We receive countless e mails at ChristianMoney.com from Christians struggling with the moral and spiritual implications of strategic default. What is it? The decision to walk away from your house when the value has dropped below the outstanding mortgage balance. When you own a house that is upside down or under water, how do you manage the situation while still living up to your Christian values?
A story in the Orlando Sentinel this week caught my eye. An employee of Wycliffe Bible Translators in Orlando is getting nowhere trying to work out a mortgage modification with his lender (a story we hear hundreds of times each month). At the same time, as a Christian, he struggles with the moral implications of his limited options. We thought this might be an opportunity to start a discussion within the Christian community on what a Christian should do in a situation like this.
First, some perspective. For those that don’t know the story of my own financial collapse, I filed for personal bankruptcy in 2005 due to the embezzlement of nearly $2 million dollars from my business by my accountant. Before my own personal collapse I was not as understanding as I am today of those facing foreclosure. Having been through my own financial downturn has given me a heart for those facing similar circumstances. Let’s look at a couple of different situations and see if we can find some balance on this issue.
You wake up one morning and go to one of those home valuation sites such as Zillow and type in your address. While you have been hearing about home values dropping in your neighborhood, you are shocked to see what is on your computer screen. The home you purchased for $250,000 is now only valued at $175,000. To make matters worse, you have a $225,000 mortgage on it! Although you can still make your payment and you have a fixed rate mortgage, you decide that this is just not a ‘good deal’ any longer for you to do so and you stop making your mortgage payments. You stay in the home for a year until the bank officially removes you through foreclosure. In the meantime, you pocket nearly $20,000 living without a mortgage or rent payment for a year. Your moral justification is simple; it is not your fault that property values have fallen and you should not have to keep up your end of the bargain since it is no longer beneficial to you.
You are counting the days to the two year anniversary on your mortgage. You know that when that day hits you are going to see a payment increase. You really regret your decision to opt for an adjustable rate mortgage, but at the time it was the only way you could afford to buy a home. You can barely afford your current payment and know that there is no chance of continuing in the home once the payment jumps several hundreds dollars as the mortgage adjusts upward. You have repeatedly contacted your bank, filled out form after form attempting to get a loan modification. Each time you wait weeks only to hear that the bank has not approved your request. You begin contacting other banks to see if a refinance is possible. You are flatly told that since your home is now worth substantially less than the current mortgage balance, there is no way that you can refinance. You are officially trapped with no way out. After your mortgage payment begins going up, you start falling behind. You begin the process all over again with your bank attempting to work out a resolution. This time before you even get a response from your latest attempt at a mortgage modification, you receive a foreclosure lawsuit delivered by the Sheriff. You decide that there is really nothing more you can do here. You wash your hands of the situation and move out.
Is It Right For YOU To Walk Away From Your Mortgage?
I am in no position to make this moral judgment on anyone’s behalf, although I certainly get plenty of requests to do so. I share the above two stories as composites of the many hundreds of e mails that I receive monthly on this issue. Many people find themselves in scenario B and I can simply not find any fault with these folks. Consider the fact that banks in the United States currently own 872,000 homes! See this article on bank accounting tricks.
I am persuaded that most banks simply do not want to work with people. Through accounting tricks, it actually looks better on paper for a bank to take back a home than to write down the value of the underlying loan. This is because the government is allowing banks to keep real estate on their books at inflated values. If they were required to follow normal accounting principles, virtually every bank in the country would become insolvent over night.
I don’t believe that God expects us to pay a debt that is not within our ability, especially when every reasonable attempt has been made to resolve the matter. If we can accept the reality that we all owe a spiritual debt we can not pay, why can’t we be more understanding of those that face a financial debt they are unable to pay? I encourage those who have no grace for those people in scenario B to consider the following:
Therefore, the kingdom of heaven is like a king who wanted to settle accounts with his servants. As he began the settlement, a man who owed him ten thousand bags of gold was brought to him. Since he was not able to pay, the master ordered that he and his wife and his children and all that he had be sold to repay the debt.
At this the servant fell on his knees before him. ‘Be patient with me,’ he begged, ‘and I will pay back everything.’ The servant’s master took pity on him, canceled the debt and let him go.
But when that servant went out, he found one of his fellow servants who owed him a hundred silver coins. He grabbed him and began to choke him. ‘Pay back what you owe me!’ he demanded. His fellow servant fell to his knees and begged him, ‘Be patient with me, and I will pay it back.’
But he refused. Instead, he went off and had the man thrown into prison until he could pay the debt. When the other servants saw what had happened, they were outraged and went and told their master everything that had happened.
Then the master called the servant in. ‘You wicked servant,’ he said, ‘I canceled all that debt of yours because you begged me to. Shouldn’t you have had mercy on your fellow servant just as I had on you?’ In anger his master handed him over to the jailers to be tortured, until he should pay back all he owed.
If you are in a situation where losing your home is a real possiblity, I would highly recommend that you speak with an attorney. You will face damage to your credit for several years and the lender may choose to pursue you for the shortfall (difference between the value of the home and your mortgage).
Helping you make the most of God’s money!