Short Sale: Ethical Dilemma or Business Decision?
February 19, 2010 by admin · Leave a Comment
Not a day goes by that I do not get a call from a San Diego homeowner who is struggling with the moral dilemma of whether or not they should short sale their home.
I say “moral dilemma” because that’s how they perceive it, but the truth is that morals and ethics have nothing to do with it – it’s a business decision, plain and simple.
The banks would like the public to believe that they have a moral obligation to pay their mortgage (“you signed on the dotted line” they say), but the reality is that when you signed, you signed a contract that specified the real estate as collateral for the loan you were taking out. If you defaulted, willingly or not, the bank could take back the property. Period.
The irony here is of course that the banks are notorious for making “business decisions” which are to their benefit and profit, and everyone else’s detriment.
For example, the banks devised stated income, no qualifying, zero down, interest only loan programs that were so easy to qualify for that almost anyone could get them, carved up the mortgages into mortgage backed securities, sold them multiple times, made billions of dollars, and then blamed anybody and everybody else for the real estate crash and mortgage crisis – business decision.
The banks take billions of dollars of government bailout money and in exchange pledge to modify homeowners’ loans, increase lending and make a real effort to stem the tide of foreclosures – and then do none of the above – business decision.
The banks foreclose on homeowners after leading them along for months under the guise of doing loan modifications, take the properties back and then sit on them in order to cook their books and make themselves look more solvent than they actually are so they can pay back the government bailout faster and give themselves huge bonuses – business decision.
Finally, a corporation owns a luxury hotel, say the W Hotel in Downtown San Diego, or the St. Regis Monarch Beach in Dana Point, and after trying unsuccessfully to get its lender to modify its loan, decides to simply walk away and turn the property over to the bank – business decision. And a real life example by the way, as both of these hotels are now in receivership.
In other words, do you think for a moment that the board members of Sunstone Hotel Investors, the corporation that owned the W Hotel, debated giving up the property on moral or ethical grounds? Do you think that even came up? No – it was a business decision.
So, when a homeowner who is $100K, $200K, $300K or more, upside down on their property, makes the decision to give up the property and do a short sale, it is every bit as much of a business decision as it was for the owner of that luxury hotel. Ethics and morals have absolutely nothing to do with it, and it is disingenuous at best for lenders to imply anything different.
