Walking Away from Your Home Loan or Mortgage? Why? Is it right?
One position holds that a contract is a promise and a promise is a bond. (if you are in default on your loans you have probably heard this argument from bill collectors. But, is it correct?
a. Is a Contract soley a promise or is it are complicated arrangement.
b. If you default on our duty, you are probably in breach of contract
c. The lender will have remedies provided by the contract and provided by State Law
d. Within legal circles there is an argument that a breach of a contract is not a moral decision but a business decision… A seller chooses to allocate his or her resources in a new manner. (presumably a more efficient manner) The lender is now entitled to contractual remedies (or the ones proscribed by law). This has been referred to an efficient breach. In other words the breaching party chooses to allocate resources elsewhere and the party who deal has been breached can elect to pursue its remedies. Remarkably many sellers see that it is pointless to keep paying big money for a home which may be upside down for years. They therefore choose to allow the lender to pursue its remedies. Some sellers are even buying a short sale for foreclosure down the block and then going into default on their upside down property.
e. California has designed laws to protect consumers from the consequences of purchasing overpriced property. California’s legislature decided decades ago to protect buyers of real estate from sellers and lenders who facilitate the purchase of the property. See California Code of Civil Procedure 580.
f. Finally, and this is why I enjoy helping sellers, the lenders gave out loans without properly qualifying borrowers. This caused price to rise to heights it could not normally have reached. It resulted in a “tax” on Californians. Real estate loans went form 30% of our income to 70%. Those lenders gave 100% loans to people and paid 1-6% to mortgage brokers for an opportunity to package those loans and blow up pension funds and school teacher retirements. I have no reason to believe anyone who is stuck in over priced house should feel beholden to the lenders. The lenders made a business decision to bet on increasing prices and gorge on short term bonuses. Some real estate purchasers were greedy as well but anyway you slice prices were artificially high. Lenders provided the punch bowl for the real estate party and then took it away.
