Morality of Strategically Defaulting on a Mortgage

This is a very interesting paper on the morality of strategically defaulting on mortgage payments. The paper examines some of the common concerns expressed by borrowers as to the morality of deciding not to pay the mortgage and letting the house go to foreclosure. Concerns include (1) the fact that homeowners “promised” to pay the mortgage, (2) a feeling that homeowners should hang on to help preserve the neighborhood value, and (3) the concern that if everyone defaulted the market would collapse. The author addresses each of these concerns in turn, eventually finding that there is no moral basis to criticize homeowners who decide to let go of their homes.

I am often asked about the morality of letting a house go to foreclosure or of filing bankruptcy, for that matter. I think the author of this post has some good points. I also direct clients to the Bible. In our culture, the Bible is still considered THE primary source for foundational moral authority and it has many things to say about the debtor/creditor relationship. While there are general themes about responsibility, which by implication would require a debtor to pay his debts, the vast majority of passages on this subject are warnings to lenders not to take advantage of debtors. Following are a few examples:

Exodus 22:25 – lenders were not allowed to charge interest.
Exodus 22:26 – lender had to return security to the borrower if it was needed by the borrower.
Deuteronomy 15 – Debts were to be released every seven years.
Nehemiah 5 – Nehemiah severely rebuked the lenders because they had taken advantage of the poor.

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