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Started By
Message
re: Is "walking away" from a mortgage wrong?
Posted on 10/14/12 at 10:12 pm to GrantTheFan
Posted on 10/14/12 at 10:12 pm to GrantTheFan
quote:
It's no different than when interest rates go up to 7 or 8% the bank says well, this 3.5% loan doesn't make economic sense for us anymore, so we're calling it, please pay in full within 30 days or get out.
What?
2
Posted on 10/14/12 at 10:21 pm to GrantTheFan
quote:
It's no different than when interest rates go up to 7 or 8% the bank says well, this 3.5% loan doesn't make economic sense for us anymore, so we're calling it, please pay in full within 30 days or get out.
But it is different. Mortgage contracts only allow the lender to call the loan if the borrower defaults or if the borrower lied to get the loan.
Mortgage contracts allow for the borrower to default whenever he pleases. The borrower just has to suffer the consequences of that default.
quote:
A deal is a deal and when you're on the wrong side of one, clean it up as quickly as you can without breaking your word and try to learn from it.
But you didn't give your word. You pledged your home as collateral in case you defaulted.
quote:
That said, if major variables change, such as job loss, illness or some other catastrophic situation
A lot of people in this thread have stated something along these lines. "Walking away is wrong unless {insert horrible life event} happens." I find this very problematic. How do you know who's hardship is "bad enough"?
If someone loses a job, who's to say that person can't hustle and make enough money to pay the note? If I'm ill, whose to say I don't have the skills to earn income from my home?
Whose to say that the lender has the right to force me to be employed on their terms?
We have contracts to avoid this kind of ambiguity. I said in my first post here that morality has no place in these matters. Life would be a nightmare if disputes were resolved based on what we collectively feel is right and wrong.
Posted on 10/15/12 at 8:33 am to GrantTheFan
quote:
Yes, it's wrong. It's no different than when interest rates go up to 7 or 8% the bank says well, this 3.5% loan doesn't make economic sense for us anymore, so we're calling it, please pay in full within 30 days or get out.
Not sure why anyone would sign a loan with a bank that the bank can call simply because rates go up. I've never heard of this.
Posted on 10/15/12 at 9:43 am to Crbello4Hiceman
quote:
Not sure why anyone would sign a loan with a bank that the bank can call simply because rates go up. I've never heard of this.
It would basically be a balloon loan with a maturity TBD by the bank.
Nobody in his/ her right mind would borrow on these terms, which is why mortgages don't allow for this.
Posted on 10/15/12 at 9:32 pm to TheHiddenFlask
quote:
What?
I'm not sure what you don't understand here, it's pretty simple - the OP asked if it was wrong to walk away from a mortgage - I believe it is. This example illustrates the exact same situation, except from the bank's side. Now, obviously the bank isn't allowed to do that, but even if they were, it wouldn't be the right thing. Just as walking away from a mortgage from the borrower's side simply because it's no longer a good financial deal isn't the right thing to do.
Posted on 10/15/12 at 9:41 pm to ZereauxSum
quote:
But you didn't give your word. You pledged your home as collateral in case you defaulted.
But you do give your word. When you default, the bank has the legal right to hold you accountable for the remaining balance after the property has been disposed through the REO process. Sometimes they pursue it, sometimes they don't. But the promissory note is absolutely the borrower giving their word, through a personal guarantee to pay.
Now, morally speaking, we all have our own viewpoint. I believe, for me, a promise to pay is a promise to pay. And I'll pay it. Unless I can't due to some unforeseen event that happens in the future. In that case, I would pursue the legal remedies for such an occurrence that are available, such as a bankruptcy filing. The process isn't perfect and many people scam it, so yeah, no one solution is perfect.
Posted on 10/15/12 at 9:44 pm to Crbello4Hiceman
quote:
Not sure why anyone would sign a loan with a bank that the bank can call simply because rates go up. I've never heard of this.
Nobody signs this, it doesn't exist. It's the same situation posed by Wiki, but from the bank's side of the equation, simply to add perspective to the discussion. It would be absurd if banks could/did this. My opinion is that it's no different when the borrower does it.
Posted on 10/15/12 at 10:38 pm to GrantTheFan
quote:
But you do give your word. When you default, the bank has the legal right to hold you accountable for the remaining balance after the property has been disposed through the REO process. Sometimes they pursue it, sometimes they don't. But the promissory note is absolutely the borrower giving their word, through a personal guarantee to pay.
Now, morally speaking, we all have our own viewpoint. I believe, for me, a promise to pay is a promise to pay. And I'll pay it. Unless I can't due to some unforeseen event that happens in the future. In that case, I would pursue the legal remedies for such an occurrence that are available, such as a bankruptcy filing. The process isn't perfect and many people scam it, so yeah, no one solution is perfect.
"Giving your word" is more aptly applied to unsecured debt in a case where the lender has little to no recourse. I might lend $100 to a friend based on them giving their word. No bank is engaging in mortgage lending based on your mere promise to pay, they're lending with the object of the mortgage loan as collateral and with your credit health (and potentially legal liability) hanging in the balance.
I think a lot of people are mistaking the sense of personal failure (inability to produce enough income, poor foresight as to the future value of the home and the state of local homebuying market) with some sort of moral wrong that simply isn't justifiable.
Posted on 10/15/12 at 10:58 pm to GrantTheFan
quote:
But you do give your word. When you default, the bank has the legal right to hold you accountable for the remaining balance after the property has been disposed through the REO process.
Yes. They have this legal right because you signed a contract, not because you gave your word.
quote:
But the promissory note is absolutely the borrower giving their word, through a personal guarantee to pay.
Maybe an argument can be made if we were only talking about a note, but we are not. There is a contract here as well.
If this business is all just a simple promise, why don't we all just exchange money, shake hands and leave? Why do we have to pour over and sign 50 pages of documents? And why would the bank need my house as collateral?
quote:
I believe, for me, a promise to pay is a promise to pay. And I'll pay it. Unless I can't due to some unforeseen event that happens in the future
You're entitled to your opinion of course, but I still don't understand this line of thinking. Who gets to determine if you can't pay? You? The lender? Society?
Posted on 10/15/12 at 11:32 pm to ZereauxSum
Maybe it's just semantics, but the promissory note is just that - a promise that's part of the contract.. To me, that's your word. Maybe we just disagree
Again, maybe semantics, but the promissory note is part of the contract. You give the bank a mortgage on real property and a promise to pay in return for the bank giving you the cash to purchase the real property.
As for who gets to determine what I can or can't pay, it's simply the process of creditors negotiating with the bankruptcy trustee and my attorney, refereed by the bankruptcy court. It's a dirty game at times, but so far it's the best system we've come up with for these situations.
Wiki said he didn't think it was wrong to walk from a mortgage and asked for our opinions. I gave my opinion. Nothing more, nothing less. Because there are varying opinions and especially because situations change, while many scam artists exist, prudent lending practices require that collateral be provided. Nowhere do I say or believe we should just shake hands then exchange money and keys.
quote:
Maybe an argument can be made if we were only talking about a note, but we are not. There is a contract here as well. If this business is all just a simple promise, why don't we all just exchange money, shake hands and leave? Why do we have to pour over and sign 50 pages of documents? And why would the bank need my house as collateral?
Again, maybe semantics, but the promissory note is part of the contract. You give the bank a mortgage on real property and a promise to pay in return for the bank giving you the cash to purchase the real property.
As for who gets to determine what I can or can't pay, it's simply the process of creditors negotiating with the bankruptcy trustee and my attorney, refereed by the bankruptcy court. It's a dirty game at times, but so far it's the best system we've come up with for these situations.
Wiki said he didn't think it was wrong to walk from a mortgage and asked for our opinions. I gave my opinion. Nothing more, nothing less. Because there are varying opinions and especially because situations change, while many scam artists exist, prudent lending practices require that collateral be provided. Nowhere do I say or believe we should just shake hands then exchange money and keys.
Posted on 10/15/12 at 11:40 pm to Dead Mike
I suppose maybe I'm not clear in what I'm saying, but nowhere have I said mortgage lending is based on promises. It's a legal contract, that happens to include an individual promise to pay.
Walking away from anything can be justified in any number of ways. I interpreted Wiki's post to be asking for opinions on walking away from a mortgage obligation that you're fully capable of paying, but choose not to pay, for whatever reason. That's my opinion. If its not your's, fine by me. But mine isn't going to change, either.
Walking away from anything can be justified in any number of ways. I interpreted Wiki's post to be asking for opinions on walking away from a mortgage obligation that you're fully capable of paying, but choose not to pay, for whatever reason. That's my opinion. If its not your's, fine by me. But mine isn't going to change, either.
Posted on 10/16/12 at 12:26 am to GrantTheFan
quote:
I suppose maybe I'm not clear in what I'm saying
No. We get it. It's just the worst case of using a straw man ever.
If the bank did have that option in the contract, it would be completely ethical of them to use their call option on the loan. This happens all the time in the public market.
So really, not only did your straw man not make your point, it degraded your position.
Posted on 10/16/12 at 8:14 am to TheHiddenFlask
A man is only as good as his word.
Posted on 10/16/12 at 8:24 am to frb1951
You would only be breaking your word if you signed the mortgage but didn't surrender the property to the bank upon default. Otherwise, if you default (no matter why) and you surrender the collateral, you are a man of your word.
Am I taking crazy pills? Why do you and Grant not get this?
Am I taking crazy pills? Why do you and Grant not get this?
Posted on 10/16/12 at 8:56 am to GrantTheFan
quote:
Again, maybe semantics, but the promissory note is part of the contract. You give the bank a mortgage on real property and a promise to pay in return for the bank giving you the cash to purchase the real property.
For the sake of this discussion (which I believe is awesome), lets say the promissory note is the equivalent of me giving my word. The bank is still asking for collateral, as well as verifying income and assets so they must not think my word is worth much of anything. But you're right, we might just have to agree to disagree on this point.
quote:
As for who gets to determine what I can or can't pay, it's simply the process of creditors negotiating with the bankruptcy trustee and my attorney, refereed by the bankruptcy court.
BK restructures or wipes out all of your debts. If getting rid of the mortgage is all you need to do, isn't it better to default on it and make good on your other obligations, before you get to the point where you have to default on everyone?
Posted on 10/16/12 at 10:50 pm to ZereauxSum
Well, I think two things. One, the bank doesn't really believe your word. And two, even if they did, the market requires that your income and assets are verified, from both a business and regulatory perspective. So yeah, in reality, they don't think your word is worth very much, so on that we agree.
In some cases, absolutely. If we're talking about simply what may be in your best interests financially, without regard to any other variable, walking away might very well be your best move. And hey, there are people who are buried, 100, 200k in some cases. If they walk away, it's hard to blame them, I understand that.
quote:
BK restructures or wipes out all of your debts. If getting rid of the mortgage is all you need to do, isn't it better to default on it and make good on your other obligations, before you get to the point where you have to default on everyone?
In some cases, absolutely. If we're talking about simply what may be in your best interests financially, without regard to any other variable, walking away might very well be your best move. And hey, there are people who are buried, 100, 200k in some cases. If they walk away, it's hard to blame them, I understand that.
Posted on 10/16/12 at 10:59 pm to TheHiddenFlask
quote:
No. We get it. It's just the worst case of using a straw man ever.
Given that it's an analogy and not a strawman, I agree it would be pretty bad. But worst case ever? Pretty strong statement there, flask. Regardless, I'm sorry language isn't your strong suit and try as I might, I am unfortunately not able to dumb it down to a level you might understand, so I wave the white flag.
Posted on 10/16/12 at 11:17 pm to Crbello4Hiceman
I see it, but my opinion, and that's what it is, an opinion, is that your word is only kept if you make up the difference on what you owe and what the bank gets for it. And if you did make that difference up, walking away wouldn't accomplish anything. You promise to pay 100K in principal, but pay 10k before walking away, leaving 90k. The bank sells the house for 70k. That 20 k is sitting there, if you don't pay it, then your word has been broken. Just the way I see it.
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