It’s been in the news for qute some time now.   Underwater homeowners with no skin in the game (no down payment) are “walking away” from their homes and intentionally going into foreclosure.   Here are a few story links describing the situation, which shows no sign of slowing down:

There is quite a bit of debate on both the law and the ethics of walking away.  Many think that signing a legal contract with a bank for a loan comes with an ethical obligation to adhere to the terms.  But others cite the clear distinction between ethics and the law.

Here is one of my favorite comments on the subject from a reader on Mish.

Mortgages are not ethical documents, they are legal contracts. The typical residential mortgage for an owner-occupied home gives the borrower two options: pay on time and in full, and keep paper title to the house, and full entitlements to any appreciation upon its later sale after the mortgage is satisfied; or, stop making payments, and hand the keys back to the lender.

Morality and ethics don’t even enter the equation. Either option is perfectly legal for the borrower, and the only criteria should be business-based. All the ethics you need are contained within the four corners of the pages of the mortgage contract.

There is no doubt that consumers do have a legal right to walk away from any contractual obligation, as long as they are willing to accept the legal penalties of that obligation, as stipulated in the contract.

As for ethics, you decide.

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