Is it unethical walk away from a home you are underwater on?

[wiegie]

I'm just wondering what people think about this issue. (It came up in my money and banking class earlier this week.)

Edited November 15, 2008 by wiegie

[Clubfoothead]

This wasn't a poll a moment ago...

Edited November 15, 2008 by Clubfoothead

[Big John]

Does this include the loans from a couple years back where some institutions were pushing loans for 125% of the home's value? Still unethical with this.

[Chief Dick]

Not sure if unethical is the right word. If you can afford the payments, then I think it's pure stupidity, because at some point you will gain equity in the property. Not to mention you are providing yourself a place to live. And, presumably, a tax break.

 

Unethical...No.

 

Stupid....Yes.

[Clubfoothead]

Maybe but I've got no sympathy for at least one mortgage company.

[Chavez]

Not sure if unethical is the right word. If you can afford the payments, then I think it's pure stupidity, because at some point you will gain equity in the property. Not to mention you are providing yourself a place to live. And, presumably, a tax break.

 

Unethical...No.

 

Stupid....Yes.

Well said.

 

If a person can't make his monthly nut because the mortgage payment is too high, well, that's one thing - they're going to go into foreclosure anyway, so just swallow it sooner rather than later.

 

If a person is making the payments just fine, then it's unethical; heck, EVERYONE* is upside down on their cars at some point or another and keeps paying that down, right? Same thing.**

 

 

 

* - everyone meaning "those who don't pay cash"

 

** - my funny car payment story is we bought grocery-getta when Chavezette Jr was born; we go through all the financing paperwork and the woman closes with "okay, taxes and fees are $10,700, you paid $100 down, and owe $9700, will pay 56 payments of $213 blah blah blah"; I go "yep, fine, right." "Okay, that's done. Now the car you owe $9700 is only worth $8000 blah blah blah buy this insurance..." My good manners kept me from laughing in her face and telling her she really had to have brass balls in this job. In retrospect, I with I had.

[CaP'N GRuNGe]

Not sure if unethical is the right word. If you can afford the payments, then I think it's pure stupidity, because at some point you will gain equity in the property. Not to mention you are providing yourself a place to live. And, presumably, a tax break.

 

Unethical...No.

 

Stupid....Yes.

 

Not necessarily stupid. I have a coworker whose daughter and son-in-law just walked away from theirs. They were hughly upside down on the home thanks to the drop in market value (something close to 50% if I recall correctly.) This was a newer neighborhood and the homes around them were vacated and foreclosed on. The HOA went belly up. It would take them years to pay down on the home just to reach the value of it.

 

It may not be "the right thing to do" but I can understand the thinking behind getting out.

[Chavez]

Not necessarily stupid. I have a coworker whose daughter and son-in-law just walked away from theirs. They were hughly upside down on the home thanks to the drop in market value (something close to 50% if I recall correctly.) This was a newer neighborhood and the homes around them were vacated and foreclosed on. The HOA went belly up. It would take them years to pay down on the home just to reach the value of it.

 

It may not be "the right thing to do" but I can understand the thinking behind getting out.

Could they afford the mortgage?

 

Example - my mortgage is $800/mo. For a 2 BR decent sized apt I'd be paying around $750 anyway.

 

Even IF I'm upside down right now, I'm not paying that much more than I'd be paying with NO hope of building equity. Maybe their situation was different, but at least in my case I'd be a fool to walk out.*

 

 

* - appraised value came in at $160k just last year; assessed value is $133k; I think the assessed value is closer to fair market.

[Puddy]

Hey Chavez -

 

Please stop with the asterisk thingy*

 

 

 

* it's pissing me off for some reason.

[Chavez]

Hey Chavez -

 

Please stop with the asterisk thingy*

 

 

 

* it's pissing me off for some reason.

Sorry.*

 

 

* - nah, not really.

[CaP'N GRuNGe]

Could they afford the mortgage?

 

Example - my mortgage is $800/mo. For a 2 BR decent sized apt I'd be paying around $750 anyway.

 

Even IF I'm upside down right now, I'm not paying that much more than I'd be paying with NO hope of building equity. Maybe their situation was different, but at least in my case I'd be a fool to walk out.*

 

 

* - appraised value came in at $160k just last year; assessed value is $133k; I think the assessed value is closer to fair market.

 

I think so, but I don't know their personal finances. I'd imagine their rental payment would be alot less than a mortgage payment. That probably varies by market. For example the house i'm renting right now is about $1,300 / mo. Even in this market if I wanted to buy it in this neighborhood my monthly outlay would be quite a bit more on a 30 year fixed given the $300K value estimate on Zillow.com. (Yes I realize the tax savings help a bit from the mortgage interest deduction.)

[muck]

We bought our house in June 2007.

 

We've done a bunch of work (and spent a bunch of money) since we bought it.

 

Not sure if it's 'worth' more or less than we paid for it ... for this thread, I'm assuming that if we sold it in a patient manner over the next 3-6 months we'd end up getting 5% less than we paid for it.

 

We are able to make our monthly mortgage payment.

 

If it came down to closing my businesses and keeping the house ... or losing the house but keeping the business, we'd probably elect to lose the house and keep the business.

 

Regardless, it'd be a brutal decision and one I'm hoping that I'll never have to make.

[Chavez]

If it came down to closing my businesses and keeping the house ... or losing the house but keeping the business, we'd probably elect to lose the house and keep the business.

 

Regardless, it'd be a brutal decision and one I'm hoping that I'll never have to make.

See, to me, that's the key question as to ethics - are you going to lose the house anyway, or is it just an entitlement-type "ah, we aren't going to make a killing when we sell it, f*ck it."

 

Anyone who sees a house as some sort of profitable investment is a moron. The math doesn't work out.

[muck]

See, to me, that's the key question as to ethics - are you going to lose the house anyway, or is it just an entitlement-type "ah, we aren't going to make a killing when we sell it, f*ck it."

 

Anyone who sees a house as some sort of profitable investment is a moron. The math doesn't work out.

 

We live across the street from my parents, and it's an absolute blessing for my family and I. Selling our home is the next to last financial decision we want to make (short of selling or folding the business).

[Chavez]

We live across the street from my parents, and it's an absolute blessing for my family and I. Selling our home is the next to last financial decision we want to make (short of selling or folding the business).

FYI, I was using the general "you" as opposed to "you, muck" in that previous post.

 

But IMO owning a home is not an "investment" in the traditional sense; it's a way to get SOME appreciation on the money you spend on housing as opposed to just throwing it down a hole (in a sense).

 

But if you're looking at in a strict investment sense, your best bet for appreciation would be to be homeless and invest whatever % of your pay would be wasted on a roof over your head.

[Jackass]

I think it depends on the circumstances - which i believe most people are saying.

[Footballjoe]

Why not try to rent the house and move into an apartment for a while until the economy takes a turn? I know of some people doing this. It saves your home and your credit.

Edited November 15, 2008 by Footballjoe

[The Holy Roller]

Well said.

 

If a person can't make his monthly nut because the mortgage payment is too high, well, that's one thing - they're going to go into foreclosure anyway, so just swallow it sooner rather than later.

 

If a person is making the payments just fine, then it's unethical; heck, EVERYONE* is upside down on their cars at some point or another and keeps paying that down, right? Same thing.**

 

 

 

* - everyone meaning "those who don't pay cash"

 

** - my funny car payment story is we bought grocery-getta when Chavezette Jr was born; we go through all the financing paperwork and the woman closes with "okay, taxes and fees are $10,700, you paid $100 down, and owe $9700, will pay 56 payments of $213 blah blah blah"; I go "yep, fine, right." "Okay, that's done. Now the car you owe $9700 is only worth $8000 blah blah blah buy this insurance..." My good manners kept me from laughing in her face and telling her she really had to have brass balls in this job. In retrospect, I with I had.

 

So the total was $10,700, you paid $100 down and only owed $9700? Sounds like the right place to finance a car loan to me.

[Big John]

Hey Chavez -

 

Please stop with the asterisk thingy*

 

 

 

* it's pissing me off for some reason.

And you aren't even a Patriots or Bonds fan.

[AtomicCEO]

Not sure if unethical is the right word. If you can afford the payments, then I think it's pure stupidity, because at some point you will gain equity in the property. Not to mention you are providing yourself a place to live. And, presumably, a tax break.

 

Unethical...No.

 

Stupid....Yes.

 

Why is it stupid? I can see a situation where you walk away from a house that you owe $300K on, the bank forcloses on it... and then you go buy it back from a bank auction for $175. Whatever equity you were going to have, you just gained $125K on. Sure, it's exploiting a bank's rules for your gain... but that's not exactly bad business judging by the last 6 years or so.

Edited November 15, 2008 by AtomicCEO

[Savage Beatings]

If there is an unethical component to the equation, it MIGHT be more likely to be occuring at the moment of purchase instead of the moment of abandonment. There's just too many diffierent situations though to create a rule of thumb I think.

[gsmayes]

I think where it makes sense is if you own a home in a really depressed area and you need to move for some reason. Say, if you've lost a good paying job but have gotten a lesser job in another state. Instead of burning through your savings for another six months of mortgage payments, where even if you could sell your old house you'd still be down 100K to the bank...just walk away. I don't really have a problem with someone doing that.

[Chavez]

So the total was $10,700, you paid $100 down and only owed $9700? Sounds like the right place to finance a car loan to me.

Yeah, I wish. I obviously missed a zero in the down payment.

[Chavez]

Why is it stupid? I can see a situation where you walk away from a house that you owe $300K on, the bank forcloses on it... and then you go buy it back from a bank auction for $175. Whatever equity you were going to have, you just gained $125K on. Sure, it's exploiting a bank's rules for your gain... but that's not exactly bad business judging by the last 6 years or so.

If your $300k house has just been foreclosed...well, let's just say your situation is unlikely at best.

 

If you walk away from a $300k house on hopes you can buy it at auction for $175k, that means you probably had $175k laying around, since NOBODY will touch you for a home loan after foreclosure. It's worse than bankruptcy.

 

And if you had a spare $175k, your house probably won't end up in foreclosure.

[Ursa Majoris]

Not sure if unethical is the right word. If you can afford the payments, then I think it's pure stupidity, because at some point you will gain equity in the property. Not to mention you are providing yourself a place to live. And, presumably, a tax break.

 

Unethical...No.

 

Stupid....Yes.

Exactly my thought too. It's similar to bailing out of stocks at this point - you're going to lose in the long run. I couldn't answer the poll as there was no option for Ethical but bad business decision.

 

Not to mention no Puddy option.