[Is Escaping a Mortgage] Moral bankruptcy?

Now, is it the right thing to do to use legal methods to avoid just debts? I think we all pay for some of the bankruptcies.

"Cash-strapped, jobless and denied a loan modification, Del Phillips faced the same straits as millions of homeowners who risk losing their homes to mortgage lenders.

Some have struggled unsuccessfully to keep their homes, and others have just walked away. Phillips decided he wanted revenge and was willing to ruin his credit record for it.

When a short sale didn’t work out as planned, the 32-year-old Chicagoan opted for Chapter 7 bankruptcy liquidation, a move that will leave Phillips with little except for the scant possessions in his one-bedroom condo. It also will leave his lender, Chase, with little except for, eventually, a condo that has lost value. Meanwhile, Phillips continues to live there, mortgage-free."

chicagotribune.com/classified/realestate/ct-biz-0627-bankrupt-homeowner–20100626,0,444826.story

He lost his job and didn't have the ability to pay. He had good faith when he signed on, but the future he had hoped for just did not pan out for him. He has to look out for his own best interests, just as his lenders look out after their own best interests. That is the risk of getting a loan and the risk of giving one. It is was interest is all about, reimbursing risk.

This is not the same thing as people who walk away from a property because it has lost value and they just don't feel like paying for something that costs more than it is worth now. That is bad faith according to the agreement that has been signed.

[quote="Beau_Ouiville, post:1, topic:203435"]
Now, is it the right thing to do to use legal methods to avoid just debts? I think we all pay for some of the bankruptcies.

[/quote]

Do you believe that loan modification and bankruptcy laws are immoral?

I think it depends on motive, actual need, etc. If you are truly bankrupt and/or in need of a loan modification, then I believe it is moral to avail yourself of those things. Certainly, though, it shouldn't be a selfish and/or vengeful decision. A good priest can help someone in such situations.

I deal with people who have bruised credit all the time, and the attitude people have towards their credit situation and the banks is really sad. Many people think the banks are taking advantage of them by charging higher interest rates. They don't consider the fact that they have had two repos and credit card charge-offs to be a reason for a bank to consider them a risk. :p

[quote="Darryl1958, post:2, topic:203435"]
He lost his job and didn't have the ability to pay. He had good faith when he signed on, but the future he had hoped for just did not pan out for him. He has to look out for his own best interests, just as his lenders look out after their own best interests. That is the risk of getting a loan and the risk of giving one. It is was interest is all about, reimbursing risk.

This is not the same thing as people who walk away from a property because it has lost value and they just don't feel like paying for something that costs more than it is worth now. That is bad faith according to the agreement that has been signed.

[/quote]

I agree, except for some of the attitudes in the article:

Phillips decided he wanted revenge and was willing to ruin his credit record for it. [not quoting Phillips, but if that is his attitude...it is immoral]
...
"I don't feel shameful for what I've done," Phillips said. "I've gotten past being shameful." [really? I'm thinking a little shame is appropriate]
...
"I've had to be very shrewd, like most business people. … I'm looking out for my best interests, and this is my best interests." [you should look after your 'best interests' but you also need to act morally. Looking out for your "best interests" is not a good defense for immorality]

I don't obviously completely know Phillips' mindset regarding his debt; however, I know how I have dealt with my own financial woes (including loan modification and bankruptcy). Living within your means is a good policy...until your means disappear. Then, you have to figure out what the best and moral course is.

Remember when they changed the BK laws due to the fast filers? That was college students who would go bk and wipe out their student loans one year out of school. The government put an end to that. Those student loan debts (like taxes) are no longer dischargeable.

[quote="Beau_Ouiville, post:5, topic:203435"]
Remember when they changed the BK laws due to the fast filers? That was college students who would go bk and wipe out their student loans one year out of school. The government put an end to that. Those student loan debts (like taxes) are no longer dischargeable.

[/quote]

Yes. And, I think that is good. You also can't discharge a mortgage loan or auto loan and still keep the house/auto (well...you can keep your auto, if you continue to make payments). For example, I have a modified 1st mortgage on my home and a 2nd that was charged off. That 2nd, though charged off, was not included in my BK and still has a title claim. I still owe them the money, and a debt collector may come knocking. In other words, I could still lose my house. While I'm still only making 1/3 of what I used to make, things are starting to look up. I may be in a position to resume payments on that 2nd, as well as revisiting some of my other debts.

You didn't answer my earlier question. Do you believe that loan modifications and bankruptcy laws are immoral?

as long as he follows the law, he is within his moral rights, unless he has found someway to legally steal. If the bank is not willing to work with him in a way that allows him to discharge some or all of his debt, they have made the decision already not to accept the settlement, so it is left to the debtor to take what ever legal recourse is available to him. The lenders, not the borrowers, made the rules, he is just following them.

[quote="puzzleannie, post:7, topic:203435"]
as long as he follows the law, he is within his moral rights, unless he has found someway to legally steal. If the bank is not willing to work with him in a way that allows him to discharge some or all of his debt, they have made the decision already not to accept the settlement, so it is left to the debtor to take what ever legal recourse is available to him. The lenders, not the borrowers, made the rules, he is just following them.

[/quote]

Well, yes and no. It isn't just a matter of following the rules. You also need to discern what the correct moral action is. It is possible to act immorally and still be well within the law. This is true in many aspects of society - not just the financial ones.

[quote="rlg94086, post:6, topic:203435"]

You didn't answer my earlier question. Do you believe that loan modifications and bankruptcy laws are immoral?

[/quote]

I don't think morality is an issue. They are public administration.

Everything which is legal is not right to do. Do I consider some legal acts immoral, Yes!

Loan modifications and bk laws are not necessarily immoral.

[quote="rlg94086, post:8, topic:203435"]
Well, yes and no. It isn't just a matter of following the rules. You also need to discern what the correct moral action is. It is possible to act immorally and still be well within the law. This is true in many aspects of society - not just the financial ones.

[/quote]

yes and so far nobody has demonstrated any immoral content in the actions of the person in the news story cited. You did not ask about the morality of the decisions made by the bankers so I won't comment on them.

[quote="puzzleannie, post:10, topic:203435"]
yes and so far nobody has demonstrated any immoral content in the actions of the person in the news story cited. You did not ask about the morality of the decisions made by the bankers so I won't comment on them.

[/quote]

So, you disagree with my statement that declaring bankruptcy as an act of revenge is immoral? Again, it could just be the author of the article claiming that the gentleman was using bankruptcy for revenge. However, if that the report is accurate, then it would make his reasons for bankruptcy immoral IMO.

As far as the bankers, I'll ask now. What immoral decisions did the bankers make in this case?

[quote="rlg94086, post:11, topic:203435"]

As far as the bankers, I'll ask now. What immoral decisions did the bankers make in this case?

[/quote]

I'm not sure about this case, but when bankers oversell commitments to individuals which have a good chance of them getting into dire straits while the banks has guarantees that the government will bail it out on bad loans -- that's immoral. It is lying to a consumer when there are few penalties for a bank's lies.

[quote="Beau_Ouiville, post:12, topic:203435"]
I'm not sure about this case, but when bankers oversell commitments to individuals which have a good chance of them getting into dire straits while the banks has guarantees that the government will bail it out on bad loans -- that's immoral. It is lying to a consumer when there are few penalties for a bank's lies.

[/quote]

I would agree with you on that; however, I'm curious as to how you would know when they are "overselling." Most people who are looking at a loan modification are already in dire straits (e.g. going into foreclosure), and the commitments are far less than their original loans.

[quote="rlg94086, post:11, topic:203435"]
So, you disagree with my statement that declaring bankruptcy as an act of revenge is immoral? Again, it could just be the author of the article claiming that the gentleman was using bankruptcy for revenge. However, if that the report is accurate, then it would make his reasons for bankruptcy immoral IMO.

As far as the bankers, I'll ask now. What immoral decisions did the bankers make in this case?

[/quote]

I would say that because of the fact that he did this as an act of revenge it makes his actions immoral. If he had not done this as an act of revenge but simply because there where no other options than it would be considered moral.

[quote="rlg94086, post:13, topic:203435"]
I would agree with you on that; however, I'm curious as to how you would know when they are "overselling." Most people who are looking at a loan modification are already in dire straits (e.g. going into foreclosure), and the commitments are far less than their original loans.

[/quote]

Mortgage lenders have been known to help a person lie about their income to get a mortgage. Then a block of mortgages is sold to a discounter, then the government backs the loans ...

And in many cases, the government winks and nods at the bank shenanigans because it helps create "housing justice" (code word for giving loans to people who aren't qualified under traditional measures of risk). It's moral morass with people on both sides trying to cheat the other and sometimes both of them trying to cheat the taxpayer.

The only thing I see wrong here is him deliberately dragging out the process in order to get free housing while the legal system drags out (as it always seems to).

Once upon a time you had to save up 20% of the property value to get a loan. Banks lending money had to make reasonably sure they loaned to reliable people or they'd go bankrupt. The bank only loaned to people with a good credit history and enough principle to at least mostly offset the losses associated with a foreclosure and reasonable market downturn. Nobody plans for an economy like this one though. Arguably we would never have HAD this if banks hadn't handed out so much money that the real estate bubble formed.

[quote="Sabda, post:14, topic:203435"]
I would say that because of the fact that he did this as an act of revenge it makes his actions immoral. If he had not done this as an act of revenge but simply because there where no other options than it would be considered moral.

[/quote]

I agree with you, if it is accurate. They didn't quote anything from the man stating it was revenge, but that is the way the author characterized it.

[quote="Beau_Ouiville, post:15, topic:203435"]
Mortgage lenders have been known to help a person lie about their income to get a mortgage. Then a block of mortgages is sold to a discounter, then the government backs the loans ...

[/quote]

Yeah, that would be very immoral, but it doesn't sound like that happened in this case.

[quote="Beau_Ouiville, post:15, topic:203435"]
Mortgage lenders have been known to help a person lie about their income to get a mortgage. Then a block of mortgages is sold to a discounter, then the government backs the loans ...

[/quote]

I know, something similar happened to me. A few years back, my city was offering certain tax advantages to get people to move within the city limits. I went to the local ACORN office to get help about this program. I was disappointed, because I made $1,000/year more than the program's limit. The woman at ACORN offered to help me lie about my income. I refused, because lying is wrong.

[quote="Beau_Ouiville, post:15, topic:203435"]
Mortgage lenders have been known to help a person lie about their income to get a mortgage. Then a block of mortgages is sold to a discounter, then the government backs the loans ...

[/quote]

i saw a lot of that when I was a mortgage broker. As wrong as those loan officers were, the borrowers were equally at fault for signing the mortgage paperwork which laid out all the terms of the loan.

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