I’d have to decide if it was worth or not and live with the consequences, but feeling like a bad person for it? I doubt I would.
I can see the point to an extent about how me letting my home go might affect the economy or taxpayers negatively, but I’d have to look into how much of an impact that actually makes. I mean if my home forcloses and the bank sells it and breaks even, is there any harm done?
Eh. I don’t think you have a moral obligation to the bank, really, for the reason you and others have given (what you have is a contract; if you break it there are certain, possibly very bad, consequences).
But you have a moral obligation to yourself in the sense of a) how much you think of it as a promise you’ve made, b) how important it is for you to keep your promises in general, and c) how important you think this particular promise (if it is indeed a promise) is. It sounds like your answer to a) is “not much,” so never mind.
I’ll also add: I think if your home forecloses and the bank sells it, that is probably a negative for the bank because it’s probably on their books as an asset valued at the price you bought it at. If enough people do this and the bank’s assets aren’t worth more than their liabilities anymore, the bank would have to close. (Or take bailout money, I guess.) On the other hand, I can see counting closing a highly leveraged bank as a moral plus 
Are you going to tell your kids that it’s okay to just walk away from your responsibilities?