Is it wrong to walk away from your mortgage?

[Little Raven]

Its the part of the contract that says what the penalty is for breaching the art where you promise to pay.

I assumed you were using 'breach of contract' in the legal sense - as a legal concept, breach of contract occurs when someone fails to abide by the terms of a contract.

That is not the case in a foreclosure - which is why you never see banks suing people for breach of contract after they get foreclosed on. A foreclosure is a penalty process defined in the contract itself - thus it cannot, by definition, be a breach of that contract.

You're using breach of contract in an entirely different manner - to describe failing to abide to any single part of a contract. If that gets you off, then great, but no judge (or businessman) in the nation is going to back you on that.

 

[skadistic]

Actually in all the contracts I deal with not living up to a single aspect of it is a breach of said contract. But I'm just a business man who signs contracts and talks with lawyers while I do. What do I know right. How many multi million contracts have you signed so far this year? How many did you sign last year? How many since 2000? DO you make your living signing and living up to the contracts you signed?

 

[Little Raven]

Actually in all the contracts I deal with not living up to a single aspect of it is a breach of said contract.

Not as long as you live up to the penalties.

To go back to my example with Elrohir, if I stop making payments, and then don't give him the car, I'm in breach of contract. After all...I signed a paper saying I would either pay him or give him the car I was buying. But as long as I do give him the car and forfeit the equity, I'm not in breach of contract. I've done exactly what the contract said I would do. Granted, it's not an ideal situation for anyone...he gets a car, when what he really wanted was money, and I lose my car and my equity. But nobody is in breach of contract, nobody has done anything illegal, and everything is ethically on the level.

I have no idea what kind of contracts you're dealing with, or how they're written, but a foreclosure does not constitute a breach of contract. Go ask one of those lawyers you hang around with all day.

 

[skadistic]

Not as long as you live up to the penalties.

The penalties as outlined are penalties for breaching the contract.

The mortgage contract says you promise to pay. When you don't pay that is the breach of contract. Then the penalty is levied. In the case of the mortgage that penalty is called a foreclosure. A foreclosure means you have not lived up to your side of the contract thus breaching it and are now being punished.

 

[Little Raven]

The penalties as outlined are penalties for breaching the contract.

No, they're for failing to live up to a part of the contract. The penalties themselves are part of the contract. Fulfilling them can hardly constitute a breach.

Seriously, Skad, if what you say is correct, why don't banks simply sue people for breach of contract when they go into foreclosure? Breach of contract is a civil offense, you know.

 

[skadistic]

No, they're for failing to live up to a part of the contract. The penalties themselves are part of the contract. Fulfilling them can hardly constitute a breach.

Seriously, Skad, if what you say is correct, why don't banks simply sue people for breach of contract when they go into foreclosure? Breach of contract is a civil offense, you know.

Not living up to your end of a contract is breaching that contract. And in the event you breach the contract there are penalties set up. Banks don't sue because they have foreclosures. Why tie up the courts when you already have a way of dealing with people who breach their contract.

 

[IglooDame]

Not living up to your end of a contract is breaching that contract. And in the event you breach the contract there are penalties set up. Banks don't sue because they have foreclosures. Why tie up the courts when you already have a way of dealing with people who breach their contract.

Someone takes out an adjustable rate mortgage to buy a house for (say) $500K (no points, no deposits, etc), makes their $3K/mo mortgage payments for a year, and gets the principal down to about $495K. Over the course of that year, the market value of their property drops to $400K. The ARM rate readjusts, and their mortgage payment goes up to $4K. They can't handle it for whatever reason and the property very quickly gets foreclosed on. Now the mortgage lender has $36K cash and a $400K property in lieu of their original $500K. You're telling me that they are entitled to go after the customer for breach of contract (after all, they have a clear $64K in damages) but don't because they don't want to tie up the courts?

 

[skadistic]

Someone takes out an adjustable rate mortgage to buy a house for (say) $500K (no points, no deposits, etc), makes their $3K/mo mortgage payments for a year, and gets the principal down to about $495K. Over the course of that year, the market value of their property drops to $400K. The ARM rate readjusts, and their mortgage payment goes up to $4K. They can't handle it for whatever reason and the property very quickly gets foreclosed on. Now the mortgage lender has $36K cash and a $400K property in lieu of their original $500K. You're telling me that they are entitled to go after the customer for breach of contract (after all, they have a clear $64K in damages) but don't because they don't want to tie up the courts?

Yes because the cost of foreclosure ( an already agreed upon penalty for failure to live up to the borrowers end of the contract, which is a breach) is cheaper then lawyers and court costs.

 

[JollyRoger]

Actually in all the contracts I deal with not living up to a single aspect of it is a breach of said contract. But I'm just a business man who signs contracts and talks with lawyers while I do. What do I know right. How many multi million contracts have you signed so far this year? How many did you sign last year? How many since 2000? DO you make your living signing and living up to the contracts you signed?

As a businessman, have you never seen a contingent clause in a contract that gives one party an option which then opens up a course of action for the other party if such an option is chosen?

 

[JollyRoger]

Yes because the cost of foreclosure ( an already agreed upon penalty for failure to live up to the borrowers end of the contract, which is a breach) is cheaper then lawyers and court costs.

So a contractual clause agreed to by the parties negates the concept of breach of contract in a failure-to-make-payments scenario. A business deal where both parties agreed to a contigent course of action has replaced judicial remedies.

 

[GoodGame]

It's better than death. I'd lump it more as a shifting of the markets, and probably a good cautionary tale for the future.