Real Estate News & Current Events
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback
Updated almost 13 years ago, 02/17/2012
Strategic Default or Efficient Breach?
I read the following article tonight:
Strategic Default or Efficient Breach?
that speaks about the supposed "moral obligation" to continue making payments on an underwater mortgage. The article generally jives with my thought process, especially as it relates to non-recourse mortgages. Specifically:
1. "The risk that the lender would be left with the home instead of the stream of payments if the borrower defaulted, for any reason, is one that is allocated to the lender under such a contract
and
2. "...and is presumably reflected in the price (i.e., the interest rate and other costs) that the lender charged for the loan."
and
3. "The lender loses nothing when it gets exactly what it bargained to receive in relation to a risk that it was paid to voluntarily assume."
and
4. "After all, a deal’s a deal."
How is this unsound logic? I know many (most?) think that defaulting on a loan where the terms are clearly spelled out is somehow immoral. Many institutional borrowers are currently doing this without the same media attention and scrutiny.
Can someone please explain how this is unethical to me? I realize that I will likely be in the minority and I am prepared to take a beating if need-be. Please keep the thread civil though. I would really like to try to understand this.