Walking Away

So having read some recent postings and news articles about this phenomenon I of course can't keep my mouth shut (fingers still?) and have to toss in my comments.

The basic premise is if you're underwater on your mortgage (that is owe more in principle than you can get for selling the house), an option you have is to just walk away, and let the bank forclose on it. This removes your mortgage debt at the cost of losing your house (and credit rating). But you end up with more money (or rather less debt) than if you had tried to sell it on the market. So you're trading your credit rating for debt reduction, not unlike bankruptcy.

Now where this gets people angry is when people choose to undergo this process, rather than are forced to. Theoretically the homeowner has the funds or means to keep paying their mortgage on time, but because they owe so much on it, they don't see the point and leave. Now usually this is not a decision made lightly because well, first we have the "sunk money principle" working against them, and secondly well, there's a big emphasis and attachment to 'home'.

However, we smarties (for why else are we so financially savvy) know that the sunk money can easily lead to throwing good after bad. Furthermore, we can see attachment to possessions as bad, leading us to live beyond our means. So the way I call it, good financial decision, as long as you can live with the credit drop you'll suffer and any other consequences of foreclosure.

Now the indignant response is "but you signed a contract, you shouldn't just break it". To that I'll say true, I did give my word when I signed it that I would pay them back, or face the consequences for not doing so. I did not say I would repay them back no matter what, and no matter the cost to me. Thus I content that I am keeping my word as I have given it within the contract.

Furthermore, is it any better to deliberately go out and make myself unable to pay for the mortgage? What if I acted financially irresponsible like many people out there do. I could start living beyond my means, racking up huge credit card debts, take out new car loans. Soon I'll be in a situation like many people have faced before. I'm not able to make it out and will be drowning in debt. Assume for the sake of argument that I've dug myself into a deep enough hole that short of winning the lottery, I'll not be able to get out. Now is it ethical for me have my house foreclosed on? If you're saying that the unethical part was to get myself in such trouble in the first place, well perhaps, but many have painted themselves into such a corner unknowingly.

Finally I'd like to propose another thought experiment. Say I have taken it upon myself to be more frugal, whether to repay debt or save for my old age. As part of this, I realize I don't really need my TV or cell phone plans because they're luxuries that I really don't even use that often. Is it ok for me to cancel them even if it I'm still under contract with them? To me financially it puts me ahead since the early termination fee is less than keeping them for the full contract term. Shouldn't I do so, cut my losses, and take the consequences for doing so? Would I not be generally cheered on for doing that (and the telecoms made out as bad guys for forcing me to even having early termination fees)?

Anyways, that's my take. Remember, a contract is a contract is a contract (but only between Fereginis).