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.



http://globaleconomicanalysis.blogspot.com/


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

No regrets, no lost sleep.


Sonnypage
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No. of Recommendations: 153
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.

There are two key mistakes in that analysis:

1) The typical residential mortgage (technically the note) for an owner-occupied home does not give the borrower two options. It usually only gives them one option - repay the loan in a manner consistent with the terms of the contract. Failing to do that is not an option under the agreement - it is a breach of the agreement. This is why all states treat failure to pay back the loan as a breach of the Note, and why many states permit the party who is injured by the borrower's failure to meet the terms of the agreement to obtain damages in the form of a deficiency judgments.

2) Breaking a legally binding promise has an ethical dimension. If your car dealer decided not to honor your warranty simply because they thought they could get away with it, or your employer decided not to pay you your full salary or commission because they didn't think you'd sue, you would regard those folks as acting unethically. They made a deal, they made a promise, and now they are breaking it because it is financially expedient for them. Whether walking away from a mortgage is ethical or not may be a complicated question - but merely because the documents which create the obligation are 'legal contracts' does not mean there are no ethical obligations created by the promise.

Albaby
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No. of Recommendations: 28
Sonny,
I love your posts more than anybody, but to many of us signing our name is a deep, ethical obligation more binding than the law.
Ray
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No. of Recommendations: 2
"The only rules that really matter are these: what a man can do and what a man can't do."
Jack Sparrow

Better not sign for that flip quote,

but I agree with Sonny on this one, at least.
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No. of Recommendations: 0
"There are two key mistakes in that analysis:

1) ...
2) Breaking a legally binding promise has an ethical dimension. If your car dealer decided not to honor your warranty simply because they thought they could get away with it, or your employer decided not to pay you your full salary or commission because they didn't think you'd sue, you would regard those folks as acting unethically. They made a deal, they made a promise, and now they are breaking it because it is financially expedient for them. Whether walking away from a mortgage is ethical or not may be a complicated question - but merely because the documents which create the obligation are 'legal contracts' does not mean there are no ethical obligations created by the promise.

Albaby "

I wish I could recommend this reply more than once.
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No. of Recommendations: 1
I love the sentiment, but I don't think we can really hold
people's feet to the fire retroactively when the system we had was
primed to make them all fail.

Unless you were very lucky with stock options or had some other
windfall, it is highly unlikely you bought a house in bay area
straight up (20% dn, 30yr fixed) after 2002 or so. A median price
house in Santa Clara was $734K at the end of 2006:

http://www.highbeam.com/doc/1G1-155936442.html

Percent of income for the mortgage was 50%, which is a lot more
than recommended. The mortgage to rent ratio was 2, which meant
that this situation didn't make any kind of investing sense
unless people were counting on flipping the houses for more
money.

http://www.housingtracker.net/affordability/california/san-j...

When everything fell apart, there was no way a lot of these folks
were going to be able to make good on those loans regardless of
what they signed.

No recourse exists because of the stories of banks chasing down
debtors during the Great Depression. Folks who saw that first hand
wanted to make sure that didn't happen again.

We (meaning everybody in the US who wasn't screaming about this
issue) allowed a system with 0-down jumbo ARM liar loans. If we
hadn't allowed those loans, the ridiculous prices for housing in
CA wouldn't have happened.

We could point fingers about how we got into this mess. As a
conservative type, I would blame Barney "roll the dice" Frank ,
Frank "Freddie Mac" Raines, and Chris "Friend of Angelo"
Dodd. Most folks here would blame George "it was his watch" Bush.

Maybe in the future we will all move over to whatever they were
doing in Vermont that Wendy pointed out. For now though, I think
we need a way out of this mess that doesn't doesn't make things
worse.

I've read about one compromise (
http://boards.fool.com/Message.asp?mid=27894643) that may get us out
of this. Has anybody else seen something else that doesn't just
involve inflating the currency all to hell?
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No. of Recommendations: 11
I believe it is time to move this thread to Free for all Economics.

That said, one of my "titles" (job descriptions?) is "Contractor". I make my living fulfilling the terms of the contracts I sign. If one of them is a loser, then I lose money. Signing a contract (whether to marry, buy a home, do a job) is an ageement betweern tow parties which is binding on both. If you brogate this rule, our entire society cannot continue to exist. There would be no credit as there woiuld be no trust. There could be no agreement to do anything in the future without overwhelming colateral (or hostages) as a person's word would be meaningless.

My word is my bond, my handshake only an additional token, but my name on a legal document, while no more binding on me than my word, gives my counterparty the comfort of knowing their legal reemidies if I do not comply with my part of the agreement.

Would I break my word? In a heartbeat if my family's life was in joepardy if I didn't. Would I break it because I had signed a "bad" contract and was in the hole moniterily? Of course not (never have n the past, don't forseemyself doing so in the future - a deal ois a deal).

But of course, that's my way of looking at things through the eyes of a guy who signs dozens of contracts a week. Maybe for others ethics are an option.

Jeff
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No. of Recommendations: 9
Breaking a legally binding promise has an ethical dimension. If your car dealer decided not to honor your warranty simply because they thought they could get away with it…… Albaby1


Sonny, I love your posts more than anybody, but to many of us signing our name is a deep, ethical obligation more binding than the law...RayKinsella



When I made the decision in early November that I had to let my lake house go, it was after a third year in a row of seeing my income from real estate cut in half. More important was the stock market crash of last October. Most of you will recall that the markets, as measured by the DJIA, fell from 11,000 or so down to about 8,000 in the space of ten trading days. Both of those events happening on top of each other could not have been reasonably anticipated by me when I bought my lake house. Understand that I could have worked around either event by itself, but both together were a different matter indeed.

I had no idea, at that point, if my income or my stock portfolio would ever be restored. If the answer was never, then I had a hard choice to make to avoid the potential of losing more than just my lake house. I will ask you this question. What if I had continued making my payments on my lake house? Then because of that decision and the continued drain on my remaining resources, let’s say at a point in the future I am forced to give up both my lake house, my primary home as well, declare bankruptcy, and because of that find myself, my wife and my children thrown out on the street. Would that somehow be more “ethical” or just monumentally stupid?

I did not create this disaster; the “smartest guys in the room” did that. I am simply another member of the peasant class caught up in this mess and trying to survive. If that bothers some of you, get over it.


Sonnypage
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No. of Recommendations: 8
Would I break my word? In a heartbeat if my family's life was in joepardy if I didn't. Would I break it because I had signed a "bad" contract and was in the hole moniterily? Of course not (never have n the past, don't forseemyself doing so in the future - a deal ois a deal).

But of course, that's my way of looking at things through the eyes of a guy who signs dozens of contracts a week. Maybe for others ethics are an option.


But perhaps from a MacroEconomic perspective we wouldn't be in this mess if we all counted the cost and felt deeply about the contract before we signed.
Of course I hold one 30 year fixed mortgage at 5% and have never been one minute late for a payment (credit score 800) so what do I know?
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No. of Recommendations: 3
Sonny - you have absolutely NO NEED what-so-ever to "defend yourself" if that's the correct phrase to your friends here or anywhere else .....

Enough already -

*** If I had reported all of the truly "stupid mistakes" to save mine or someone else's butt - I'd made over the last 45 years this thread would be 700 posts long .... and POINTLESS ***

Give it a rest guys - or go hire a "ring" and duke it out
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evaitl: "I love the sentiment, but I don't think we can really hold people's feet to the fire retroactively when the system we had was primed to make them all fail."

Personal responsibility is apparently no longer an issue?

"Unless you were very lucky with stock options or had some other
windfall, it is highly unlikely you bought a house in bay area
straight up (20% dn, 30yr fixed) after 2002 or so. A median price
house in Santa Clara was $734K at the end of 2006:

http://www.highbeam.com/doc/1G1-155936442.html

Percent of income for the mortgage was 50%, which is a lot more
than recommended. The mortgage to rent ratio was 2, which meant
that this situation didn't make any kind of investing sense
unless people were counting on flipping the houses for more
money."


So, who held a gun to anyone's head and made them buy?

"When everything fell apart, there was no way a lot of these folks
were going to be able to make good on those loans regardless of
what they signed."


Probably true.

"No recourse exists because of the stories of banks chasing down
debtors during the Great Depression. Folks who saw that first hand
wanted to make sure that didn't happen again."


In California perhaps (but I understood that non-recourse applied only to purchase money mortgages) but was it not more a function of the one-action rule than non-reourse.

The rules are different in other states.

"We (meaning everybody in the US who wasn't screaming about this
issue) allowed a system with 0-down jumbo ARM liar loans. If we
hadn't allowed those loans, the ridiculous prices for housing in
CA wouldn't have happened."


Those ridiculous prices also would not have happened if buyers were more sensible and refused to buy at those prices. It takes both seller and buyers to establish a market price.

As a conservative type, are you usually not arguing for personal responsibility?

Regards, JAFO
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No. of Recommendations: 60
I had no idea, at that point, if my income or my stock portfolio would ever be restored. If the answer was never, then I had a hard choice to make to avoid the potential of losing more than just my lake house. I will ask you this question. What if I had continued making my payments on my lake house?

I think I'm part of the "you" to whom that question is addressed, so I'll respond.

I took great pains in my post not to personalize my response to your particular scenario. Indeed, I noted that "walking away from a mortgage is ethical or not may be a complicated question." I was pointedly not trying to discuss your specific situation, but rather to address the fundamental flaws in Mike's reasoning.

In other words, I am not saying that your decision to walk away - or anyone else's specific decision to walk away - is ethical or not ethical. Rather, I am rejecting Mike's argument that these decisions do not implicate ethical questions. I believe they do.

Whether one would conclude, under that ethical analysis, that your particular decision to walk away from your lake house mortgage is a very complicated question. I am trying to respect what I thought was the general consensus at the time, which was that such individual (and personal) matters were not really matters appropriate for this board. Also, I think that at some point, your personal privacy should be respected as well.

But as to the general question of whether walking away from a mortgage raises questions of ethics, I believe that the answer is unequivocably "yes." A mortgage (again, technically the Note) is a promise. Refusing to pay the debt is breaking that promise. It is not an option under the terms of the Note - it is a breach of the contract. A decision to break a contract (rather than exercising a choice within that contract, such as deciding not to exercise an option) has an ethical component.

These are general statements, and Mish's general statements to the contrary are (IMHO) incorrect. To the extent that he is suggesting that honoring contractual obligations is - in general - devoid of ethical dimension, I think he is not only wrong, but advocating a policy that would seriously jeopardize the underpinnings of all non-bazaar economies. Any transaction which requires future performance, rather than a contemporaneous simultaneous exchange of goods/services, relies both on legal and societal codes of conduct that emphasize the honoring of commercial obligations.

I was not commenting on your specific situation, and would prefer not to - I think that your personal financial situation is your own business, and would like to accord it some privacy, except to the extent that you willingly share details.

Albaby
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No. of Recommendations: 4
...No regrets, no lost sleep.....

Maybe you should have some regardless of the ethics involved.

Last weekend I was up at Lake Lanier where your lake house is at. Now that it has refilled it is beautiful.

Too bad you sold last spring when the water was low and ugly.

I would be willing to bet that between taking a discount for selling through a short sale, and selling when the lake was at its low point that you sold for a LOT lower price than you could get today.

Have you checked to what the buyer could flip the house for today?

Sometimes “you have to do what you have to do” but as I recall the short sale only “saved” you something in the order of magnitude of $10 to $20K as best we could guess. Painful, but for a high end real estate agent that is hardly a hopeless situation like some of the stories you read.

Greg
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No. of Recommendations: 3
"All the ethics you need are contained within the four corners of the pages of the mortgage contract."
**************

At least you guys aren't among those who think we have too many lawyers - or that our society has become generally too litigious. (right?)
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No. of Recommendations: 9
I love the sentiment, but I don't think we can really hold
people's feet to the fire retroactively when the system we had was
primed to make them all fail.


I think that morally - for those who think there's a significant moral dimension (which includes me) - we must distinguish between those who CANNOT fulfill their commitments, and those who CAN BUT CHOOSE NOT TO.

Also we need to have some sympathy for those who were misled by fraudulent or borderline-fraudulent lending practices, no matter which group they fall into. I'm afraid I have a hard time considering Sonnypage a suitable target for such sympathy, he is a real estate professional and I believe called the bubble a bubble BEFORE buying a house, but there are plenty of less sophisticated real-estate buyers out there.

On the other hand there's a limit to that. Any borrower ought to know that if he can't borrow enough for a house by telling the truth and providing documentation, but he can by lying and providing no documentation, taking the loan is a bad idea. Those who aren't smart enough to even figure THAT out... (including the lenders who provided the money for such loans...) Sometimes economic Darwinism just seems really appropriate.
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No. of Recommendations: 102
I did not create this disaster; the “smartest guys in the room” did that. I am simply another member of the peasant class caught up in this mess and trying to survive. If that bothers some of you, get over it.

1. Dude, a guy with a second home on a lake isn't "peasant class".

2. I was very over this, until you dragged it back up. Why? For no other reason than to say, "Someone most of you know agrees with my choice"? Maybe the botherment of others bothers you more than you like to admit.

--FY
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No. of Recommendations: 9
When I made the decision in early November that I had to let my lake house go, it was after a third year in a row of seeing my income from real estate cut in half. More important was the stock market crash of last October. Most of you will recall that the markets, as measured by the DJIA, fell from 11,000 or so down to about 8,000 in the space of ten trading days. Both of those events happening on top of each other could not have been reasonably anticipated by me when I bought my lake house.

IIRC, there were posts back then about the real estate bubble and stocks being overvalued.

I did not create this disaster; the “smartest guys in the room” did that. I am simply another member of the peasant class caught up in this mess and trying to survive.

You tried to join in at the all you can eat jumbo free lunch buffet and got burned.
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"But as to the general question of whether walking away from a mortgage raises questions of ethics, I believe that the answer is unequivocably "yes." A mortgage (again, technically the Note) is a promise. Refusing to pay the debt is breaking that promise. It is not an option under the terms of the Note - it is a breach of the contract. A decision to break a contract (rather than exercising a choice within that contract, such as deciding not to exercise an option) has an ethical component.

These are general statements, and Mish's general statements to the contrary are (IMHO) incorrect. To the extent that he is suggesting that honoring contractual obligations is - in general - devoid of ethical dimension, I think he is not only wrong, but advocating a policy that would seriously jeopardize the underpinnings of all non-bazaar economies. Any transaction which requires future performance, rather than a contemporaneous simultaneous exchange of goods/services, relies both on legal and societal codes of conduct that emphasize the honoring of commercial obligations.

I was not commenting on your specific situation, and would prefer not to - I think that your personal financial situation is your own business, and would like to accord it some privacy, except to the extent that you willingly share details."
- Albaby

I LOVE the way GOOD lawyers think.

The LAW, to this pilgrim, is a societal philosophy. It is crafted and honed after decades/centuries of trial and error.

The LAW is to be respected. It is what it is for great good reason.
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Sometimes “you have to do what you have to do” but as I recall the short sale only “saved” you something in the order of magnitude of $10 to $20K as best we could guess. Painful, but for a high end real estate agent that is hardly a hopeless situation like some of the stories you read.......Watty

Uh…actually Watty, It may have been a tad more than that. Keep in mind we paid $420M and sold for $385M, so there’s 35M right there. Now add in the 3% commission we paid the buyer’s agent to bring us a buyer that gets us up to what, maybe $45 M? Now, I should point out we stopped making payments on the mortgage starting in November, so, the grand total wound up around $60M. Remember, this was 100% financing, so we owed the second lender around $80M or so.

Remember that lenders will not take you seriously until you stop making your payments, only then will they negotiate. The first lender would be made whole, so they had no problem from the beginning, but they made it clear they would go quickly to foreclosure. And why not, they were certain they could foreclose and sell for what they were owed, maybe more. It was the second lender who was always at risk of being left completely out. We had great attorneys, the very best. As late as noon the day before the scheduled foreclosure, one of our attorney’s called me to say the second lender was still insisting we make “a more significant contribution”. My reply was always no way, I do not care if we short sale or foreclose. At 3 PM the second lender called our attorney and caved in completely. Good choice, otherwise they would get nothing.



But as to the general question of whether walking away from a mortgage raises questions of ethics, I believe that the answer is unequivocably "yes." A mortgage (again, technically the Note) is a promise. Refusing to pay the debt is breaking that promise. It is not an option under the terms of the Note - it is a breach of the contract. A decision to break a contract (rather than exercising a choice within that contract, such as deciding not to exercise an option) has an ethical component......Albaby1


You are incredibly naive. Contracts are broken and amended right and left, each and every day. Why do you think we have attorneys? If the penalty I pay for breaking or renegotiating a contract is less than performing, then I call my attorney. In this case the "penalty" I paid was the 21 months of mortgage payments that went down the drain.What was now at risk was much more than that.

Make no mistake, I did not want to lose my lake house. But I had just been smacked down by the October, 2008 stock crash. I had no idea when if ever I would make that back. I was down 65% year to date last October, a complete catastrophe. I have a 100% gain since then, still in the hole, but able to breath again.



Dude, a guy with a second home on a lake isn't "peasant class".....FoolYap


Actually, "Dude", I do not work for Goldman Sachs or JP Morgan, no $100 million bonus here. I assure you that I am a struggling peasant.


Here's a final word from Mish over on his blog.


In regards to individual homeowners, if there is an ethics issue at all it would be for the homeowners to make sure their families are protected from harm rather than accepting financial ruin for themselves and their family because of someone else's misguided sense of ethics.

http://globaleconomicanalysis.blogspot.com/


Sonnypage
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No. of Recommendations: 11
What means this word "ethics"?

There are politicians demonstrating ethics by publicly and privately accepting bribes to support specific businesses or causes. Others, (or perhaps the same ones) standing up and lying about other countries healthcare systems to cover their own dysfunction offerings and because they have been paid to do so. The mere fact that the taxpayer is also paying them must be a bit of an ethical conflict at times?

How about an ethical leader who adds an expensive benefit for seniors before an election but makes no mention of funding that benefit?

Then there are the fine examples of wealthy or celebrity drug addicts buying their way into plea deals not available to the ghetto rats. How about the ethics of multimillionaire sports figures flaunting the doping rules and usually getting away with it because they can hit a ball, throw a pass or swim fast?

Then of course there are those fine bank CEOs who got hundreds of millions in golden parachutes after destroying their shareholders wealth, lot of ethics there. Oh how about former bank execs now working for government who get to save their own fortune with taxpayers money, lucky choice I'm sure, no ethical issues involved I'm sure.

What about the ethical example of government agencies allowing banks to keep bad loans on the books so they don't have to admit that they are really bankrupt, wouldn't want the bad example of a bank ethically failing when a little fib can prevent it?

How about the mortgage brokers who insisted that the fruit picker in California who made under $20K a year could afford the $750K mortgage, any of those guys in jail, clearly the fruit picker had an ethics problem? Perhaps the mortgage brokers boss who had the ethics to fire the risk manager who had ethics and tried to reject some of the worst crap, is he in jail or at least fired?

Oh then there are those ethical local and state politicians who feel that their sinecure at the public teat is important so when they need a sewage and water system they would rather borrow the money than raise the taxes to cover the cost and risk getting thrown out? Of course since they are in the market anyway, might as well grab a few extra billion in case something else comes up.

How about all those fine ethical church leaders who get caught with little boys or prostitutes, often paid for by church funds? Oh and the high level ones who preach against diverse minorities only to get caught in bed with one of them.

One of my favourite is ethical drug companies who are allowed to slightly "reformate" a drug (with no real efficacy gain) in order to work around the patent laws.

Finally there are the ethical taxpayers themselves who have discovered they merely need to threaten to vote against their leaders in order to ensure more services from the public purse for themselves while keeping taxes low. The standard answer is of course that the politician should cut spending... just not on any of the things I use.

Are these the "ethical" examples that one must use to design one's own life around?

If so I can see where there might be a problem for a little guy with an underwater mortgage.


****not signed because corruption breeds corruption****
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Excellent! You finally made my board [after all these years]

Are these the "ethical" examples that one must use to design one's own life around?
If so I can see where there might be a problem for a little guy with an underwater mortgage.
****not signed because corruption breeds corruption****


incidentally - my word would be "contempt"

*** a Dem playing "Hardball" ***
"Vote your district or die"
and we don't give a damn who paid you off
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Mortgages are not ethical documents, they are legal contracts.

I agree.

These documents have promises. Once contemplating breaking some or all the promises you make the ethical nose is under the tent flap; and, if/when the the choice to break promises is made and carried out the ethical beast is in the tent and running amok.

I believe the poster who started this post is not the only person represented in the thread who has from time to time behaved outside ethical boundaries, probably we all have when the opportunity, the temptation, and the apparent self advantages to oneself---- and get away with it--- come together. I have, and I've been reared to experience shame on those occasions.

The poster who started this thread has often used opportunities to tell us about his life, and my impression is that his stories from real life describe events he takes pride in what he did. But I doubt he takes much pride in this particular event.

I think I have read most of sonnypage's posts in the past 4 or 5 years, and I have given him a lot of recs. While I reserve the option of being mistaken, I don't recall sensing pride in his discussions of this event,

But ethics are no more appropriate on this board than politics.

Let's move on.



matson

matson
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No. of Recommendations: 39
If that bothers some of you, get over it.



Hey, you brought it up. And since you did, maybe now that your portfolio is back where it was, you could pay back the mortgage holder for the bag you left them holding.
Ray
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In this case the "penalty" I paid was the 21 months of mortgage payments that went down the drain.

That was no penalty, that was the going price for the use of their money over those 21 months!

What was now at risk was much more than that.

Well, you stated that $45k was at risk. Earlier you also said that you had the $45k in your investment accounts. What reasoning was used to determine that the bank should eat the $45k investment loss rather than you?
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No. of Recommendations: 39
I don't know why you had to bring this up again. Let me just say again, what you did is right, for your own selfish, self serving reason. I could not fault you for that, I would do the same thing (thankfully I was smarter than you).

On the other hand, don't go blaming the "smartest guys in the room" or whatever crappy analogy you can come up with. This was 100% your mistake, you were an id--t especially since you were hanging around this board long before the burst, you read thousands of posts screaming bubble. You are in the real estate business NO LESS. So puhhleeez, go in front of the mirror, refer to yourself in the third person (like you always do) and tell yourself, "Sonnypage, you made a mistake. I hope you learned from this experience." Then tonight, thank whoever G/god you believe in for being born here in the US.
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No. of Recommendations: 65
You are incredibly naive. Contracts are broken and amended right and left, each and every day. Why do you think we have attorneys?

To protect us and seek just recompense from citizens like you who maintain convenient self-serving notions about contracts, pledges, and ethics.
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Sonny,

You (and Mish) are absolutely right. I have said so many times myself, including here on this board.

But that won't stop the brainwashed from foaming at the mouth...

-Darth
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I did not create this disaster; the “smartest guys in the room” did that. I am simply another member of the peasant class caught up in this mess and trying to survive. If that bothers some of you, get over it.

Sonnypage


I was on board with your OP, but not this. I don't expect you to take fiscal or contractual responsibility for your bad decision because the bank and the gov't and everyone else involved was behaving just as badly, and as you pointed out, it's a financial contract, not an ethical document. I do, however, expect you to take INTELLECTUAL responsibility. 'Gee, I'm just a lowly peasant and didn't understand' isn't gonna fly as an excuse.

You were and are neck-deep in the RE industry. You had front-row seats to the most extraordinary RE bubble in this country in a century. What's more, you have lived and worked through previous housing downturns. You, of all people, should have been immune to the kool-aid that said "house prices always go up!". What did you think got you that lake house and that high-life income? Your preeminent abilities? What changed that all of a sudden made a profession with absolutely no requirements for entry into a path to the jet set? Did you really think that the silly sauce would flow forever? Everyone that has lived through the RE industry for any length of time (I know several of them personally) knows that you save during the good times and survive during the lean times.

Instead, you bought a lake house. You should have known better.

-Darth

P.S. Congrats on the successful short sale, but I would have let it foreclose. You now have to pay taxes on the "income" that the bank wrote off.
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Keep in mind we paid $420M and sold for $385M

Definitely peasant class.

-Darth
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Ethical (eth-i-cal); pertaining to or dealing with morals or the principles of morality; pertaining to right or wrong in conduct.


I have completely lost track of how many millions of Americans have lost their homes through foreclosures or short sales in this economic catastrophe. The conclusion that Albaby1 and those who “rec’ed” his post comes to is that they, all the millions who lost their homes, are guilty of unethical behavior. I am at a complete loss for words; I have no response to that.


Sonnypage

I was on board with your OP, but not this. I don't expect you to take fiscal or contractual responsibility for your bad decision because the bank and the gov't and everyone else involved was behaving just as badly, and as you pointed out, it's a financial contract, not an ethical document. I do, however, expect you to take INTELLECTUAL responsibility. 'Gee, I'm just a lowly peasant and didn't understand' isn't gonna fly as an excuse.

You were and are neck-deep in the RE industry. You had front-row seats to the most extraordinary RE bubble in this country in a century. What's more, you have lived and worked through previous housing downturns. You, of all people, should have been immune to the kool-aid that said "house prices always go up!"....... you bought a lake house. You should have known better.
....DarthFerret



Ahhh, but Darth, I did indeed, as you say, drink the kool aid. When we closed back in January, 2007, I still believed this was only a normal downturn that would soon reverse.

I plead guilty to monumental stupidity but not to unethical behavior.


Sonnypage
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Guys/Gals,

This is not ther proper venue to discuss personal ethical issues. PLEASE let's move this somewhere else.
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This is not ther proper venue to discuss personal ethical issues. PLEASE let's move this somewhere else.


Ethical??? I thought the thread was about Ethnical. I was wondering why it had not been pulled. Never mind...
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Sonnypage,

personally I find it wonderful that you have started to reply to posts instead of only opening threads, as has been your habit for many years. I very much hope this is not just an ephemeral phenomenon.

Abe
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I have completely lost track of how many millions of Americans have lost their homes through foreclosures or short sales in this economic catastrophe. The conclusion that Albaby1 and those who “rec’ed” his post comes to is that they, all the millions who lost their homes, are guilty of unethical behavior. I am at a complete loss for words; I have no response to that.

I'll respond, because I was mentioned by name. You are probably at a complete loss for words because you have (again) read my post incorrectly.

My comments do not lead to the conclusion that all the millions who lost their homes are guilty of unethical behavior. The fact that failing to honor your mortgage (again, technically the Note) is an ethical decision does not mean that everyone who is foreclosed on has acted unethically. To take the simplest case, someone who literally cannot meet their mortgage payment or repay their loan cannot be acting unethically when they are foreclosed on. They have no choice, no decision - and therefore there is no ethical dimension to their default. It is never unethical simply to fail to do the impossible.

It is only when the borrower has an option, when they choose to default on their obligations, that breaking their promise has an ethical dimension. Again, as I pointed out in my post, this is a complicated question - we may conclude that a person in this situation has acted ethically, notwithstanding their default. To take another simple case, a borrower who has the money to repay their mortgage but has already promised it to another faces a situation where they can repay the mortgage, but they will break a pledge by doing so - such a borrower might be ethical in determining that the claim of the other party has higher priority than the mortgage.

These are analysis within an ethical framework. I am rejecting the premise that breaking one's promise to repay a debt is somehow not an ethical decision - that it is wholly outside an ethical framework. It is not. Failing to honor a valid debt when one could repay it, absent extenuating circumstances, is an unethical act - it involves deliberately harming another person who has every legal and ethical right to be free from that harm. As with all ethical decisions, reasonable minds can differ (and do) on what constitutes an extenuating circumstance.

The conclusion one would reach in your specific situation depends on the details of your particular finances, which I do not pretend to know in full and do not want to intrude to find out. But I can state that choosing to default on a mortgage is a decision with ethical consequences without reaching a conclusion about whether your circumstance (or those of millions of other Americans) is or is not unethical.

Albaby

Obligatory tie-in to board topic: Given the importance of honoring pledges of future conduct to a functioning western-style economy, a generalized belief that contracts can be ethically broken at the convenience of one of the parties merely because they are contracts can have serious consequences to the macroeconomy. Martin Wolf, an editor at the Financial Times, has postulated that one of the key factors that separates complex economies (such as ours) from bazaar or marketplace economies (where most transactions involve contemporaneous exchanges of tangible goods or services) is a framework for enforcing future obligations. This ability to enforce a pledge of future behavior is the basis for important macroeconomic tools like credit, equity, and long-term contracts. A normative belief that it was acceptable to break a contract when expedient could have serious consequences, if adopted generally.
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There are only TWO reasons a debt is not paid, and only two, ever.

The debtor won't or can't pay. That seems simplistic but it is the cold truth.

I started my credit career with one of the biggest and oldest of companies that issued note loans, (unsecured debt), to J6P. THey only had two reasons, ever, for rejecting a loan. One was that the party lacked the means to repay, and the other was character. The company believed that the great majority of their borrowers would repay if they had the means. Their lending model depended on it.

I believe our entire economic system is based on the reality that most people will repay their debts without legal coercion, if they are able. I think it is absolutely fundamental to our economy that they do. If we had to go back to the day when loans were only granted on security our economy would truncate to an extent we wouldn't know it.
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you could pay back the mortgage holder for the bag you left them holding.


Ultimately, we the people are the holder in due course.
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I have completely lost track of how many millions of Americans have lost their homes through foreclosures or short sales in this economic catastrophe. The conclusion that Albaby1 and those who “rec’ed” his post comes to is that they, all the millions who lost their homes, are guilty of unethical behavior. I am at a complete loss for words; I have no response to that.

No, not them; just you. You didn't lose your home, you could have easily paid the deficiency, you just didn't want to.

FWIW, every debtor has a right to say, "Come and get it." As it appears that you live in a recourse state, the second mortgage holder could have tried if they wanted to. They didn't.

If anyone else is dumb enough to lend you money, they just need to price in the risk you have demonstrated through your behavior. Part of the transaction for a lender is the risk that your debtor goes broke (not you). Part of the risk is that your debtor chooses to be a deadbeat (you). They lent their money and they took their chances.

Is this about ethics? I don't know and don't really care what we call it. I guess I agree with you and Mish. But more importantly, I wouldn't ever want to be in a situation where I had a contract with you to that required you to perform anything.
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A normative belief that it was acceptable to break a contract when expedient could have serious consequences, if adopted generally.

Al-- you don't think that this normative belief has been widely adopted already? Many people keep paying their car or cell phone bill so the car isn't towed off in the middle of the night or the cell service disconnected. Why are pre-paid cell-phone cards a growing way to sell that service? Because people don't pay their bills and it's too expensive to sue them.
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Al-- you don't think that this normative belief has been widely adopted already? Many people keep paying their car or cell phone bill so the car isn't towed off in the middle of the night or the cell service disconnected. Why are pre-paid cell-phone cards a growing way to sell that service? Because people don't pay their bills and it's too expensive to sue them.

No, I don't think it's that widely adopted. I'll admit, I don't have any concrete evidence of whether that's true one way or another. I'm only going on personal experience, and my monkeysphere isn't representative of the country as a whole.

From what I observe, though, I think most people still believe that it's wrong to not pay your debts if you have the money to pay them. I think the retrenchment in unsecured consumer lending reflects more the fact that consumers no longer have pools of home equity to tap in case the money gets tight...and the fact that money is getting tight for most consumers.

Albaby
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I once owned stock of a company called General Development Corporation. They sold Florida land to soon-to-be retirees in the Northeast. The land was not worth what the retirees agreed to pay GDV. (Darn you, 60 Minutes!) They sued, they won, GDV went under, my stock went to zero.

Now, let me ask those of you who are so eager to condemn Sonny: were those Northeastern retirees unethical in refusing to pay for land they had agreed to buy at above-market prices?
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Now, let me ask those of you who are so eager to condemn Sonny: were those Northeastern retirees unethical in refusing to pay for land they had agreed to buy at above-market prices?

That's a false analogy because it involves a party being misled prior to refusal to pay.

All albaby is saying (and I can't understand why this is even slightly controversial) is that the question of "should I hold up my end of this bargain" IS a matter of ethics. It may be ethical not to pay (if you were misled, if paying means you can't feed your kids, etc.) or it may be unethical not to pay (just don't really feel like it.) But it IS an ethical question.

Being willing to accept the consequences of your actions does not automatically render them ethical.
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Now, let me ask those of you who are so eager to condemn Sonny: were those Northeastern retirees unethical in refusing to pay for land they had agreed to buy at above-market prices?

I'm not one who is "eager to condemn Sonny," but I'll answer - of course not.

The main factor, though, would be the fact that there was fraud in the inducement of the contract. If your counterparty has committed outright fraud in securing your promise, most folks would regard you as being under no obligation in fulfilling your end of the bargain.

If there had been no fraudulent concealment of information about the homes or the market, and the original contract reflected a good-faith arms-length deal between the parties, then that factor disappears - and an outright refusal by those retirees to honor their bargain would definitely have a different ethical dimension.

Albaby
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I once owned stock of a company called General Development Corporation. They sold Florida land to soon-to-be retirees in the Northeast. The land was not worth what the retirees agreed to pay GDV. (Darn you, 60 Minutes!) They sued, they won, GDV went under, my stock went to zero.

Now, let me ask those of you who are so eager to condemn Sonny: were those Northeastern retirees unethical in refusing to pay for land they had agreed to buy at above-market prices?

---

That's a horrible analogy. The retirees were defrauded.
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That's a false analogy because it involves a party being misled prior to refusal to pay.

I anticipated this objection and should have preemptively addressed it.

Many, many homebuyers were misled during the housing bubble. Even those who were not misled directly were misled indirectly by the housing/mortgage industry falsely driving up real estate prices. A party committing direct fraud to millions of homebuyers has an adverse effect on even those who were not directly frauded. Is the GDV example different because only fifty people were in on it?

To me, there is no meaningful distinction between the two scenarios.
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"They sued, they won, GDV went under, my stock went to zero."
****
And at this point, I was expecting to hear that you went back to the fellow who sold those GDV shares you bought and asked for your money back. And failing at that, you went over to your broker's office and demanded his wallet.
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You are incredibly naive. Contracts are broken and amended right and left, each and every day. Why do you think we have attorneys?


To protect us and seek just recompense from citizens like you who maintain convenient self-serving notions about contracts, pledges, and ethics.





A man is only as good as his word.

Jim
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Many, many homebuyers were misled during the housing bubble. Even those who were not misled directly were misled indirectly by the housing/mortgage industry falsely driving up real estate prices.

I don't think that this is much of an argument. A genuinely held (even if subsequently mistaken) belief about the value of an asset is not fraudulent. Nor is it misleading. The fact that an asset falls in value after a sale does not mean that the sale was fraudulent, or that the parties are somehow excused from fulfilling their obligations. If all of the parties negotiated in good faith, the fact that the asset (or even the entire class of assets) later fell in value does not invalidate their agreement.

Albaby
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Many, many homebuyers were misled during the housing bubble. Even those who were not misled directly were misled indirectly by the housing/mortgage industry falsely driving up real estate prices. A party committing direct fraud to millions of homebuyers has an adverse effect on even those who were not directly frauded. Is the GDV example different because only fifty people were in on it?


The contract is not between the home buyer and "the housing/mortgage industry." It's between two distinct parties. Defaulting because you were personally misled by the other party is not the same as defaulting because you feel that you were misled by an industry, society, government, capitalism or the adults who never prepared you for a scary world. It's a false analogy.
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I don't think that this is much of an argument. A genuinely held (even if subsequently mistaken) belief about the value of an asset is not fraudulent.

For that to persuade me, I would have to believe the ratings agencies -- whose AAA ratings of CDO's fueled the bubble -- were acting in good faith. I was born at night, but not last night.
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Another way to look at this. Would you go to a lender asking for a large accommodationa and say, 'I'll only repay this debt if everything I'm borrowing the money for works out exactly as I anticipate. If anything goes wrong I'm going to stiff you even though I have the assets to repay as agreed'.

Would any lender grant credit under those circumstances? Bu tthat is exactly what happened here.
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For that to persuade me, I would have to believe the ratings agencies -- whose AAA ratings of CDO's fueled the bubble -- were acting in good faith. I was born at night, but not last night.

No, you wouldn't. The question isn't whether some third party thought that some bond rating was accurate. It's whether the buyer and seller entered into a good faith agreement regarding the price of the house, in which neither party defrauded the other. If the parties to the transaction (not the rating agencies) negotiate in good faith, there's no excuse for either of them to break their deal.

Albaby
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A man is only as good as his word.

Jim



You most probably come from a time and a place where a man is expected to pay his debts and a failure to do so is cause for shame and deep humiliation.

Abe
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(According to Sonny:)Mortgages are not ethical documents, they are legal contracts...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.
======================================
For people with integrity, paying your debts IS a moral obligation.
For people without integrity, there's always a career in real estate, apparently.

And don't bother telling us to get over it. No problem getting over it. YOU are the resident drama queen on this board, who feels the need to update us on your business life like it's a soap opera. You started this thread, and chose this forum to do it in. So don't be too shocked when people with more ethical substance than you disapprove.

Bill
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No, you wouldn't. The question isn't whether some third party thought that some bond rating was accurate. It's whether the buyer and seller entered into a good faith agreement regarding the price of the house, in which neither party defrauded the other. If the parties to the transaction (not the rating agencies) negotiate in good faith, there's no excuse for either of them to break their deal.

Al, before I respond, let me ask whom you regard as the "seller." A guy living in a house who moved and sold would get his money, right? I want to be sure I address the proper harmed party.

I'm sure you know where I'm headed with this.
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For that to persuade me, I would have to believe the ratings agencies -- whose AAA ratings of CDO's fueled the bubble -- were acting in good faith. I was born at night, but not last night.


Well, with regards to people whose mortgages read "Ratings Agencies" or "The Mortgage Industry" on the Lender line, you have a point.
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I have completely lost track of how many millions of Americans have lost their homes through foreclosures or short sales in this economic catastrophe. The conclusion that Albaby1 and those who “rec’ed” his post comes to is that they, all the millions who lost their homes, are guilty of unethical behavior. I am at a complete loss for words; I have no response to that.

Many of the people who lost their homes had no money to use to pay their mortgages. They may have fully intended to pay, but were unable to do so. You are different. You had money to pay but chose not to do so. You intentionally and willfully broke a contract you could have fulfilled.
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Well, with regards to people whose mortgages read "Ratings Agencies" or "The Mortgage Industry" on the Lender line, you have a point.

My mortgage agreement read "Countrywide." Is my point still valid?
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Many of the people who lost their homes had no money to use to pay their mortgages. They may have fully intended to pay, but were unable to do so. You are different. You had money to pay but chose not to do so. You intentionally and willfully broke a contract you could have fulfilled.

In fairness to Sonny, didn't he actually just renegotiate? (That is pretty common in corporate boardrooms and the sports world.)
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My mortgage agreement read "Countrywide." Is my point still valid?


Doesn't make a difference, since your argument seems to be that because there was unethical conduct on Wall St. everyone who bought a house is entitled to default on the mortgage regardless of who the lender was or their circumstances. Something to the effect of "buyers were lied to, and even the ones who weren't lied to were lied to" and now they are all entitled to punish their lender for all the sins of the mortgage industry. Sounds like some kind of weird vigilante justice to me.
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There are two key mistakes in that analysis:

1) The typical residential mortgage (technically the note) for an owner-occupied home does not give the borrower two options. It usually only gives them one option - repay the loan in a manner consistent with the terms of the contract. Failing to do that is not an option under the agreement - it is a breach of the agreement. This is why all states treat failure to pay back the loan as a breach of the Note, and why many states permit the party who is injured by the borrower's failure to meet the terms of the agreement to obtain damages in the form of a deficiency judgments.


Because the above-quoted post has 115 recs, I thought it might be good to make a point that could potentially prevent some MotleyFool members from getting hurt unnecessarily by upside-down mortgages. From payorgo.com:

WHAT WILL HAPPEN IF I WALK AWAY?

It depends on the particulars of your situation. In many states, including California, in many circumstances the “bank” has no legal or practical recourse against homeowners who stop paying their mortgages except to take their homes through foreclosure and put derogatory entries in their credit reports.


Best to explore all of the options of your own circumstances.
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>>> My mortgage agreement read "Countrywide." Is my point still valid?

Doesn't make a difference, since your argument seems to be [an exaggerated parody of something that was not my argument at all...]



Come on. Surely you can't have forgotten this headline:

Countrywide reaches $8.4b fraud settlement with 11 states
http://www.boston.com/realestate/news/articles/2008/10/07/co...

Ah, well, I will vacate this thread unless Albaby rejoins to answer one of my earlier posts.
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Al, before I respond, let me ask whom you regard as the "seller." A guy living in a house who moved and sold would get his money, right? I want to be sure I address the proper harmed party.

I'm sure you know where I'm headed with this.


Not really, but I'll try to answer the question. I'm confused by the reference to the "harmed" party, but the "seller" is the then-current owner of the property that is offering it for sale. If he and the buyer (the person who seeks to purchase the property) negotiate in good-faith and reach a mutually acceptable price for the property, without misrepresentation or deception, then "fraud" would not be an excuse for the parties to renege on their obligations. Any risk that the property might decline in value in the future is properly borne by the purchaser. Thus, the situation differs from the GDC case, in which the seller committed an affirmative misrepresentation in forming the contract.

Albaby
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Note to self:

Don't ever enter into a contract with sonnypage. He doesn't feel an ethical obligation to honor them.
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[an exaggerated parody of something that was not my argument at all...]

"Even those who were not misled directly were misled indirectly by the housing/mortgage industry falsely driving up real estate prices." - That was exactly what you said.

The question was about whether or not a mortgage agreement contains an ethical component that should compel both parties to honor the contract, to which the clear answer is 'yes'. I'm all for accountability in finance, but it has absolutely nothing to do with the inherent ethics of a mortgage contract. As best I can tell, the entirety of your contribution has something vaguely to do with indiscriminately sticking it to 'the man'.
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Guthree: "I once owned stock of a company called General Development Corporation. They sold Florida land to soon-to-be retirees in the Northeast. The land was not worth what the retirees agreed to pay GDV. (Darn you, 60 Minutes!) They sued, they won, GDV went under, my stock went to zero. [emphasis added]

Now, let me ask those of you who are so eager to condemn Sonny: were those Northeastern retirees unethical in refusing to pay for land they had agreed to buy at above-market prices?"


I strongly suspect that you are omitting material information.

If not, how could the yankee buyers have sued and won?

What is the Rest of the Story?

Without knowing more, I suspect some combination of misrepresentation, fraud and/or violations of the Interstate Land Sales Act (which was passed in part as a result of previous sales of Florida swampland and Arizona desert).

Regards, JAFO
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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.

There are two key mistakes in that analysis:

1) The typical residential mortgage (technically the note) for an owner-occupied home does not give the borrower two options. It usually only gives them one option - repay the loan in a manner consistent with the terms of the contract. Failing to do that is not an option under the agreement - it is a breach of the agreement. This is why all states treat failure to pay back the loan as a breach of the Note, and why many states permit the party who is injured by the borrower's failure to meet the terms of the agreement to obtain damages in the form of a deficiency judgments.

2) Breaking a legally binding promise has an ethical dimension. If your car dealer decided not to honor your warranty simply because they thought they could get away with it, or your employer decided not to pay you your full salary or commission because they didn't think you'd sue, you would regard those folks as acting unethically. They made a deal, they made a promise, and now they are breaking it because it is financially expedient for them. Whether walking away from a mortgage is ethical or not may be a complicated question - but merely because the documents which create the obligation are 'legal contracts' does not mean there are no ethical obligations created by the promise.

Albaby


My first reaction is to say, well if both parties are unethecal the one party behaving with ethics is foolish. However, with most of our mortagages now, there are three parties. The borrower, the loan originator and the purchaser of the CDO. It would seem that the money really comes from the purchaser of the CDO and that person is operating in good faith, so even if the loan originator has no ethics, the borrower would an obligation to the purchaser of the CDO because the borrower should behave at least as ethically as the lender, in this case the purchaser of the CDO.

Cheers
Qazulight
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Guthree:

<<<That's a false analogy because it involves a party being misled prior to refusal to pay.>>>

"I anticipated this objection and should have preemptively addressed it.

Many, many homebuyers were misled during the housing bubble. Even those who were not misled directly were misled indirectly by the housing/mortgage industry falsely driving up real estate prices."


As I previously noted in this thread, the housing/mortgage industry cannot do it by itself. They needed buyers, so the buyers were also complicit.

"To me, there is no meaningful distinction between the two scenarios."

I disagree.

Regards, JAFO
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I'm confused by the reference to the "harmed" party, but the "seller" is the then-current owner of the property that is offering it for sale. If he and the buyer (the person who seeks to purchase the property) negotiate in good-faith and reach a mutually acceptable price for the property, without misrepresentation or deception, then "fraud" would not be an excuse for the parties to renege on their obligations.

The seller suffered no harm. The seller (I am assuming) would not know anything more about a housing market bubble/'pyramid scheme'/cakewalk than the buyer. I don't see, however, how the seller's innoncence transfers to the lender. Countrywide, for example, admitted to fraud. (Fraud which may or may not have specifically and directly affected the buyer but, at any rate, contributed to the out-of-control price appreciation.)

As the buyer, I look around and see: (1) the former home owner paid in full, and (2) a mortgage company that paid an $11 billion fine for fraud saying I need to pay them 30% more for my house than it is worth.

If walking away from that loan is unethical, then I guess I'd wind up in Hell.
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I don't see, however, how the seller's innoncence transfers to the lender. Countrywide, for example, admitted to fraud. (Fraud which may or may not have specifically and directly affected the buyer but, at any rate, contributed to the out-of-control price appreciation.)

"Transfer" of "innocence" is not an issue here. If Countrywide negotiated with you in good faith, gave you the amount of the loan that you requested, under commercially reasonable terms and without misleading you in any way, the fact that they might have engaged in bad behavior with other people does not relieve you of your responsibility to live up to a valid commitment. If they committed fraud against other people, it would affect the ethical obligations owed by those other people. You were dealt with fairly, and you have an ethical obligation to honor your debts (other things being equal).

As the buyer, I look around and see: (1) the former home owner paid in full, and (2) a mortgage company that paid an $11 billion fine for fraud saying I need to pay them 30% more for my house than it is worth.

They're not saying you need to pay them 30% more for your house. They're saying you need to repay them the amount you borrowed. The risk of loss from the decline of an asset's value rests with the owner, not the lender. You agreed to borrow $X, they gave you $X, and you agreed to pay them back $X. Unless you have a very unusual mortgage Note, your obligation to repay them is not contingent on the value of the asset. If they've done nothing wrong in dealing with you, you have no real basis for not living up to your obligation because you think they're otherwise "bad" people.

Albaby
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albaby1

I'm with you. There are people who take honor in saying, "I paid all my debts before I was pennyless." And surely, someone who signs a contract with no intension of ever paying it would be considered unethical by most of us, I believe.

A few decades ago, I contracted to have a solar room added to our, then, home. The contractor subcontracted to a couple of guys to put in the foundation. They ran away without paying the concrete bill. Therefore the concrete man came to me as the home "owner" with an $850 bill. It turns out that I was legally obligated for the bill. Fortunately for me, the prime contractor paid the bill, perhaps for good will.

brucedoe
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I did not create this disaster; the “smartest guys in the room” did that. I am simply another member of the peasant class caught up in this mess and trying to survive. If that bothers some of you, get over it.


Sonny,

I have always valued your posts for an "in the trenches" view of real estate in a non-coastal market.

But (there is always a but), Mish (and I like Mike personally and have met him) was wrong about the ethical issues of breaking the mortgage contract.

Foreclosure, voluntary or involuntary (they have to get the Sheriff) is the prescribed remedy for not making the contractual payments, not a clause you can exercise. If I cannot not pay, or choose not to pay, makes do difference, I am in breach of contract and the other party is then free to pursue the prescribed recourse.

Since you arranged a short sale, you did limit the damages and cost to the lender. You were still short, and the LENDER CHOSE not to pursue the prescribed recourse. If any of your investment portfolio is in non-IRA accounts, then I wish they would have chosen to pursue you for the deficiency. The lender could not take your primary residence, but they could have won a judgment that would have required repayment plan.

You speculated on the 2nd home (luxury) and ended up wrong. The roughly $40k deficiency (if I remember correctly) would have crimped your lifestyle for sure, and maybe for years. But you were in no danger of losing your primary home (from earlier posts was about $500-600k; luxury), your IRA (not touchable in bankruptcy), food, clothing, or freedom (no debtor prisons).

Paying off the $40k through a payment plan would have probably cost you putting off a few auto purchase/lease, a few duck hunting trips, less Thai Thai, etc. Maybe, just maybe you would have to work a few more years before retiring. Maybe, your child would not have a fully funded college life. None of these are anywhere near approach necessities.

Would I break a contract for the survival of my family? Most certainly. There is an order of priorities, morally. Would I break a contract to protect as much of my lifestyle as I could? NO!

Many, if not most of us have taken financial setbacks in order to keep our word. In fact, a number of us have eaten more than $40k to keep our word. I even know someone who was forced into bankruptcy and later, went to great lengths to payback the people/institutions that lost money in the bankruptcies.

Scott
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If Countrywide negotiated with you in good faith, gave you the amount of the loan that you requested, under commercially reasonable terms and without misleading you in any way, the fact that they might have engaged in bad behavior with other people does not relieve you of your responsibility to live up to a valid commitment.

They were a major contributor to a fraud having a huge distorting impact on the entire housing industry. Basically, it was all a pyramid scheme, affecting everyone. They were not unaware of this.

That has a bearing on my view, not yours. We are never going to agree on the matter.
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What about me?

I don't have a mortgage. I used to have a mortgage, but I paid it off, month after month, with some extra principle thrown into the monthly payment for the last seven years. The whole process took something like 25 years... 300 months. Never was late once with a payment.

The price of the house went up. The price of the house went down. My neighbor across the street was underwater on her mortgage for ten years or something. She paid her mortgage 'cause she owed it.

Now, I don't have a mortgage but I lend to those who do. I own mortgage backed securities. What justifies anybody stiffing me?
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What justifies anybody stiffing me?

I give up. What?
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A normative belief that it was acceptable to break a contract when expedient could have serious consequences, if adopted generally.

Nonsense. If everyone understands the contract for what it is, they should be prepared for the consequences. Banks knew full well they were making liar loans to people who could not afford the houses.

Should someone be honor-bound to a thief?

Business decisions are just that: business decisions. Businesses break contracts all the time if they are willing to pay the price. Are not individuals entitled to the same right?

Moreover banks or lending institutions knew full well what the penalty is. If they made risky loans in spite of that knowledge then they were fools.

Many of these walk-aways involve "liar loans".
And in nearly all of these "liar loan" cases both the banks and the borrowers were both greedy fools. In a sense they deserve each other, and both paid a prices, one in revenue, the other in credit rating and available credit.

Anyone expecting a liar to be "ethical" is a fool. And anyone attempting to take advantage of a fool deserves what he gets.

If it was in Sonny's best interest to walk away. I would expect him to. No more, no less. If Sonny chose not to because of personal ethics, that is Sonny's decision and I would not fault him (or anyone else for it).

If you start involving ethics in all these decisions you build a tangled mess. A real estate agent has a responsibility to the person he represents so he tries to get the most he can. And he will sell that house to someone even if he knows that buyer overpaid to the point of bankrupting him. That's OK?

Another example:
I have a fiduciary responsibility to clients. I tell them what is in their best interest. Indeed, I have a duty to tell someone it is in their best interest to walk away if I believe it is.

BTW - The person in the article elected to walk even though for the time being he might be able to hang on. I am happy for him. I think he made the right decision.

And in general, anyone walking probably is making the right decision.

Bottom line: people should expect other people to do what is in their best interest as long as it is within the law. No more no less. That should be the "normative belief".

With that in mind, there cannot possibly be "serious consequences, if adopted generally". Indeed if lenders had that in mind, many of these loans would not have been made in the first place!

Thus you have it ass-backwards.

Mish
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From Mish:

"Bottom line: people should expect other people to do what is in their best interest as long as it is within the law. No more no less. That should be the "normative belief""

I'm speechless.
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"Transfer" of "innocence" is not an issue here. If Countrywide negotiated with you in good faith, gave you the amount of the loan that you requested, under commercially reasonable terms and without misleading you in any way, the fact that they might have engaged in bad behavior with other people does not relieve you of your responsibility to live up to a valid commitment. If they committed fraud against other people, it would affect the ethical obligations owed by those other people. You were dealt with fairly, and you have an ethical obligation to honor your debts (other things being equal).

On the ethical side, Albaby, there are other considerations as well.
Mishedlo said:

"Bottom line: people should expect other people to do what is in their best interest as long as it is within the law."

Some people are probably shocked by that.
Why, actually? This is the philosophical approach corporations generally take when dealing with people. Just witness the behavior of the mortgage company in question. Or the health insurers. Or investment banks. Or any of the countless corporations that have not only acted as unethically as they possibly could within the confines of the law, but in fact paid politicians to amend the law to enable them to engage in even more egregious behavior.
In a contract with a corporation known to have no ethical standards whatsoever, why should an individual hold himself to a higher ethical standard than his contract partner holds himself?
If I entered into a contract with a company such as Countrywide, I would do so with the understanding that they would break the contract if this benefited them and that they would screw me over to the very best of their ability if they could get away with it.

That said, I wouldn't have taken the gamble Sonny took, because I do retain certain moral scruples despite having studied law. But my moral disapproval of Sonny's actions is relatively mild.
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Then again, "two wrongs don't make a right."
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Mish:

<Bottom line: people should expect other people to do what is in their best interest as long as it is within the law. No more no less. That should be the "normative belief".>

AdvocatusDiaboli:

<That said, I wouldn't have taken the gamble Sonny took, because I do retain certain moral scruples despite having studied law. But my moral disapproval of Sonny's actions is relatively mild. >


My sole contribution to this thread is as follows:

My Contracts professor in law school had a favorite saying with which he started most of our classes:

"Breach is good."

We never could get him to elaborate on what he meant. Most of us would assume that he was saying "lawyers wouldn't make any money unless people breached their contracts."

On the other hand, he might easily have meant: "Lawyers should counsel their clients to expect breach of contract to occur and plan accordingly or walk away." Breach teaches us to be prudent and to avoid risk.

Banks failed to underwrite or to look after their investors' money. Borrowers failed to plan ahead. Neither has acted "morally" in an absolute sense.

With regard to Sonny's situation, public policy encouraged him to walk away despite ability to pay. Our wise government has made it impossible to enforce the laws of collecting deficiency judgments against upside down borrowers on residential loans. Thus, short sales have become wisepread in lieu of foreclosur and deficiency suit against the borrower.

At the present time, public policy is to blame for the increase in walkaways among those who have the ability to pay.

Is that surprising? After all, it's public policy that bears the lion's share of the blame for the crisis, anyway.

We elected our government leaders. We cooked our own collective goose.
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"Breach is good."

That's a literal translation of Latin pacta sunt servanda, I believe.

Abe
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Funny, Mish. You had never struck me as a Randian. Guess all my prior impressions were wrong.
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The risk of loss from the decline of an asset's value rests with the owner, not the lender.

I would think that the risk belongs to both. The lender accepted the collateral, agreeing that it was adequate for the loan amount.

A contract without an escape clause is not legal. Whether it is ethical to use that escape clause, of course, is going to depend on circumstances, but both parties agree on what the escape clause is.

One would think the parties to the contract, both finding themselves in a fix, would sit down and talk things over. If the lender is not willing to talk, he is indicating that he is willing to foreclose--to take the collateral and so complete the contract by executing the escape clause.

So the risk belongs to both, and both have an ethical obligation to try to work out a way to satisfy or modify the contract, or to abide by its original terms.
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Nonsense. If everyone understands the contract for what it is, they should be prepared for the consequences. Banks knew full well they were making liar loans to people who could not afford the houses.

Should someone be honor-bound to a thief?


I don't understand this line of reasoning in the least. It seems like you're saying to the bank, "You knew I was a lying thief when you signed this loan....therefore it is ethical for me to break my word."

I vigorously dispute your assertion that this situation describes most of the loans in question. Earlier in the thread, I noted that for people who cannot repay their loan, there is no ethical dimension. We're only talking about loans where the borrower has the ability to repay the loan and simply chooses not to. These are the loans where the bank got it right, where the amount of the loan (or payment) was within the ability of the borrower to repay.

And it is besides the point that I was making - which was that even if specific circumstances might make walking away from a mortgage ethical (both parties were fully knowing participants to a joint fraud raises different issues than a 'normal' situation), that does not in anyway remove mortgages from the realm of promises that it is unethical to break.

You note:

Business decisions are just that: business decisions. Businesses break contracts all the time if they are willing to pay the price. Are not individuals entitled to the same right?

When businesses break contracts (such as wrongfully denying health insurance coverage) they are widely regarded as having behaved wrongly, are held up to derision, and are generally considered as having acted unethically. We have institutions in place to enforce the norm that contracts are promises that ought to be kept. The fact that some people act unethically in refusing to keep their word does not make other people's similar behavior ethical.

Individuals break promises all the time, too - and that doesn't make it ethical behavior.

I have a fiduciary responsibility to clients. I tell them what is in their best interest. Indeed, I have a duty to tell someone it is in their best interest to walk away if I believe it is.

It is frequently in someone's best interest to act unethically. I would posit that most non-trivial ethical decisions arise only in circumstances where one's self-interest is in conflict with the right thing to do.

Question - if it was in your personal best interest in a specific situation not to advise a client of something, would you say you were acting ethically if you pursued your self-interest instead of complying with your fiduciary responsibility? Is the fact that your self interest is being served, coupled with an unlikelihood that your client would ever pursue a legal remedy against you (we posit), enough to render abandoning your fiduciary duty ethical?

It's important to keep in mind in your examples that people choosing to walk away from a mortgage are depriving a third party of something to which that party has a legal, valid right - repayment of their debt. They are breaking a legal obligation. It's the mortgage broker acting against the interests of his client, not some third party. It's you acting against the interests of your client, not a third party they may be dealing with. The borrowers and lenders are the parties to the contract, who have an explicit and legally binding duty to each other.

Albaby
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In a contract with a corporation known to have no ethical standards whatsoever, why should an individual hold himself to a higher ethical standard than his contract partner holds himself?

Because if the corporation is engaging in fair dealings with you, their lack of ethical standards (or even actual unethical behavior with respect to other people) doesn't automatically make it right for you to start behaving badly towards them.

If my neighbor cheats on his wife, it doesn't make it ethical for me to steal his lawnmower if I won't get caught. If Chase gets hit with a fraud lawsuit, it doesn't make it ethical for me to lie on a credit card application or stop paying my credit card bills with them.

This is the philosophical approach corporations generally take when dealing with people. Just witness the behavior of the mortgage company in question. Or the health insurers. Or investment banks. Or any of the countless corporations that have not only acted as unethically as they possibly could within the confines of the law, but in fact paid politicians to amend the law to enable them to engage in even more egregious behavior.

If I understand this argument, it's just a restatement of the old saw, "Other people break the rules, so it's justified for me to break them, too." It's the 'everyone else is doing it, too.' argument. Taken to its conclusion, what you're saying is that none of those entities actually behaved unethically - that everything they did was not only legal, but morally and ethically right and appropriate because other companies were doing it too.

I take the other approach. If those entities are engaged in the willful refusal to comply with their promises and agreements, they are acting unethically. Such behavior happens, but it's not the predominant situation - most contracts are honored, most agreements are fulfilled, most bills are paid. It's unethical when business fail to honor their contracts, and it's unethical when individuals willfully decide not to pay their bills simply because it's "in their own best interest" to break their word.

Albaby
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Albaby - have a question that I don't mean to be offensive in anyway ...

Are you a litigator by specialty?

*** Cause only a litigator would refuse to allow this thread to "die" in peace ***

*** "First kill the lawyers ***
No Mas
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I would think that the risk belongs to both. The lender accepted the collateral, agreeing that it was adequate for the loan amount.

A contract without an escape clause is not legal. Whether it is ethical to use that escape clause, of course, is going to depend on circumstances, but both parties agree on what the escape clause is.

One would think the parties to the contract, both finding themselves in a fix, would sit down and talk things over. If the lender is not willing to talk, he is indicating that he is willing to foreclose--to take the collateral and so complete the contract by executing the escape clause.


I think all of these statements are wrong - and the second and third paragraphs are wrong as a matter of law.

Contracts do not have to have 'escape clauses' to be legal. In fact, a contract that has an 'escape clause' runs a serious risk of being found a nullity for want of consideration. Contracts are meant to bind the parties, and there is no legal requirement for them to contain provisions that allow one party or the other to escape the obligations they agree to.

In a foreclosure, the lender is not 'completing the contract' by executing an escape clause. The borrower has breached the contract. They have violated its terms. The lender is exercising a remedy, but the borrower has violated his obligations. Mortgage notes are not set up where "Borrower agrees to either repay the Loan or return the property." They are set up where "Borrower agrees to repay the Loan."

Finally, the first sentiment I think ignores a critical difference between debt and equity interests in an asset. The owner owns the property, and so he gets the rewards of appreciation and the losses of depreciation. The lender is not an equity partner in the asset - they're the lender. If the asset depreciates, it makes their ability to collect their loan more difficult - but they are still legally entitled to the full repayment of the loan amount. They do not assume the risk of declining values, in that the amount to which they are entitled does not vary with the value of the asset (unlike the owner). They might have collection problems if the owner defaults, but that's a different risk.

Albaby
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Albaby - have a question that I don't mean to be offensive in anyway ...

Are you a litigator by specialty?

*** Cause only a litigator would refuse to allow this thread to "die" in peace ***


Sorry about that. Since Mish's comments were the ones that prompted the thread (in part), I wanted to give him the courtesy of a response; there hadn't been too many calls to kill the thread, so I wasn't really thinking about letting it die.

I'm not a litigator, by specialty or temperament (I could never do that for a living).

Albaby
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;o) quite alright

just trying to get the damn thing [thread] to lay down and RIP

technique strikes me as a litigators however.....LOL

*** Meant as a compliment ***
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If I understand this argument, it's just a restatement of the old saw, "Other people break the rules, so it's justified for me to break them, too."

No, it's not. What I am saying is that different ethical standards apply depending on who the other party is in a contract. I am fairly sure you agree with me there in principle.
There is a very wide area of legal greyness in contractual relationships of what may or may not be considered unethical behavior.
And depending on who the other party is, and who you are, this is going to vary. For example, if the other party is a blind orphan, I'd apply somewhat more stringent ethical standards than if the other party was a corporation run by Patrick Bateman.
In particular, if you know that your partner in this contract honors legal and ethical obligations only as long as he deems this to be advantageous, and that he's bound to screw you over if you give him the chance, why shouldn't you screw *him* over if you have the opportunity?
Does anyone really have the right to expect higher ethical standards from a counterparty than he's prepared to adhere to himself?
To illustrate my point further - imagine Sonny had made his contract with the mafia. Now breaching such a contract might not be a smart idea, but would it be unethical? How much so?

I agree that Sonny acted unethically, and I would not have followed his example. I just don't think he acted *very* unethically.

I take the other approach. If those entities are engaged in the willful refusal to comply with their promises and agreements, they are acting unethically. Such behavior happens, but it's not the predominant situation - most contracts are honored, most agreements are fulfilled, most bills are paid.

Quite certainly. However, in the vast majority of cases, it is simply advantageous to honor contracts and fulfill agreements.
I may be a bit pissed off at the moment because I've been chasing a payment from a client - coincidentially, the blood sucking vampire squid - for over two months now.
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to H with the banking industry....simple as that....

Dave
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I didn't know you were a litigator? ... ;o)

I may be a bit pissed off at the moment because I've been chasing a payment from a client - coincidentially, the blood sucking vampire squid - for over two months now.

*** Funny that - blood sucking & lawyers just seem to go together - naturally ***

[I'm gonna "pay" dearly for that one]
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I agree that Sonny acted unethically, and I would not have followed his example. I just don't think he acted *very* unethically.


ah sonny and the bank acted unethically.....it takes two to tango.....

Dave
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Are you a litigator by specialty?

If he was, I doubt he'd have ethical issues. With pretty much anything.
Although when I look back I believe what was worst for my sense of ethics was the study of criminal law, which always begs the question of how you structure your behavior so as to get away with it.
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There is a very wide area of legal greyness in contractual relationships of what may or may not be considered unethical behavior.
And depending on who the other party is, and who you are, this is going to vary. For example, if the other party is a blind orphan, I'd apply somewhat more stringent ethical standards than if the other party was a corporation run by Patrick Bateman.
In particular, if you know that your partner in this contract honors legal and ethical obligations only as long as he deems this to be advantageous, and that he's bound to screw you over if you give him the chance, why shouldn't you screw *him* over if you have the opportunity?
Does anyone really have the right to expect higher ethical standards from a counterparty than he's prepared to adhere to himself?
To illustrate my point further - imagine Sonny had made his contract with the mafia. Now breaching such a contract might not be a smart idea, but would it be unethical? How much so?


This is preposterous. How I behave in a contract says far more about me than anything, and it doesn't matter who the counterparty is.
Ray
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*** Funny that - blood sucking & lawyers just seem to go together - naturally ***

Not a litigator - I have a German law degree but I decided to become a translator. Specializing in contract law and tax law.
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Now, let me ask those of you who are so eager to condemn Sonny: were those Northeastern retirees unethical in refusing to pay for land they had agreed to buy at above-market prices?


GDV was initiating a fraud. That changes the moral situation dramatically.

But I would still say yes... up to the point where the fraud was recognized. Then the victims should have (as they did) sought redress for the fraud, which MIGHT involve GDV paying a chunk of their mortgage for them or MIGHT involve GDV buying the land back at the same price they sold it (or higher) or...
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I don't think that this is much of an argument. A genuinely held (even if subsequently mistaken) belief about the value of an asset is not fraudulent.

For that to persuade me, I would have to believe the ratings agencies -- whose AAA ratings of CDO's fueled the bubble -- were acting in good faith. I was born at night, but not last night.


In that case, a great many people should be demanding compensation from the ratings agencies.

The ratings agencies did not, themselves, sell many houses or provide many mortgages.
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Not really, but I'll try to answer the question. I'm confused by the reference to the "harmed" party, but the "seller" is the then-current owner of the property that is offering it for sale. If he and the buyer (the person who seeks to purchase the property) negotiate in good-faith and reach a mutually acceptable price for the property, without misrepresentation or deception, then "fraud" would not be an excuse for the parties to renege on their obligations. Any risk that the property might decline in value in the future is properly borne by the purchaser. Thus, the situation differs from the GDC case, in which the seller committed an affirmative misrepresentation in forming the contract.

Typically, the seller receives full value at the time of sale, thanks to an ADDITIONAL contract between the buyer and the mortgage lender - possibly with the assistance of a mortgage broker.

From what I have heard, most of the fraud that occurred took place either in the ratings agencies, or with the active participation and encouragement of mortgage brokers. The latter included advising appraisers what appraisal was desired (and feeding business to those who complied), and encouraging buyers to go for such absurdities as no-doc loans in the belief that it didn't matter if they couldn't make the payments, the house would increase in value enough to pay for itself.
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As the buyer, I look around and see: (1) the former home owner paid in full, and (2) a mortgage company that paid an $11 billion fine for fraud saying I need to pay them 30% more for my house than it is worth.

I see *THE FINE* as an unethical act - unless it is taken AFTER the mortgage company has paid suitable restitution to all victims of the fraud. Before that, it clearly decreases the company's ability to pay such restitution, therefore aggravating damage to its victims.
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"Business decisions are just that: business decisions. Businesses break contracts all the time if they are willing to pay the price. Are not individuals entitled to the same right?"

People are not businesses. They have ethical considerations to make. Businesses only have financial and logistical decisions to make - no ethics involved, only risks.

Corporations are NOT people, Money is NOT speech. (Borrowed from Kent - but he hasn't used it recently)

Regards
Les (quite tired of this thread)
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People are not businesses. They have ethical considerations to make. Businesses only have financial and logistical decisions to make - no ethics involved, only risks.

Corporations are NOT people, Money is NOT speech. (Borrowed from Kent - but he hasn't used it recently)


I will agree with this when corporations lose their status of legal persons.
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notehound: "Our wise government has made it impossible to enforce the laws of collecting deficiency judgments against upside down borrowers on residential loans. Thus, short sales have become wisepread in lieu of foreclosur and deficiency suit against the borrower."

In some places, maybe, but certainly not in all fifty states.

Regards, JAFO
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WilliB:

<<<The risk of loss from the decline of an asset's value rests with the owner, not the lender.>>>

"I would think that the risk belongs to both. The lender accepted the collateral, agreeing that it was adequate for the loan amount."

That is not the law in Texas (except WRT to HELs and HELOCs). You are that is the law in Georgia?

Regards, JAFO
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Ah much better - I thought something along those lines but really didn't know...Thx for the reply.

*** No Mas ***

Now, I wonder if we do have any litigators on this Board? Any volunteers needing to fess-up?
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notimeforZEROs:

<<<I agree that Sonny acted unethically, and I would not have followed his example. I just don't think he acted *very* unethically.>>>

"ah sonny and the bank acted unethically.....it takes two to tango....."

How did the bank act unethically?

Curiously, JAFO
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Contracts do not have to have 'escape clauses' to be legal.


The don't have to have such a clause, but they have to have such an effect, at least in Maryland.
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Thx "King" I just did and didn't need a reminder ....

Corporations are NOT people, Money is NOT speech. (Borrowed from Kent - but he hasn't used it recently)
Regards
Les (quite tired of this thread)


*** Me - the Socialist ***
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doesn't automatically make it right for you to start behaving badly towards them.

You are having to explain something that I thought one learned before they were six years old.

I stand amazed.
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I have a fiduciary responsibility to clients. I tell them what is in their best interest.

Here's the problem. What happens if what is in your best interest conflicts with what is in the client's best interest?

Given what you've said - an individual should always act in their own best interest - the conclusion is that you would choose to act in your own best interest over the clients.

This is not a trivial situation - it happens all the time. Virtually anyone who collects a commission on a sale (from real estate agents to insurance brokers to car salesman to the electronics store salesman) has this potential conflict. It is almost always in the best interest of the salesman to make the sale. They will get a commission in their pocket if they make the sale. Some might choose to think a bit longer term - "I need to make the customer happy so they will return for ANOTHER sale in the future." So the real estate salesman might take the time to find a house his client will really be happy with rather than simply press the mark - oops, I mean client - to buy the first house that generally fits their requirements.

Or how about hitting closer to home. Investment management. A broker makes money when stocks are bought and sold, not when they are just held. So if a broker has trading discretion in an account, it is in their best interest to buy and sell as often as they can. The longer term thinkers will limit their immediate greed because of the threat of losing their license (or just the client) over charges of churning. So rather than having a portfolio with a 500% annual turnover, maybe the keep it to a 50% annual turnover so as not to kill the golden goose.

--Peter
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aka "Eat what you kill"

[commission sales] has this potential conflict. It is almost always in the best interest of the salesman to make the sale. They will get a commission in their pocket if they make the sale.

*** Gave up commission work a very long time ago ***
so now I'm a fiduciary
I'm trying to figure out if that's an improvement in self ... ;o)
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They don't have to have such a clause, but they have to have such an effect, at least in Maryland.

Really? That's quite interesting - certainly different from what I've encountered in contract law. But I might be misconstruing what you mean by an escape clause, or something to that effect. Can you point me something that briefly explains what Maryland law means by that, or give me a quick summary? I've never run into any requirement that the parties have a provision that voids the requirement for them to comply with the contract, either directly or to that effect.

Albaby
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Now, I wonder if we do have any litigators on this Board? Any volunteers needing to fess-up?

Me.
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Knew we had to have at least "one" - we can't all on this board be "clients" - LOL

*** Being polite ***
For a change
"First Kill the Health Insurance Companies"
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Nonsense. If everyone understands the contract for what it is, they should be prepared for the consequences. Banks knew full well they were making liar loans to people who could not afford the houses.

We aren't talking "banks" - we are talking Sonny. Unless you bring evidence to the table that Sonny's specific lender fell into this category, you're just jabbering before thinking.

Should someone be honor-bound to a thief?

Should others be bound to respond to your superficial analogies that lack evidence and mischaracterize the relevant discussion?

Business decisions are just that: business decisions. Businesses break contracts all the time if they are willing to pay the price. Are not individuals entitled to the same right?

Moreover banks or lending institutions knew full well what the penalty is. If they made risky loans in spite of that knowledge then they were fools.


They were fools because they assumed Sonny would abide by the terms of the loan. Instead, he reneged on the obligation when it became inconvenient, then he showed up here somehow insisting we affirm his decision. I call "BS" - he was overwhelmingly motivated by greed from Day #1, as I documented here:
http://boards.fool.com/Message.asp?mid=27624392&sort=use...

He made a one-way wager with other people's money.

Many of these walk-aways involve "liar loans".
And in nearly all of these "liar loan" cases both the banks and the borrowers were both greedy fools. In a sense they deserve each other, and both paid a prices, one in revenue, the other in credit rating and available credit.


Did Sonny lie on his loan? Is that your point? Would that somehow make his decision ethical? Are you jabbering some more without any evidence? Are you even engaging the relevant conversation here, or just free-typing?

Anyone expecting a liar to be "ethical" is a fool. And anyone attempting to take advantage of a fool deserves what he gets.

So... now you're calling Sonny a liar? Is that your point? Is that where you want to take the debate? If we can establish lies on his mortgage, then his lender's a fool, and consequently his actions are ethical? You've careened into the unintelligible.

If it was in Sonny's best interest to walk away. I would expect him to. No more, no less. If Sonny chose not to because of personal ethics, that is Sonny's decision and I would not fault him (or anyone else for it).

Great. That's fine. You & Sonny and anyone else are welcome to hold his actions as ethical, and pledge to behave similarly. I'm not obliged & neither are others. Knowing this about you, I wouldn't do business with either of you. Not for a moment.

Your word is no good (which is pretty ironic for a professional blogger). Sonny's word is no good.

Worth nothing.

Me? I value mine. So do others.

If you start involving ethics in all these decisions you build a tangled mess. A real estate agent has a responsibility to the person he represents so he tries to get the most he can. And he will sell that house to someone even if he knows that buyer overpaid to the point of bankrupting him. That's OK?

Sonny's purchase was bankrupting him? Despite his celebrated commodities portfolio? More thoughtless jabbering from you that raises irrelevant points that no one should feel obliged to engage?

Another example:

Of what?

I have a fiduciary responsibility to clients. I tell them what is in their best interest. Indeed, I have a duty to tell someone it is in their best interest to walk away if I believe it is.

Yet more confusion on your part. No one disputes that it may have been in Sonny's best interest to walk away. That's not the point. One wonders when if ever you'll engage it?

BTW - The person in the article elected to walk even though for the time being he might be able to hang on. I am happy for him. I think he made the right decision.

Clearly - because you don't assign value to an individual's pledge. Which is why I wouldn't do business with you. Ever.

And in general, anyone walking probably is making the right decision.

Thankfully, I'll never do business with you.

Bottom line: people should expect other people to do what is in their best interest as long as it is within the law. No more no less. That should be the "normative belief".

Bottom line: the pledge of your name means nothing.

Nada. Zero. Zilch.

I come from a "normative belief" that among the only things an individual can possess of any real value are one's name, reputation & integrity.

With that in mind, there cannot possibly be "serious consequences, if adopted generally". Indeed if lenders had that in mind, many of these loans would not have been made in the first place!

Thus you have it ass-backwards.


Talk about bass-ackwards... participants did make these loans with their own individual interest in mind. They made the commissions on volume, they got the fees from securitization, they got the bonuses for selling them. Very few absorbed the consequences personally of their participation and perpetration.

Just like Sonny.

Who returned to gloat here that he loses no sleep over his small role,

Jimi
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mishedlo: "Bottom line: people should expect other people to do what is in their best interest as long as it is within the law. No more no less."

You are redefining ethics out of existence. Per your formulation, ethical is co-terminous (or synonomous, if you prefer) with legal.

Is that really the position you wish to defend.

Regards, JAFO
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From Volokh from a couple days ago, perhaps applies a bit.

The Ballad of Subsequent Impossibility:

....Jane refuses his rent to pay....

With these exceptions, you can't be heard
To say that, from things which have since occurred,
It isn't convenient to keep your word.
Unto the letter.
And, with this knowledge, I may opine
That the case of Jane and of Paradine
Will never be either yours or mine;
No! we know better.....

http://www.volokh.com/posts/1250639650.shtml
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Because if the corporation is engaging in fair dealings with you, their lack of ethical standards (or even actual unethical behavior with respect to other people) doesn't automatically make it right for you to start behaving badly towards them.

You don't have to honor a contract if you discover the other party was a crook and the contract was simply his way of ripping you off.

End of discussion.


-=Ajax=-
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Because if the corporation is engaging in fair dealings with you, their lack of ethical standards (or even actual unethical behavior with respect to other people) doesn't automatically make it right for you to start behaving badly towards them.

You don't have to honor a contract if you discover the other party was a crook and the contract was simply his way of ripping you off.

End of discussion.


But your "end of discussion" has absolutely nothing to do with the message you were replying to: if - as specified - the corporation was engaging in fair dealings with you, then the contract was not the corporation's way of ripping you off.
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You don't have to honor a contract if you discover the other party was a crook and the contract was simply his way of ripping you off.

End of discussion.


-=Ajax=-

hear hear.....this is the meat of the matter....

Dave
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"If that bothers some of you, get over it."

Hilarious comment, given the OP, which sure makes it sound like you aren't over the board's disapproval, which is still evident in the recs various posts received.

Hats off to Albaby and FoolYap and Jimi.
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