Is Strategic Default Morally Wrong?

As the real estate market continues to limp along, more and more homeowners are opting for strategic default - basically walking away from a mortgage you can afford to pay.

Many describe it as a savvy business decision (even if it ruined their credit), but is it a moral shortcoming?

Despite the fact that he and his wife are employed and have an annual household income near $150,000, he's comfortable with his decision.

"I did a lot of soul-searching about whether it was morally the right thing to do," he said. "I felt there was no moral obligation to make a payment. The contract says it's a financial obligation, not a moral obligation.

"I was in a boat with a slow leak. It was manageable, but I know I was slowly sinking."

The decision to walk, tied to a housing crisis that continues to grip the market, is far-reaching, raising serious questions about whether financial commitments can ever be considered optional.

Mary Ellen Podmolik of the Chicago Tribune has the story: Link (Photo: Michael Tercha/Chicago Tribune)


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Contracts are only moral obligations if they are honest contracts. If you look at the entire housing bubble, the contracts were not representing enough information to make an informed choice. For example, easy money came from Basel 2 and Wall Street colluding, and this shadow banking system took the price of the homes too high. So, the entire enterprise was a scam. The contracts did not reveal that it was a scam.

You don't have to honor a scam. And house buying at that time was a scam. So you are morally ok with walking away. However, you may have some legal problems in recourse states and even with some loans in non recourse states. So check with an attorney.
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The pathetic thing about smug, self-righteous people, like Teddy here, is that they always employ a double standard. They justify or ignore "immorality" in one party and castigate the other for their supposed wickedness.
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Funny to see all the justifications people are giving for their hatred towards banks.

Also interesting to see how so few people understand, or are willing to ignore, the definition of morality.
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@Jeffos

A more appropos scenario would be:

You loan your co-worker $10,000 to buy some stock. He signs a loan agreement. You head over to the company your co-worker purchased stock in and dump gallons up gallons of gasoline throughout the building. You light that SOB up and burn it to the ground.

The next morning you ask your friend if he needs any extra time to pay back that loan, because he better not if he knows what's good for him.
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