Strategic Mortgage Default
If you house is worth less than what you owe on your mortgage, your mortgage is considered underwater. The Obama administration has given banks numerous incentives to renegotiate mortgages and help people keep their homes. What have the banks done? Jacked up your credit card interest rates and paid out billions in employee bonuses. Some bailout.
Government bailouts were designed to help the banks, not the individuals. The system cannot handle millions of foreclosures at once without the frail man behind the financial curtain being exposed.
The powers that be – political, banking, religious – sing pretty much the same tune. Pay your mortgage on time each month no matter what.
When did a contract become a moral issue? Let’s examine mortgage default, and even strategic default (you have the ability to pay but do not because it makes no financial sense any longer).
People lose sleep at night, fight with their spouses, and look for a divorce lawyer when they can’t pay their bills. How is this sinful?
Almost no one except identity thieves sign a mortgage with no intention of paying anything back. You intentions were pure, but circumstances change.
ARMs reset resulting in higher payments. Companies downsize. Jobs are lost. People get sick. Family breadwinners die.
Preachers and politicians will quote the Bible to convince you to pay, even if you have to put your family’s finances at risk. What they fail to mention is that the Bible also said to forgive debts every 7 years (reason 7 years was chosen in the first bankruptcy code).
Does it make financial or even moral sense to waste money on a depreciated asset?
Paying way more on your mortgage than you could pay for the same space rented is stealing resources from your family and jeopardizing your financial future.
Banks assume risk by lending you money, and they make money when they guess right. If you default on your mortgage, you are only obligated to suffer the penalty stated in the contract. You don’t have to feel shamed on top of it.
In some states, the bank can sell the foreclosed house and sue you for the money they lost by lending to you – called a deficiency judgment. Banks will sometimes obtain a deficiency judgment even if they agreed to a short sale.
If your state allows deficiency judgments, you may have to turn to Chapter 13 bankruptcy to have your mortgage reset at current market value, or Chapter 7 and discharge that obligation altogether.
Bankers want you to believe that it’s shameful and immoral to ditch your mortgage, but you have already agreed to the penalty such as foreclosure. That risk is a part of doing business for the bank.
Why should you feel obligated to pay on a now overpriced property when a bank or a business would make a cold, hard financial decision and dump it?
According to the Washington Post, the Mortgage Bankers Association sold its Washington, D.C. headquarters for $41 million, about half what it paid three years ago. Was their short sale immoral? Someone in their membership may have taken a huge hit. I have not seen any apologies.
Do what is in your best interest. Falling in love with a house does not make it a sound investment.
After all, slavery was once considered moral. A strategic mortgage default may keep you out of economic slavery without having to seek the protection of the bankruptcy court.
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