The Morality of Walking Away

Jon Real Estate Leave a Comment

One of the unfortunate byproducts of the current economic slide is that many homeowners’ mortgages exceed the value of their homes.  It’s referred to as “”being underwater””, and it leaves many people wondering whether or not it’s worth paying off the debt on an investment that will most likely never be worth what they originally paid for it.  Last week, one New York firm- Tishman Speyer Properties– walked away from a$5.4 billion dollar investment for just that reason.  $4.4 billion of the investment was in debt, and the property just wasn’t worth the debt load.  The Huffington Post has a really interesting piece on the morality of “”walking away””- summed up in the following passage:

Some experts say it makes sense for some people to walk away if they’re deeply underwater, even if doing so could wreck their credit score for seven years. It may not be worth it to keep paying a mortgage when they can find comparable rental housing for considerably less money. The argument against walkaways is that they will wreak economic havoc if a lot of people do it. Banks will have more bad loans on their books. They’ll make fewer loans. Home prices will plunge more.

If you could live in the same house- across the street from the one that you’re in now- for half of what you’re paying now, would you walk away from your mortgage?  Would you feel guilty about walking away from your mortgage, leaving your former neighbors to deal with the resulting drop in value?   Are companies let off the hook when it comes to making “”smart business decisions””, while individuals are left to grasp with the moral and emotional issues related to being… indiviuals?

There are definitely some interesting questions that the article made me think about.  Take a moment and check it out- it’s a quick read, but well worth it.  Click here for the full post.

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