By R.S. Rodriguez
Let’s assume an investor(s) purchased property during the real estate boom years. They are able to afford the mortgage payments but have chosen to let to let the property fall into foreclosure as the investment has lost 25% value. Is the decision to do so a moralistic and ethical issue, or simply a matter of sound business decision-making?
Morally and ethically, one might consider how the decision to walk away will affect values in the neighborhood. How long will the house remain vacant? If the process lingers for many months, will the house fall into disrepair? It’s probably safe to assume it will. The grass and weeds will grow, paint may chip, windows will become dirty and the house will look abandoned. What of the impact to the neighbors immediately next to property and those directly across the street? Is it fair to walk and leave in one’s footsteps a lingering eyesore? What of the moral and ethical decision to walk away from the financial obligation to the financial institution?
Some might argue the banks and mortgage companies bare a brunt of responsibility for approving loans on properties way over-valued, in a speculative market, to individuals and families who could not afford the houses. “Millions have lost their homes,” the investor might argue. “Why should I continue to make payments on a house still losing value?” Should the investor consider the role of the bank when considering whether or not to walk away?
Many investors feel when a properly loses about 25% of value, it’s justified to simply pack-up and let the place fall into foreclosure. An investor, hypothetically, may have purchased a single-family dwelling for $400,000 and that same house is now valued at $300,000. When a property loses such value, with no expectations of trends reversing for at least a couple of years, some might offer such a scenario as being good justification for leaving the joint.
Hundreds of thousands of investors who are able to make payments on properties are caught in this moral conundrum. The decision to walk and leave behind a financial quagmire, affecting the values of houses throughout the neighborhood, is certainly a difficult decision and one which should be thoroughly vetted.