Understanding Strategic Mortgage Default
Paying way too much each month on an underwater mortgage? What are your alternatives to remaining chained to a loan that makes no financial sense.
Government bailouts were designed to help the banks, not the individuals. The system cannot handle millions of foreclosures at once without the frail man behind the financial curtain being exposed.
When banks sold us on the notion that a house was an investment instead of an expense, the path to ruin was blazed.
I do become enraged when I see talking heads putting people down for not keeping up with their mortgages – especially when they have no idea of the individual homeowner’s situation.
People lose sleep at night, fight with their spouses, and look for a divorce lawyer when they can’t pay their bills. How is this sinful?
Unless you intended to cheat the bank, there is nothing sinful or shameful in not being able to pay. Circumstances change through no fault of your own.
People lose jobs, get sick, become disabled, or die. Family members may not be able to pick up the slack.
Preachers and politicians will quote the Bible to convince you to pay, even if you have to put your family’s finances at risk. What they fail to mention is that the Bible also said to forgive debts every 7 years (reason 7 years was chosen in the first bankruptcy code).
Does it make any sense to continue paying on a property that is worth hundreds of thousands of dollars less than it could be sold for?
If you pay an exorbinant loan amount when you could rent the same house for less, you are taking food out of the mouths of your children. You are keeping your family poor while making your banker rich.
Banks charge interest on money they lend to you. A mortgage is a simple loan, a contract. They take a risk and have specified remedies.
In some states, the bank can sell the foreclosed house and sue you for the money they lost by lending to you – called a deficiency judgment. Banks will sometimes obtain a deficiency judgment even if they agreed to a short sale.
If your state allows deficiency judgments, you may have to turn to Chapter 13 bankruptcy to have your mortgage reset at current market value, or Chapter 7 and discharge that obligation altogether.
You never hear that a company is immoral when it dumps a non-performing property. Banks know that business is business, but they don’t want you to act in your own best financial interest.
When it comes to the bankers themselves, they do not feel so obligated.
According to the Washington Post, the Mortgage Bankers Association sold its Washington, D.C. headquarters for $41 million, about half what it paid three years ago. Was their short sale immoral? Someone in their membership may have taken a huge hit. I have not seen any apologies.
Do what is in your best interest. Falling in love with a house does not make it a sound investment.
Slavery was once moral. If in your best interest, use a strategic mortgage default to keep your family out of economic slavery.
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