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.

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