Short Sale vs. Foreclosure – Ethical Considerations
I have recently begun thinking a lot about the ethical considerations of short sales and foreclosures. Please believe me when I say that I am completely empathetic with those people who are losing their homes because they were tricked into going for one of those terrible loans or because they have lost their job. That being said, I question the ethical decision making process in a lot of other cases. Just a couple of examples:
We hear stories all the time about people who bought second, third and fourth homes using those crazy interest only, “pay what you want, when you want to” loans. They all thought that they were going to be land barons, making big bucks on the rentals or buying the property, fixing it up and flipping it for a huge profit.
Now, the homes that they bought in Fresno, Sacramento, Lodi….heck, all over the country… are no longer worth what they paid for them and, because of the economy, they can no longer require the high rents they were getting in the beginning. In many cases, the owners can still afford to make the payments, but now don’t want to because they feel the value is not there, so they simply walk away from the properties. That seems wrong to me.
Another example…a year or two ago, there was a construction project started for a new house in my town. Although the owner runs a hugely successful business, when he had a problem with the building, he simply stopped making payments, so the bank took the property back. Since he “walked away” the property has been boarded up and there is a big, muddy hole in front of it, making the entire street look horrible.
What really troubles me about this case, is that I recently heard that this same man has just purchased a $900,000 home right up the street. How is that even possible? And, how can he sleep at night knowing that he left a big mess for the entire neighborhood to stare at, as well as destroying the property values of the homes on either side?
And, lastly, I heard of a case the other day where the owner has a great job and plenty of money. She can easily afford to make her payments, but wants to leave the country to join family members elsewhere and, if she sells, won’t get the full amount back that she owes. Even though she will only be short on the loan approx. $10,000, and even though she could easily write a check for that amount, she has decided to simply walk away and let the house be foreclosed upon.
All of these stories leave me wondering….Whatever happened to the honorable Americans we used to be? In the old days, if a person borrowed money, they would do whatever humanly possible they could to repay it. In many cases, all it would take would be a handshake and they were commited. Now, it is as though people no longer care about anyone but themselves…forget about the neighborhoods, forget about the country’s economy…I’m in this for me, appears to be the attitude.
Yes, I know that the banks are big, uncaring institutions, but a debt is a debt. I believe in that old saying “my word is my bond.” Obviously, as I mentioned earlier in this article, there are many people who, unknowingly, got caught up in this mess. I don’t blame them at all and completely understand their need to walk away from their homes. But, I feel nothing but anger for those who took advantage of the system and are now a big part of destroying our economy.
What kind of example are we setting for our children?
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5 Responses to “Short Sale vs. Foreclosure – Ethical Considerations”
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Kathy,
Thanks for taking the time to comment on the subject.
Brian
Times have changed and it is a difficult decision to have to make.
Larry
Kathy your story reminds me of the people you hear about running up the credit card before claiming bankruptcy. I know people get angry when they are overwhelmed, but don’t they realize that someone will have to pay the extra debt. Not all investors are big corporations… mom and dad’s retirement account is out there too…
Mark
Those banks are counting on people feeling guilty about walking away. They tell the buyer it would be the morally wrong thing to do and then refuse to work to modify the loan. I’ve met several people who desperately tried to renegotiate with the bank but to no avail. These are the same institutions that have no problems walking away from their responsibilities because it makes more business sense to stop making payments on their outstanding debt. The banks can’t have it both ways. They claim that in a capitalist society they have to make the best business decisions for their shareholders. Fair enough, but then banks should not be surprised when people make the best financial decisions for themselves & their families. In addition, when handing out the loans to anyone with a pulse and a paper route lenders took calculated risks that are now not paying off. While I’m not a big fan of someone walking away lightly, is it really up to the homeowner to bare the brunt of the housing fallout?
Kathy,
I somewhat agree but on the other hand some ethical peole lost jobs and are paying their mortgage by using their retirement funds. They contacted their bank to modify the loan and the bank point blank tells them as long as you are making payments we will not do anything.
I am not sure what is the right thing.
Yes these people made an obligation to pay but we are not in normal times and both sides need to compromise and not expect either side to take the entire loss.