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I'm so happy to hear that Mr. Shah and his wife were able to purchase a 350k house after pushing their debts off on taxpayers and dollar holders.

_delirium 16y ago
I don't see anything particularly wrong with people choosing to exit a mortgage in a way that's legal under their mortgage contract. If it's a no-recourse mortgage, then a debtor is perfectly within their rights to walk away from the property and consider the debt settled by the return of the property to the lender. That might cause the lender losses, but the lender is supposed to be pricing the possibility of such losses into the contract in the first place.
- richcollins 16y ago
  The reason that the other lenders are willing to lend them money for another house is because they know that they can pass off the mortgage to the taxpayer / dollar holder if the house buyer doesn't pay.
- yummyfajitas 16y ago
  It is wrong because it is a violation of the agreement the borrower and lender both signed. A mortgage is a promissory note, it conveys obligations on the borrower and the lender. There are penalties for violation, but that doesn't mean the borrower has the right to violate the contract. That just means they have the ability to do so. (Also in many states, they do not even have the ability to. The lender can sue them for the difference between the foreclosure sale price and the remaining mortgage obligations.) On the flip side, suppose house prices went up. Suppose also the bank could foreclose on the home, even if the borrower was fully paid up, perhaps paying a $10000 fine for wrongful foreclosure. Would there be something wrong with this?
  - _delirium 16y ago
    But if your mortgage contract says that you're free of any further legal obligation if you return the property (whether because you actually wrote that into the contract, or because your jurisdiction adds such terms to all contracts), then exiting the contract in that manner is just exercising the termination clause. You are of course correct that if there aren't any such terms, then you can't exit in that manner. If mortgages included a clause (either negotiated or because state law required it on all mortgages) saying that the lender may foreclose after paying $100k and giving notice, then sure, the lender would be within their rights to exercise that option as well. I suppose you can argue for a category of "contractual obligations" separate from legally enforceable obligations, but that doesn't make much sense to me. I take a fairly instrumental view of contracts that they're definitionally equivalent to "legally enforceable agreement".
    - yummyfajitas 16y ago
      That's my point - mortgages don't include a clause allowing the buyer to exit the contract. A call option has specific language in the contract: "Option holder has the right (but not the obligation) to purchase $SECURITY at $STRIKE_PRICE on or before $DATE. To exercise this option, holder must..." A mortgage has very different language: "Borrower is obligated to make payments of at least $XXX on or before the 1'st day of each month..." If you want to take your instrumental view of contracts, then there is similarly nothing wrong with anything you can legally get away with. It's basically a "might makes right" viewpoint. So if "nothing wrong with X" means "you can get away with X", you are correct. I mistakenly interpreted the phrase "nothing wrong with" as having moral content.
      - _delirium 16y ago
        Contracts incorporate all relevant contract law in the jurisdiction, though, since you can't enter a contract contrary to a jurisdiction's law. Say you sign an employment agreement in California that purports to include a "non-employment" condition, which CA doesn't permit. I suppose you could say that it was "agreed to but not enforceable", but it makes more sense imo to say that non-compete agreements simply aren't possible in California (because an unenforceable contract is not a contract in any meaningful sense). Or, if you deal with mortgages in a state whose mortgage law says that all mortgages can be exited with no further legal obligation by returning the property to the lender, then all mortgages in that jurisdiction have such a termination clause written into them, whether the contract purports to include it or not. For clarity, it probably should be restated in the document as well, but even if the document omits it, it's legally there. The phrase "nothing wrong with" did have moral content. The morally required activity when dealing with contracts is exactly equivalent to the legally required activity. That's the whole point of contracts, to impose legal obligations on the parties. I could see an argument if someone was misled, and didn't realize what legal obligations were being imposed. But I don't think that was the case here; lenders in no-recourse states presumably were aware that they were agreeing to a mortgage where the borrower had that option.

_delirium 16y ago

I don't see anything particularly wrong with people choosing to exit a mortgage in a way that's legal under their mortgage contract. If it's a no-recourse mortgage, then a debtor is perfectly within their rights to walk away from the property and consider the debt settled by the return of the property to the lender. That might cause the lender losses, but the lender is supposed to be pricing the possibility of such losses into the contract in the first place.

richcollins 16y ago
The reason that the other lenders are willing to lend them money for another house is because they know that they can pass off the mortgage to the taxpayer / dollar holder if the house buyer doesn't pay.
yummyfajitas 16y ago
It is wrong because it is a violation of the agreement the borrower and lender both signed. A mortgage is a promissory note, it conveys obligations on the borrower and the lender. There are penalties for violation, but that doesn't mean the borrower has the right to violate the contract. That just means they have the ability to do so. (Also in many states, they do not even have the ability to. The lender can sue them for the difference between the foreclosure sale price and the remaining mortgage obligations.) On the flip side, suppose house prices went up. Suppose also the bank could foreclose on the home, even if the borrower was fully paid up, perhaps paying a $10000 fine for wrongful foreclosure. Would there be something wrong with this?
- _delirium 16y ago
  But if your mortgage contract says that you're free of any further legal obligation if you return the property (whether because you actually wrote that into the contract, or because your jurisdiction adds such terms to all contracts), then exiting the contract in that manner is just exercising the termination clause. You are of course correct that if there aren't any such terms, then you can't exit in that manner. If mortgages included a clause (either negotiated or because state law required it on all mortgages) saying that the lender may foreclose after paying $100k and giving notice, then sure, the lender would be within their rights to exercise that option as well. I suppose you can argue for a category of "contractual obligations" separate from legally enforceable obligations, but that doesn't make much sense to me. I take a fairly instrumental view of contracts that they're definitionally equivalent to "legally enforceable agreement".
  - yummyfajitas 16y ago
    That's my point - mortgages don't include a clause allowing the buyer to exit the contract. A call option has specific language in the contract: "Option holder has the right (but not the obligation) to purchase $SECURITY at $STRIKE_PRICE on or before $DATE. To exercise this option, holder must..." A mortgage has very different language: "Borrower is obligated to make payments of at least $XXX on or before the 1'st day of each month..." If you want to take your instrumental view of contracts, then there is similarly nothing wrong with anything you can legally get away with. It's basically a "might makes right" viewpoint. So if "nothing wrong with X" means "you can get away with X", you are correct. I mistakenly interpreted the phrase "nothing wrong with" as having moral content.
    - _delirium 16y ago
      Contracts incorporate all relevant contract law in the jurisdiction, though, since you can't enter a contract contrary to a jurisdiction's law. Say you sign an employment agreement in California that purports to include a "non-employment" condition, which CA doesn't permit. I suppose you could say that it was "agreed to but not enforceable", but it makes more sense imo to say that non-compete agreements simply aren't possible in California (because an unenforceable contract is not a contract in any meaningful sense). Or, if you deal with mortgages in a state whose mortgage law says that all mortgages can be exited with no further legal obligation by returning the property to the lender, then all mortgages in that jurisdiction have such a termination clause written into them, whether the contract purports to include it or not. For clarity, it probably should be restated in the document as well, but even if the document omits it, it's legally there. The phrase "nothing wrong with" did have moral content. The morally required activity when dealing with contracts is exactly equivalent to the legally required activity. That's the whole point of contracts, to impose legal obligations on the parties. I could see an argument if someone was misled, and didn't realize what legal obligations were being imposed. But I don't think that was the case here; lenders in no-recourse states presumably were aware that they were agreeing to a mortgage where the borrower had that option.