7 ms·

Do you lose any sleep over the ethics of it?

by hugh3 16y ago

dminor 16y ago
Ethics? According to their contract, if they stop making payments the bank gets the house. There's nothing unethical about exercising that contingency.
- peterb 16y ago
  I agree, but take it one step further: it is unethical NOT to walk away. The whole point of the clause is to ensure everyone is taking equal risk in evaluating the property: the bank and the owner. It is bad for banks to make loans without suitable collateral. It is bad for you to take loans you can't afford. In an overheated housing market, the house is NOT good collateral. The banks made a well-researched business decision to give you the mortgage with the house as collateral. They made a mistake (as did you) and everyone loses. The bank gets killed on the mortgage and you get killed on your original equity, interest and credit rating. It would be unethical not to walk away as this would encourage everyone to repeat the bad behavior.
  - deleted 16y ago
    [deleted]
chengas123 16y ago
I lose sleep over people suggesting it is unethical. That is buying in hook, line, and sinker to the propaganda these companies would like you to believe. Deciding not to service debt is a tactical business decision made every single day. The same companies suggesting it is immoral in order to increase their own profits at the expense of struggling homeowners have all done the same exact thing without anyone ever suggesting it is immoral. You are choosing to exercise a clause of your contract and have every right to do so. Also, declaring foreclosure is doing a great public service. It helps still inflated housing prices reach affordability. Californians spend more on housing than residents from any other state. If we were able to spend less money on housing it would have a positive impact on quality of living here. TL;DR: I would trade my credit score for $250k in a heartbeat.
- patio11 16y ago
  There is a clause in all of my software licenses that offers a refund, no questions asked. I am able to offer that clause in the faith that people will use it responsibly. If folks exercised it routinely on the theory "Hey, he lets me do it and that puts $30 in my pocket", I'd have to snip it or go out of business. The extraordinarily lenient treatment of foreclosures, particularly in California, is also premised on them being rare events caused by black swans like personal financial catastrophe. If folks use them merely when they're net beneficial, the generous leniency afforded folks in personal catastrophe will not be extended next time. Banks understand this. This is why, when they write contracts between each other, defaults do not result in "Oh, sure, keep the property for another twelve months and then mail the keys in and we're even stevens."
  - robrenaud 16y ago
    At first, I thought your argument was really compelling. But I think your analogy fails. You are implicitly equating taking a mortgage, not repaying it and continually living your home with buying your program, getting the refund, and continually using the program. If you could remove the users ability to use the software when you refunded them $30, like the mortgage lender can when the homeowner stops living in it, you'd probably still be in business even with your clause. On the other hand, if all of your users bought your software, thought it sucked and never used it again, and then got their refund, well, you should probably be out of business. The OP's situation is not analogous. He is not free riding. Edit: On the other hand, the year's worth of free rent before being evicted is to me a bit morally shady.
    - patio11 16y ago
      But he does get to stay in the house (for a year), because of the implicit assumption that knocking him out on his hindquarters when he stops paying would be discompassionate in the face of the catastrophe which caused his default. As an aside: I do a functional-limited trial rather than a time-limited trial precisely because 100% of the use of the software for 48 hours satisfies the need for 95% of my customers. "First year free" would wreck my business pretty comprehensively if folks took advantage of it.
dgabriel 16y ago
This is an interesting article that explores the ethics and morality of walking away from a mortgage. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1597835 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1597835 Frankly, I'm torn about whether or not I would do the same in a similar situation. I hope I never find out.
- sigzero 16y ago
  I read that just now. I agree with them. I think conscience is what stymies people sometimes because society has beaten into them a certain behavior. It took a painful year for me to go through foreclosure...but after reading that...I have a clearer understanding of what the contract aspect means. I am not saying everyone should foreclose just weigh the options from a more pragmatic view.
TylerJewell 16y ago
Someone asked me if I am losing sleep over the ethics of the situation. I think there are two separate issues: Ethically. I'm ok. This is because a mortgage has pre-arranged clauses in the contract that outline what the exit criteria are for the bank and the borrower. It's a contract with a pre-negotiated process around a divorce. A prenuptual if you will. In this case, we are just choosing to execute one of the clauses in the contract, as any business has the right to do. So, there is nothing unethical about adhering to the contract. Morally. There are concerns about short sales and foreclosures bringing down property values in the neighborhood. And that is an overall market affect. And there is a concern that this action brings down the overall market. It's the same as what happens when the stock market has a sell off - every time a stock is sold in repeating fashion, the overall value of the market declines as there is more cash on the side. Morally, I am personally ok, because the expectation with me and my fellow neighborhood residents was that we were all seeking asset appreciation, and when that didn't occur, there was an understanding that we may all have to pursue options to rectify the situation. I was open with my peer group about that 5 years ago when first buying the property. If I had lied about my intentions, it would be a different story. Also, and I forgot to mention this. In both of our cases, we have changed our job situation such that it is not profitable on a monthly basis to continue paying our mortage and there is no refinancing situation that makes it profitable. And we both explored conversion to rentals. We'd be in a situation where monthly, we were expending nearly 3K / month in losses if they were both rentals.
- orangecat 16y ago
  In this case, we are just choosing to execute one of the clauses in the contract, as any business has the right to do. So, there is nothing unethical about adhering to the contract. Agreed. The only thing I'm not fully on board with is staying in the house rent free for 12 months while waiting for the foreclosure process to complete. I can't quite explain why, but taking advantage of the slowness of the legal system seems different and less respectable than exercising the default option in the mortgage contract. There are concerns about short sales and foreclosures bringing down property values in the neighborhood. I wouldn't even worry about that. I've yet to hear any compelling explanation as to why high home prices are on balance a good thing. If car prices were to double because of a shortage of steel or something, we'd correctly realize that's a bad thing, even though everybody who owns a car would be richer on paper.

Do you lose any sleep over the ethics of it?

by hugh3 16y ago

Do you lose any sleep over the ethics of it?

Ethics? According to their contract, if they stop making payments the bank gets the house. There's nothing unethical about exercising that contingency.

peterb 16y ago
I agree, but take it one step further: it is unethical NOT to walk away. The whole point of the clause is to ensure everyone is taking equal risk in evaluating the property: the bank and the owner. It is bad for banks to make loans without suitable collateral. It is bad for you to take loans you can't afford. In an overheated housing market, the house is NOT good collateral. The banks made a well-researched business decision to give you the mortgage with the house as collateral. They made a mistake (as did you) and everyone loses. The bank gets killed on the mortgage and you get killed on your original equity, interest and credit rating. It would be unethical not to walk away as this would encourage everyone to repeat the bad behavior.
- deleted 16y ago
  [deleted]

chengas123 16y ago

I lose sleep over people suggesting it is unethical. That is buying in hook, line, and sinker to the propaganda these companies would like you to believe. Deciding not to service debt is a tactical business decision made every single day. The same companies suggesting it is immoral in order to increase their own profits at the expense of struggling homeowners have all done the same exact thing without anyone ever suggesting it is immoral. You are choosing to exercise a clause of your contract and have every right to do so. Also, declaring foreclosure is doing a great public service. It helps still inflated housing prices reach affordability. Californians spend more on housing than residents from any other state. If we were able to spend less money on housing it would have a positive impact on quality of living here. TL;DR: I would trade my credit score for $250k in a heartbeat.

patio11 16y ago
There is a clause in all of my software licenses that offers a refund, no questions asked. I am able to offer that clause in the faith that people will use it responsibly. If folks exercised it routinely on the theory "Hey, he lets me do it and that puts $30 in my pocket", I'd have to snip it or go out of business. The extraordinarily lenient treatment of foreclosures, particularly in California, is also premised on them being rare events caused by black swans like personal financial catastrophe. If folks use them merely when they're net beneficial, the generous leniency afforded folks in personal catastrophe will not be extended next time. Banks understand this. This is why, when they write contracts between each other, defaults do not result in "Oh, sure, keep the property for another twelve months and then mail the keys in and we're even stevens."
- robrenaud 16y ago
  At first, I thought your argument was really compelling. But I think your analogy fails. You are implicitly equating taking a mortgage, not repaying it and continually living your home with buying your program, getting the refund, and continually using the program. If you could remove the users ability to use the software when you refunded them $30, like the mortgage lender can when the homeowner stops living in it, you'd probably still be in business even with your clause. On the other hand, if all of your users bought your software, thought it sucked and never used it again, and then got their refund, well, you should probably be out of business. The OP's situation is not analogous. He is not free riding. Edit: On the other hand, the year's worth of free rent before being evicted is to me a bit morally shady.
  - patio11 16y ago
    But he does get to stay in the house (for a year), because of the implicit assumption that knocking him out on his hindquarters when he stops paying would be discompassionate in the face of the catastrophe which caused his default. As an aside: I do a functional-limited trial rather than a time-limited trial precisely because 100% of the use of the software for 48 hours satisfies the need for 95% of my customers. "First year free" would wreck my business pretty comprehensively if folks took advantage of it.

dgabriel 16y ago

This is an interesting article that explores the ethics and morality of walking away from a mortgage. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1597835 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1597835 Frankly, I'm torn about whether or not I would do the same in a similar situation. I hope I never find out.

sigzero 16y ago
I read that just now. I agree with them. I think conscience is what stymies people sometimes because society has beaten into them a certain behavior. It took a painful year for me to go through foreclosure...but after reading that...I have a clearer understanding of what the contract aspect means. I am not saying everyone should foreclose just weigh the options from a more pragmatic view.

TylerJewell 16y ago

Someone asked me if I am losing sleep over the ethics of the situation. I think there are two separate issues: Ethically. I'm ok. This is because a mortgage has pre-arranged clauses in the contract that outline what the exit criteria are for the bank and the borrower. It's a contract with a pre-negotiated process around a divorce. A prenuptual if you will. In this case, we are just choosing to execute one of the clauses in the contract, as any business has the right to do. So, there is nothing unethical about adhering to the contract. Morally. There are concerns about short sales and foreclosures bringing down property values in the neighborhood. And that is an overall market affect. And there is a concern that this action brings down the overall market. It's the same as what happens when the stock market has a sell off - every time a stock is sold in repeating fashion, the overall value of the market declines as there is more cash on the side. Morally, I am personally ok, because the expectation with me and my fellow neighborhood residents was that we were all seeking asset appreciation, and when that didn't occur, there was an understanding that we may all have to pursue options to rectify the situation. I was open with my peer group about that 5 years ago when first buying the property. If I had lied about my intentions, it would be a different story. Also, and I forgot to mention this. In both of our cases, we have changed our job situation such that it is not profitable on a monthly basis to continue paying our mortage and there is no refinancing situation that makes it profitable. And we both explored conversion to rentals. We'd be in a situation where monthly, we were expending nearly 3K / month in losses if they were both rentals.

orangecat 16y ago
In this case, we are just choosing to execute one of the clauses in the contract, as any business has the right to do. So, there is nothing unethical about adhering to the contract. Agreed. The only thing I'm not fully on board with is staying in the house rent free for 12 months while waiting for the foreclosure process to complete. I can't quite explain why, but taking advantage of the slowness of the legal system seems different and less respectable than exercising the default option in the mortgage contract. There are concerns about short sales and foreclosures bringing down property values in the neighborhood. I wouldn't even worry about that. I've yet to hear any compelling explanation as to why high home prices are on balance a good thing. If car prices were to double because of a shortage of steel or something, we'd correctly realize that's a bad thing, even though everybody who owns a car would be richer on paper.