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Feb 9, 2009 - 03:57 PM |
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On mortgages and ethics. |
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Source: http://freakonomics.blogs.nytimes.co...state-dilemma/
Some of the comments in this post dwell pretty heavily on the ethical considerations and maybe it's just the way I think, but the ones who're calling him out for being a deadbeat are way off the mark and it's mildly annoying. One such comment is as follows:
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Though phrased very politely and realistically, Mike’s letter is exactly what’s wrong with the economy and the people that make it up (don’t even get me started on the recommendations of comment #1, that’s just straight up gaming the system). You have to be accountable for your actions, otherwise trust (and the rest of the economy) breaks down.
Mike, did you sign a contract saying that you’ll pay X amount of dollars for the next Y years? Can you still afford to make those payments and feed/clothe your family? It seems like the answer to both of those questions is yes. So guess what, you need to hold up your end of the bargain and keep on paying that mortgage.
When you purchase anything whatsoever, you are taking an implicit risk that that thing may not be worth as much in the future as it is right now. You’re basically saying that since you ‘lost’ in this transaction, you shouldn’t have to pay the consequences. If the home went up in value, would the lender have a right to raise your monthly payments because the home is now worth more?
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Now, I'm no expert on contract law, but I was under the perception that all contracts list out the obligations for parties to agree to and that a well-written contract will include provisions on what penalties take effect in the event that the contract is breached by either party.
The reasoning behind having a penalty in the event of a breach is fairly simple: both parties recognize that there are instances in which executing the terms of the contract is economically unfeasible and that breaching the contract and paying the related penalties (in this case, the foreclosure on the house) would be the best option. If anyone wants an example, I can probably come up with a scenario that illustrates this principle.
So back to Mike's scenario, assuming that both parties are of sound mind, I can't think of anything more transparent than a contract. Both parties can read what they've agreed to, they are well aware of the risks that come with signing the contract, and they are aware of the consequences of breaching it. When the information is presented so clearly, I find it difficult to see how ethics should be a consideration in this situation.
It's one thing if one side of the exchange negotiated in bad faith, but somehow, I don't think that's the case here.
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