Friday, January 15, 2010

And the Ethicist Says: Walking Away from an Underwater Mortgage is Not Unethical

Investors' Loan and Realty Co., Butte, Montana...Image by Butte-Silver Bow Public Library via Flickr

You and your lender buy the house together. Your agreement with the lender is that if you do not want to continue paying the lender for the right to own the house outright someday -- and own whatever value it gains in the meantime -- you give your ownership rights in the house to the lender. That's the risk the lender undertook: that it might end up stuck with the house if you decided to exercise an option specifically recognized in the loan documents. Moreover, the lender should have more expertise in predicting future real estate values than the average home borrower.

Bottom line: It's just business. Walking away from a bank loan secured by collateral is not unethical.


Anonymous said...
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Anonymous said...

interesting read. I would love to follow you on twitter. By the way, did you know that some chinese hacker had busted twitter yesterday again.