The buzz phrase in the financial world in recent weeks has been ‘strategic default.’ An article in the Wall Street Journal, Walk Away From Your Mortgage has turned the issue of bailing out on your mortgage into a national discussion. According to recent statistics, more than 11 million homeowners are currently underwater (the amount that they owe on their mortgage exceeds the value of their home). Some analysts are predicting that this will be the case with as many as one out of every two homes within one year!
About three years ago, during the beginning phase of the real estate meltdown, those facing such problems were recipients of 100% financing. Now, even those with sizeable down payments are facing the reality that they owe more than their home is worth. Foreclosure was once an event that most people would avoid any any cost. It brought with it a sense of shame and a massive dent in one’s credit file. Now, only two to three years after foreclosure most people can qualify for a new mortgage. Foreclosure no longer carries the stigma it once did. If you Keep making payments on your other obligations (car, credit cards, etc…) and you may even be able to salvage a respectable credit score before too long.
From Wikipedia
A strategic default is the decision by a borrower to stop making payments (i.e. default) on a debt despite having the financial ability to make the payments.
Should Christians View Debt In A Different Light?
The Bible gives us plenty of warnings about debt. Some Christian financial experts have even gone so far as to suggest that a Christian not purchase a home until they have saved up in advance and are able to do so without a mortgage. Most Christian financial writers and speakers make an exception for home mortgages, but take a more strident position when it comes to credit cards and auto loans. I would probably fall into that camp.
On the subject of debt, the Bible provides many examples of debts being forgiven. The biblical principle of forgiving debts owed to us if we expect our debts to be forgiven is also prevalent throughout scripture. There are repeated admonitions in scripture that we should pay our debts. A favorite that is quoted is Psalms 37:21 “The wicked borrow and do not repay…” Taking into account everything the Bible has to say about debt seems to leave us with the principle that we should pay a debt if we have the ability to do so. So, If you have the means to meet your obligations but are simply taking advantage of the situation because you can, that would not be consistent with biblical teachings. On the other hand, if you don’t have the financial means to pay your mortgage and you have worked through all reasonable options, you may need to consider handing the keys back to the bank. I have often used the analogy of spiritual bankruptcy as a comparison to the predicament that all of us as sinners face. We owe a debt we can not pay, we file for spiritual bankruptcy and our Saviour Jesus Christ steps in and forgives us of our debt. In fact, it is really one step better than that. Christ actually pays our debt for us!
Can A Christian Walk Away From A Mortgage?
I have touched on plenty of alternatives to foreclosure in my prior articles. What if you can not make a short sale happen, get a loan modification, or obtain a forbearance from your lender? What do you do? While some can sit in an ivory tower and quote scripture about how terrible you will be if you give your house back to the bank, I want to approach this with a little more grace than that. After becoming the victim of an embezzlement scheme, I reached a point personally where I was throwing up blood for several days in a row due to worry over my finances. I finally decided that if I did not file for bankruptcy I was literally going to die. I am not engaging in hyperbole here, I don’t think my body would have taken much more strain that what I was putting on it. I think we can agree that there is a reasonable point before one reaches the brink of death that they should consider giving up on saving their home. To address this crisis, we have assembled a unique package of materials to assist Christians that are facing foreclosure – Mortgage Modification Kit.
When Should You Give Up?
In this current environment of loan modifications, forbearance programs, state mandated mediation, short sales, and foreclosure moratoriums, you would be crazy not to try and work something out before throwing in the towel. I am still optimistic that something can be done in most cases to avoid foreclosure. If all else fails, you can always agree to voluntary give back the home to the bank (known as deed in lieu of foreclosure) and be able to avert the legal nightmare of the foreclosure process.
The purpose of this article is to start a healthy discussion on this topic. Do you think that it is right for a Christian to walk away from their mortgage? Please use the comment section below to share your opinion.
Helping you make the most of God’s money,
James L. Paris Editor-In-Chief www.ChristianMoney.com
Follow me on Christian Chirp www.ChristianChirp.com/jameslparis
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Financial Advice
I didn't walk away, I surrendered it back to the lender. I chose to surrender conditionally I guess. They agreed to take it back and not haunt me ever again for whatever they can't get to make up for the loss. In turn, I emptied and cleaned it by a specific date that I gave them.
Posted by: Karen | March 09, 2010 at 08:23 PM
What would you advise in a situation where we want to proceed with a short sale, or as deed in lieu of foreclosure but there is a home equity loan taken out from the property to establish a small business. By short sale or deed in lieu of foreclosure, am I able to walk away clean from both the home and the second mortgage loan?
Posted by: Martin | March 10, 2010 at 09:01 AM
If you are in a market where the house sales are extremely down, as many are these days, then it may make sense to sell short. Here's an example: Your monthly mortgage is $1500 and you get an offer after 10+ months on the market. The offer makes you $9000 short at the sale. So, 6 months later you have recouped your $9K at (not having to pay $1.5K per month on the mortgage). If you reject the offer, you may be another 10+ months before another offer is made (another $15,000 in monthly payments). By taking the offer, you fix a time when you are back at zero. You can see the light at the end of the tunnel and can plan your finances accordingly.
Thanks for the article!
Randy Redd
Posted by: Randy Redd | March 18, 2010 at 11:09 AM