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Updated almost 15 years ago on . Most recent reply

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Richard Warren
  • Real Estate Investor
  • Las Vegas, NV
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Does Your Word Mean Anything?

Richard Warren
  • Real Estate Investor
  • Las Vegas, NV
Posted

I was raised to believe that the most valuable asset in business, and in life, is integrity. Your word is supposed to mean something and personal ethics are paramount.

This week my article on the BiggerPockets Blog was about The Ethics of Real Estate Strategic Default.

Article: http://www.biggerpockets.com/renewsblog/2010/05/03/ethics-of-real-estate-strategic-default/

To be sure, I expected it to get a reaction and it was written with that in mind. There are a lot of comments regarding the role banks had in the mess and there is no doubt that the financial meltdown couldn’t have happened without their recklessness. That’s not what I am debating.

The question is – Do you have a moral and ethical responsibility to honor your agreements?

It seems I am in the minority on this one and have even been called an idiot for thinking the way I do. Personally, I’d rather be the village idiot than discard my beliefs.

What do you think?

:cool:

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J Scott
  • Investor
  • Sarasota, FL
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J Scott
  • Investor
  • Sarasota, FL
ModeratorReplied

Rich -

Great post, and very interesting subject...

While I'm a big believer in always making good on promises and debts (I pay my credit card off twice a week :), there is another -- more impartial -- way to look at this issue that makes the ethical question a bit more complicated:

When it comes to a mortgage contact (or any service contract), making payments is only one part of that contract. Every mortgage contract I've ever seen also has a section on the lender's recourse should the borrower stop paying.

The details of this recourse (foreclosures, usually) is PART OF THE CONTRACT, not outside the contract.

So, when someone stops paying on their mortgage, they aren't neglecting the contract at all. Instead, they are just triggering ANOTHER PART of the contract that deals with this particular circumstance.

Here's an analogy:

As part of most people's mobile phone contract, it is stated that if the subscriber terminates the contract early, they will need to pay an early-termination fee.

Would you consider someone who cancels their service before the contract is up and who happily pays the early termination fee to be unethical?

Or would you just think, "It's okay, they terminated early and lived up to the agreement in the contract that they had to pay a termination fee?"

The same can be said of someone who allows their house to go into foreclosures: They have stopped paying their mortgage (terminated their contract early), and they are agreeing to abide by the terms of the contract that specify what happens when they stop paying.

In essence, they are still fully abiding by the contract, just not in the way the lender would prefer.

From that perspective, an argument can be made that letting your house go into foreclosure is not unethical and is also not "breaking a contract."

Just my $.02... And in case there is any confusion, yes, I certainly agree with you that making good on any contract is the right thing to do, regardless of what the ethics may be...

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