No. of Recommendations: 23
The original founder of this board, of course, was Mish, who now spends most of his time over on his own blog. Today brought an interesting question from one of his readers. It seems this individual bought a home out in Arizona near the market peak and now is significantly "underwater". He is agonizing over the ethical implications of "walking away" but is convinced he needs to because he is concerned about his income from his business going forward.

That all sounds eerily like my own situation this past Spring when I negotiated a "short sale" on my second home, my "lake house". When I wrote about it here on METAR I was soundly blasted for that decision by many of you. Here is what Mish has to say:

Mortgages are not ethical documents, they are legal contracts. The typical residential mortgage for an owner-occupied home gives the borrower two options: pay on time and in full, and keep paper title to the house, and full entitlements to any appreciation upon its later sale after the mortgage is satisfied; or, stop making payments, and hand the keys back to the lender.

Morality and ethics don't even enter the equation. Either option is perfectly legal for the borrower, and the only criteria should be business-based. All the ethics you need are contained within the four corners of the pages of the mortgage contract.

Indeed, the ethical thing to do, is for each borrower who is underwater to look without blinders at their family's financial situation, not just now, but over the long term.

That's the way I saw it then.....and still do.

No regrets, no lost sleep.

Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.