Yes, I know lots of people will frown upon the idea of walking away from your mortgage and credit card debts because as a society we have been taught by the self appointed ethic police, who constantly try to instill the value of obligation in our self consciousness, that it is morally and ethically bad to do so. These people earn millions by talking crap on the TV, doing useless prediction, helping banks gamble your money and when they see the possibility of millions of people pointing their middle fingers to their lenders and credit card debtors, they’re alarmed.
- Image by Mel B. via Flickr
The idea of walking away from your mortgage was in circulation from early 2009 but when columnist Roger Lowenstein suggested that the beleaguered home owners to do the same in his The New Your Times column, a firestorm ensued. The ethic police attacked him for teaching a wrong lesson to the children of those helpless home owners who are on their way to financial ruins.
I recent online poll by Baltimore Sun suggests that at least most online users (86%) will walk away from their so called “obligation” to cut their losses. This is a good news. At least online users are better able to strike a balance between their obligation and personal finance. But ethic loving people with poor financial knowledge will continue to suffer to make a few people rich.
There is no obligation to stay in your home when you know that your personal finance will be ruined for the rest of your life by doing so. When you signed the promissory note for your mortgage, you’re obligated to either make a monthly payment or leave the home for the lenders to possess. And you’re doing exactly that by walking away from your mortgage payment.
If you’re drowned in credit card debts with more than 20% interest rate, you’re giving your money to some fat cats to enjoy all the luxury of life at your expense. You and the banks who issued you those credit cards are both at fault.
We’re constantly bombarded with advertisement and commercials that make us believe that we must have items that we really don’t need. Adult peer pressure and keeping up with Joneses make us blind to our financial health. Banks keep on sending unsolicited credit cards with teaser interest rates. After all, we’re human beings. We’re not saints. We’re not enlightened and in most cases we’re simply stupid and we easily fall for the prey.
Have you ever wondered how many businesses declare bankruptcy every year, how much money banks write off as bad loans to businesses, how many businesses are walking away from their obligation to pay bond holders, lenders, and pension funds? And whose money are they playing with? They’re playing with your money folks. They’re using your money from pension finds, mutual funds, IRAs, savings, money market funds, etc. to play their game in the name of business. If they succeed, you get a pittance and they make big bucks. If they fail, they simply walk away from their obligations, sometime with big bonuses.
I did not see ethic police all over the TV when Morgan Stanely stopped making payments for some of their buildings.
Before you take any action you should assess your financial situation and long-term financial effects of your action, including having a bad credits score and defaults in your credit report. However, you should never listen to the ethic police and anybody who makes it a moral issue. If your advisor is uttering moral and ethical issues, run from him.
PS. I am not a lawyer. Consult a lawyer about your state laws for such an action.
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Now the banks have upped the ante, if you are thinking of “walking away”, be aware that although you have returned the collateral to the bank (the house) they may come back against you with what is called a “deficiency judgment” which is placed against you personally for the remainder of the loan. That is if you have an $800K mortgage and you walked away because the house is now worth $500K -the bank will likely sue you personally for the deficiency of $300K. Outrageous, yes. Just be aware that the bankers are creating a black market of cash and barter for many people who used to be middle class.
I am not a lawyer. In some states defiencey judgement is not possible and practical. You should always consult a lawyer before doing anything. I just put my arguments against ethicality of walking away. My main point is, there is nothing unethical about walking away. There may be other considerations but ethics should not be one of them. People who advocate ethics, and “what children will think” kind of arguments have their own agenda and in many cases they are the most unethical people or under deep influence of releigion.
Kudos to you for the interesting and informative blog. This post really helped me out.