Strategic Defaults Increasing Dramatically | Why Keep An Upside Down Home?
Harris Real Estate University students (and future students)…I have a question for you….
Is it immoral for an upside down homeowner to simply….walk-away…from their under water home?
The effects of the so-called ‘Strategic Foreclosures’ are the wild card for housing in 2010-2012. Millions of homeowners are now upside down in their homes. There are many reasons to believe that their homes will remain ‘under water’ for years to come. In mid-2008 we reported that we were hearing from Harris Real Estate University students that the short sales they were closing were largely on the behalf of sellers who were choosing to do a strategic default.
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Why should a home owner keep paying on a home when they are upside down? Is there some sort of moral aspect to paying on a mortgage even when its so severely upside down that the ‘home owner’ has become…in essence…a tenant with their mortgage company as their landlord?
You might be surprised to learn that there are absolutely no ‘moral imperatives’ to pay an upside down commercial loan. Once the commercial property stops making financial sense borrowers often choose to do a ’strategic default’. This has been a normal aspect of commercial loans for years…so, why is there such a double standard when it comes to residential.
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I don’t think it’s immoral for an upside-down homeowner to just walk-away. The mortgage company may not have received a down payment, or they may have received one, but the homeowner has paid off in some cases a fairly good amount before he lost his job, or even if he only paid off a small amount compared to the mortgage they took up. The mortgage company gets the property back, so the value of the mortgage is still there and it can be resold. What’s the big fuzz??? The homeowner is still in the loss as he paid the mortgage for a certain length of time and then had to go back to renting. Homeowners don’t intend to loose their jobs or get hardships on purpose. They don’t know that their house they bought was overpriced unless they had a good realtor pointing it out.
Perhaps there is some confusion out there on what a “strategic default” really is. This is not a case of a borrower losing a job or otherwise not being able to afford the mortgage. This is a person who decides that they simply will not pay the mortgage on a property that has lost value. They borrowed the money and now are looking to get out of paying it back.
Unethical, not moral? I would say yes to both. For those that disagree remember that next time you loan money to someone else. Don’t expect to get paid back if that other person just decides not to repay the loan. I’m sure they can justify it with a similiar arguement.
And it is scary because this could greatly harm not just the banks but all of us. Afterall, where does the bank’s money come from. Deposits from people like you and me. Demonizing the banks may be popular rhetoric right now, but this is hurting all of us. Not to mention it adds to the push downward in homevalues and more.
There are legit reasons why people are in trouble. Real hardship and affordability issues. But for a group of people to take advantage of the current downward trend in pricing to justify not paying what they contractually agreed to pay even though they can afford it?
“Thou shalt not steal.”
That’s about as moral an issue as any I have seen.
My opinion, of course.
Maybe I can use that same reasoning on not paying my car payment. Afterall, it’s worth less than what originally borrowed…