If you’re ‘underwater’ on your mortgage, walking away might make sense, but when is it OK to set aside your responsibilities to your lender, your neighbors and yourself?
[Related content: homes, home financing, mortgage, foreclosure, bankruptcy]
By Liz Pulliam Weston
MSN Money
Are you stupid not to walk away from an “underwater” mortgage, even if you can make the payments?
How to avoid foreclosure
How to avoid foreclosure
Law professor Brent T. White thinks the answer may be yes.
White doesn’t actually use the word “stupid” in his recent paper, “Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis.” Instead, the University of Arizona prof blames emotion for clouding homeowners’ judgment.
White asserts that the real reason more homeowners don’t default is because of shame, guilt and fear, fed by misinformation about foreclosure’s effects promulgated by the government, lenders and the media.
White doesn’t just dismiss the idea that homeowners have a moral obligation to pay their debts. He thinks the idea of morality should be removed from their calculations entirely.
It’s no wonder Washington Post columnist Kenneth Harney called White’s treatise “incendiary.” I can picture people’s hair bursting into flame at the very idea of a law professor advising huge numbers of homeowners to strategically default.
Full disclosure: I’m one of the people White points to as trying to scare people into unnecessarily paying their mortgages. (I’m bemused by that, since so many readers think my writing about foreclosure and bankruptcy encourages people to abandon their obligations.) But that’s not the only reason I found reading his paper to be a bit surreal.
White makes a number of valid points, and I’m sympathetic to his central theme: that lenders and the government are dumping the costs of the housing mess largely on the shoulders of homeowners, who are at a huge power disadvantage.
It’s really worth taking the time to read White’s paper in its entirety, and I encourage you to do so. But I’ll provide the key points here — along with why I think he’s wrong.
