Posted on 12/08/2010 6:26:03 AM PST by Palter
You might call it, “Walking away from your home, for dummies.”
Brent White, the University of Arizona law professor who’s made a name for himself by urging more underwater homeowners to consider walking away from their homes, has published a 168-page book to help borrowers who are wrestling with that decision.
In a tone that is both conversational and precise, “Underwater Home: What Should You Do if You Owe More on Your Home than It’s Worth?” lays out the case for and against walking away from an upside-down mortgage where the home is worth less than the mortgage balance. As is his habit, Mr. White strips away many of the emotional reasons that are often touted to deter walkaways.
Mr. White, who specializes in behavioral economics and the law, touched a nerve with a paper last year that was one of the first to seriously challenge the long-held view that borrowers have a moral obligation to continue making their mortgage payments. He says he’s been inundated with thousands of emails from people that showed him “the real texture of what’s going on—what difficult times people are having, and how people really do struggle with these decisions.”
Mr. White tells readers that he hasn’t set out to recommend any particular course of action. Borrowers need to factor in their personal situation, and the laws in their state. “The bottom line is, people need to make their own call,” he says in an interview. He adds that he wrote the book because he realized “they may need help about how to think about it.”
(Excerpt) Read more at blogs.wsj.com ...
I’m somewhat appalled and saddened at the very liberal touchy-feely attitudes you state toward this subject.
This society is struggling toward socialism today because we have turned away from personal responsibility. A significant portion of the electorate wants someone else to take care of them.
And that’s precisely the sentiment you are expressing.
I feel for the folks with troubled mortgages, some of my family included. But nobody forced any of them to pay inflated prices. As you point out, Edd, the warning signs were there long ago. Common sense did not prevail. It was also very easy for many people to grab ultra-low ARMs, telling themselves that they’d deal with the ramped-up interest rate when the time came.
And they couldn’t.
That’s not your fault. It’s not my fault. It’s not the fault of the businesses who offered these houses and mortgages to the buyers — assuming, of course, full disclosure.
We have free public education in this country, and every buyer should have the reading skills and the common sense to stay away from a bad deal. If they don’t, it’s wrong to expect the rest of us to bail them out or suffer consequences for them.
The right thing to do? Stay put, try to work with the mortgage company, pay what you can, if they mortgage company won’t deal, then wait them out and still keep trying. If you end up on the street, that’s where you would have been anyway, if you walked away.
In the eyes of the Good Lord, a promise made is a promise to be kept, and there are terrible consequences for those who change their minds, even when they’ve been treated unfairly. I can quote you scripture if you care about such things.
The point is that it is our responsibility to behave in a morally upright manner, even if it hurts, and regardless of the misbehavior of others involved.
To a point. The overvaluing of these homes caused every other home in that same market to be overvalued as well. Even in my podunk home town, for a while, homes were being advertised for less than a day and getting offers, often greater than the price asked. Even rental prices were getting out of hand.
Does it help to turn this around? Say you buy a house and agree to a $300,000 mortgage. You pay your mortgage perfectly, and do everything right. Three years later, the bank comes for a visit and says that, since someone wants to buy your house for $1 million, they are cancelling the mortgage, taking your house, and selling it (again) to the new guy.
Does that violate a moral code? I would say "Yes" and I would say it's the same moral code that the Walking Away people are violating.
It may not be their fault, but when they loaned money on an overpriced home (they had equal or better opportunity as the buyer to know a bubble existed) they took the business risk that they might not get paid if the bubble collapsed.
If the contract or or state law in existence at the time the mortgage was completed, they also knew that risk. Asking the underwater homeowner to assume all of the risk by continuing to hold on to the home despite his or her legal rights, would essentially absolve the lender of its own risky behavior.
How is that moral?
That said, if there is a moral obligation for the borrower to pay the negotiated price regardless of circumstance, then the entire transaction is inequitable. While I am certainly not condoning abandoning responsibility, the entire enterprise is apparently rigged for the lender.
So I agree to pay $100k for a house. The bank loans me money to pay for it, but states unequivocally that it will take the house if I don't honor my repayment terms. OK. So the remedy for the lender is to take possession of the property it financed in good faith if repayment terms are not honored.
However, in most states, the law not only provides for the lender to take possession of the property, but to seize additional assets in an attempt to recover any shortfall from auction/resale.
This, to me, seems like having your cake and eating it too. The other ancillary impacts (credit rating destructions, etc.) I find perfectly fine. But it just appears odd that the lender is not also assuming some value risk in the transaction. They are guaranteed options to be made whole, whereas the borrower is not.
And the houses are worth that much at the time of appraisal. Unfortunately, there is no guarantee that they will increase in value or even hold their value.
My house was appraised at $280,000 in June 2009. In September of this year it appraised at $180,000. It's a risk you take when you buy a home. If the market had continued the way it was going, I stood to make a lot of money if I ever sold the house. It didn't, so I lost.
I have a knack for buying high and selling low. I bought a house in California when I was stationed there. Eight months later the government announced the closure of the base and my property values fell 50% overnight. Four of the five homes I've owned over the last 20 years lost value after I bought them.
A very good question. One that will draw a lot of ridicule from the morality police here at FR, though none will bother to answer you.
Ding Ding Ding!
(If I knew how to html bold I would)
“However, in most states, the law not only provides for the lender to take possession of the property, but to seize additional assets in an attempt to recover any shortfall from auction/resale.”
50 States
50 sets of mortgage laws
In Delaware you sign both a Mortgage and a Note... meaning you have pledged the property and everything else you have and make.
Beware of real estate guru’s selling “get rich quike” or “walk away” schemes.
Unless the book has 50 chapters for 50 states... it’s worthless
Psalm 37:21 The wicked borrow and do not repay,
but the righteous give generously.
and
Keeping a Business Vow
http://www.cbn.com/finance/crownvow.aspx
Unless the contract or state law governing your contract, in effect at the time of the signing, says you can walk away - then its not breaking any contract - because that factor was part of the original deal.
You asked, “If corporations don’t have a moral obligation towards an individual they are doing business with, why does the individual have a moral obligation towards the corporation for the same given transaction?”
Because my morality does not depend upon the behavior of others but is a matter between me and God.
The “But Timmy did it!” excuse expires in first grade.
That old “two wrongs don’t make a right” thing.
Is that common?
Corporations are owned by individual shareholders, they don't care about morality, they care about profits.
My objection to mortgage systems is that they front load the interest, which measn that if the market remains at current values, the house does not appreciate you any value though you put tens of thousands into mortgage payments. Until year ten in a thrity year, you’re paying basically all the thirty year interest up front. If you can afford the fifteen year, you still pay most of the interest up front but your payments do reduce the balance due more rapidly than in a thirty year.
Do the Mortgage holders have a moral obligation to provide the correct paperwork and proof that they actually own the property and legally own the Mortgage? I think they do, and their moral obligation is no less serious than the borrower’s. It’s a two way street, and if they can’t prove they own the property, they should pay the price, just as the borrower will if they walk away from a legal mortgage.
Fair market value was based on appraisals done at the time of purchase.
One thing that I've seen around here is that people get mad when the house goes into foreclosure and trash it. Some people have moved out and left their pets in the house to destroy it and ultimately starve to death.
I agree, the lenders have a moral obligation; which many have failed. Too many have gotten away with it, due to (once again) the moral decay that is rotting our society from the inside out.
IMO, there are a lot of people that should own their homes outright, due to contract breach by mortgage holders and banks across the nation.
And they agreed to it believing that the banks and assesors had not lied to them a bout the true worth of the property, but just in case ~ they wanted and got a clause allowing them to walk away if they discovered they had been lied to.
Funny how there are some people whining...because the buyers acted both prudently and responsibly ~ leaving the con men little recourse.
States are divided into essentially two categories. Non recourse states (most Western states allow you to walk away. Other states, like Michigan, allows the lender to sell at auction and add on all of their legal costs and sue you for any deficiency. The only way a person can get rid of this obligation is via bankruptcy.
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