Money & Ethics-sharing your opinion

[Mardi Gras Audrey]

I had a talk with my cousin this weekend and she told me that she and her husband are considering doing a short sale on their house because it "is too small" and "is worth only half of what we paid for it" (I don't know if it is worth half... I know it is worth less but she bought it in 2009 so I don't know what percentage exactly). She made it sound like they will be buying a larger home and essentially trying to this one. I think it is ethically wrong to do that (They haven't lost jobs, had medical issues, etc..they just don't like the drop in value and want a bigger place).

My question for y'all is when you come into a situation where a close friend or relative is telling you that they are doing something with money that you think is ethically wrong (shopping spree before bankruptcy, walking on a good house, etc), do you let them know what your opinion is? Or do you just keep quiet in the interest of the relationship?

I was so surprised when she mentioned this that I didn't say anything. I never thought I would hear her thinking about doing something like this, as they always talk about how they are firm believers in "personal responsibility" and the govt not helping people out/handing out $$. They seemed kinda miffed (Is that a word?) that the bank wouldn't consider a short sale or loan mod until they were at least two payts behind ("They expect us to ruin our credit before they are willing to take a loss and help us?" ). FWIW, I have put my $$$ where my mouth is (I sold an upside down house last year and came to the table with the cash-I figure it's not the bank's problem that the housing market tanked. They lent me the $$ in good faith so I repaid in good faith).

Anyways, what do you do in this kind of situation? Do you tell people what you think they are doing is ethically wrong? Or do you just say nothing? Discuss...

[Savoir Faire-Demogague in NJ]

There is another thread on sharing financial information that is still active. Your situation is an example of why I never share information.

[Miss Tequila]

My mother went on a shopping spree knowing full well she was filing for bankruptcy a few weeks later. I let her have it as I always do....her just filing for bankruptcy was unethical because it was her overspending that created the mess she was in. I am pretty sure I was switched at birth..or at least that's what I like to tell myself because there is no way I am genetically linked to that woman

[tractor]

If they were trying to do a short sale, that's different than just walking away. Either way, I agree with several others and I might offer advice when asked, but I usually don't share financial information with my friends as it will always lead to problems. Everyone has different ethics, and I don't believe I can force mine on someone else, I also don't feel sorry for someone when they have to deal with a mess that they created through poor choices.

[achelois]

If anyone asks me what I think, I answer honestly. If they don't like hearing what I have to say, they soon learn not to ask me.

If they don't ask, I usually stay out of it.

I do not share financial info at work, I do not share info about my personal life at work.

People encourage me to spend money on various different things, so I tell them I cannot afford it. I don't tell them why (I put a lot of money into investing).

People at my workplace gossip a lot, so you cannot say anything at all to anyone without having everyone in the place know it.


I tend to be very quiet at work.

[happyscooter]

I am usually quiet on any job that I am on. I work as a temp. That gets you pegged as 'not a team player'. I hate that expression. So I just say 'I get paid to do a job'. I go on break by myself and lunch by myself. I usually sit out side and read.

Back to the subject at hand- I don't make comments about peoples spending. They can feel free to comment all day long about me. But they don't have any facts to back up what they are saying 95% of the time.

[Anne_in_VA]

Did your cousin ask for your input? If not, I would stay out of it and just let it go. I know it's really hard to do that when people make these kinds of decisions, but it may cause difficulties between you if you tell her what you think if she didn't ask for your opinion or input about what she's planning.

Personally, I try not to talk to people about my person finances unless they ask. If I make mistakes, it's my own problem and not theirs.

However I do give advice based on personal experience and what I've read (on these boards and books/articles) if someone asks my advice.

[Deleted]

"Did your cousin ask for your input? If not, I would stay out of it and just let it go."

"However I do give advice based on personal experience and what I've read (on these boards and books/articles) if someone asks my advice."

[MN-Investor]

Your cousin is playing victim. She knows she's not doing the ethical thing, but she's justified it in her mind by finding someone else to blame for her actions.

For the most part, I would never speak up if I hear someone talking about their unethical actions. The basic question - what does it accomplish? The person has already justified their actions to themselves. Standard justifications - the other party is taking advantage of them, the other party won't miss the money, or the other party was mean to them and deserves payback. Unfortunately, it's usually much easier to do the unethical action rather than the ethical action.

The only people who get my unsolicited opinion are my husband and my children (ok, theoretical - I don't have children). Spouses have to expect it. And you have a duty to teach your children right from wrong. I don't care what age they are.

[stl76]

Besides being behind on their mortgage, they actually have to prove that they cannot afford the payments. If they think they can afford a bigger/more expensive house, the chances are they will not be able to show they cannot make the payments. And the mortgage company can always go after the deficiency or report the deficiency to IRS as income. So they may not even be able to do a short sale anyway...

[thyme4change]

The financially prudent thing to do is to walk away from a house that is significantly under water.

Ethics-schmethics.

I'm getting even more pragmatic in my old age.

[shanendoah]

My mother is usually an intelligent and reasonable person when it comes to finances. But at the height of the housing bubble, she sold a house, bought a house, sold that house, and bought a new house, in less than a year. She knew it wasn't the smartest decision at the time, but she was trying to accommodate a friend who was going to move in with her (and since my step-dad died, her emotional health is better when she has a roommate).
Now she's in a house that's really too big for her, will be too expensive for her when she retires, and that she can't sell without taking a huge loss. There was a time when she seriously considered just handing the keys over to the bank and walking away.
It shocked me to hear that coming from my mother (very out of character). And I did express my dismay. It turned out that that was mostly frustration talking, kind of the dream of an "easy out". As she gets closer to retirement (1 year or so) she's been meeting with financial professionals to find out what her options are- what will allow her to get out from under the house while maintaining her credit.

As a note: She lives in NV where prices have crashed to 1980s levels in some places. Her home value really is about 1/2 of what she paid for it.

[Deleted]

I don't think there is anything you can say in this type of situation that won't cause problems.

A friend said something to me the other day about finances that seemed like it might be ethically shady - but I have very little knowledge of their finances so I really don't know.

[Tiny]

Maybe your cousin didn't understand completely the consequences of doing the Short Sale? I hear people say all sorts of weird stuff mostly because (I suspect) they don't actually know what it means. Kinda like the whole "buy a house so you can get the Mortgage Interest Deduction!" or the "I'm gonna get a big Tax Refund! Whooo hooo!!"

If someone mentioned to me that they were thinking of doing a Short Sale so they could then buy a bigger house - I'd probably ask if they thought they could find and purchase the new house and then swing two mortgages BEFORE going into the Short Sale process cause once they started the Short Sale process I would highly doubt they could get a mortgage (atleast not for three or so years... maybe longer.)

[thyme4change]

once they started the Short Sale process I would highly doubt they could get a mortgage (atleast not for three or so years... maybe longer.)

I didn't pry into the details, but I know a dozen people who did a short sale and bought another house. I guess some of them could be renting, but I'm sure some of them said they purchased. I don't know if they bought before they sold, or what. But, I'm not sure short-selling is the kiss of death that this board likes to think it is.

[Mardi Gras Audrey]

Shane, I hope it is just frustration talking, like in your mother's case. I just wasn't sure why she was telling me this. She wasn't asking for advice on the situation. I don't think that they could get approved for 2 mortgages at the same time (to do the buy one and the other) so it wasn't really clear how she expects to get approved to buy again after dumping the first home.

It was hard for me because she didn't ask for advice (I generally don't give advice unless asked) and I sure as hell wasn't going to give her affirmation on the decision so I just kinda stood there. We moved on to another topic soon after so it wasn't really awkward but it did make me wonder when it would be appropriate to share your opinion.

Lone, I hope people aren't getting away with this. It undermines the whole system and I can see banks just jacking up interest rates in the future to account for this possibility. I can certainly see the bank's position that secured debt would now be only slightly less risky than unsecured and putting the corresponding interest rate on it (Housing loans at 19.99% anyone?). Not to mention the ethical issue of not paying back money that you are lent. I guess one's word (even writing) isn't worth much anymore.

[Tiny]

thyme you are right - one spouse takes the credit hit from the short sale and the new house is purchased in the other spouse's name (who's credit is still good). Sure, it's not the 'kiss of death' even if both have trashed/poor credit.
I just think that to truely get the most bang for the buck when doing a stretigic default those involved need to really look out to the future and do some pre-planning so they can minimize the future headaches. I'm not so sure that everyone outside of YM readers functions that way...

I'm 50/50 on the ethics of doing of a stretegic default. I can think of some situations/circumstance when going the stretegic default route is acceptable (and perhaps more ethical in the long run). That's the funny thing about ethics what's ethical in the present, may not be so ethical when viewed in hindsight. Just saying.

[Mardi Gras Audrey]

atsia, u just reminded me of the fact that the home is only her name. I wonder if they plan to buy the next one in his name. The only thing is that I don't think he would get approved for a new loan on his salary alone (The house size that they are talking about would run ~50% of his gross). I know that he used to have really bad credit but most of the stuff may have fallen off by now (She used to get collections calls for him ~5 years ago...I don't think she still does). They live in a community property state, if that makes a difference.

ETA: If her income is needed to get approved for the loan, does anyone know how a short sale/foreclosure looks if it is on the co-borrower? Also, money wise, if the house is down by 50%, it is underwater by ~$60k. Is it worth it for that amount of $$?

[Mrs. Dinero]

Girlfriend and Dh did this last year. They moved to a different city and did a short sell on their old home. It was under his name only. She went on and on about how great their credit was and that it will only decrease his. She bought a new house in her name only. She had already justified it in her mind so I just listened. It was the same story when she told me about her abortion. What good would come out of me voicing my opinion? Needless to say we are not as close as we once were.
I have been caring that a long time and would never speak about those feelings in real life. I know the 2 don't go hand in hand it's just the house thing disappointed me more than if i didn't know about the first.

[Tiny]

If enough people are doing things that are considered unethical, does it then become considered ethical? This is how it seems to me.

Depends on the ethics of who's incharge or who's enforcing the 'rules'.

15 or 20 years from now how much recognition for their high ethical standards are the people who toughed out paying for their underwater house (while possibly giving up other ways to build wealth) going to get? What happens when they are the ones who need governmental help or charitable help - because they weren't able to build wealth at the same rate as the rest of society? Will you be sympathic to them or consider them fools?

[Deleted]

Jun 1, 2011 11:35:00 GMT -5 @lonewolf said:

If enough people are doing things that are considered unethical, does it then become considered ethical? This is how it seems to me.

NO, it is the same as when parents would say, if all your friends are jumping off a bridge, would you? Dumb, is dumb, unethical, is unethical.

[thyme4change]

All mortgage contracts have an escape clause. The banks use them when needed, and in a situation where it will cost you several hundred thousand dollars, I would use that clause, too.

[midjd]

Jun 1, 2011 11:43:33 GMT -5 Tiny said:

15 or 20 years from now how much recognition for their high ethical standards are the people who toughed out paying for their underwater house (while possibly giving up other ways to build wealth) going to get? What happens when they are the ones who need governmental help or charitable help - because they weren't able to build wealth at the same rate as the rest of society? Will you be sympathic to them or consider them fools?

Very, very good question.

[thyme4change]

I wonder how hard it is for these people to look at themselves in the mirror and why I even care.

How hard would it be to look in the mirror if, for no reason at all, you spent the next 20 years paying $200k extra, reducing your savings and ended up with considerably less money in the bank - but the exact same house as your neighbor.

I'd take my chance with money in the bank and just avoid the mirror. Stupidly throwing away money so you can brag that you "fulfilled your contract" only bites you in butt.

[midjd]

IMO as long as you're operating within the bounds of the law (or your contract), "ethical" shouldn't really come into play.

In this case, you have numerous ways in which to dispose of your house. You can do it through the escape clause in the promissory note, which is legal (albeit not without consequences to your credit). Or you can burn the house to the ground, which is not legal.

But as long as you're doing it legally, I don't think ethics come into play. Others disagree, I'm sure.

[thyme4change]

I agree, but clearly others do not.

[Tiny]

Dumb, is dumb, unethical, is unethical.

Not so much. Definitely NOT in every situation. I bet you can think of quite a few situations where someone you know did something you thought was dumb, but then it didn't end in disaster - maybe it ended in a sucess.
Same goes for things that are considered unethical (my favorite unethical thing is someone distributing condoms and encouraging condom use in places where AIDS is prevalent. Many many many people find condoms to be unethical - even if it might slow the spread of aids or -- the horror!!! -- prevent a pregnancy.) Some day they may no longer be considered unethical.

::sigh:: I'm beginning to understand old people's fasination with innocence and a wish to return to such a state.

[happyscooter]

when the contractor that did work on our home didn't pay his bills, we had liens placed against our property. perfectly legal, but unethical. so if you want a dishonest and unethical contractor doing work for you, that's OK? as long as it's legal he should be able to do it? i still wonder how his wife stayed with him. if you would cheat your workers and customers, you probably would cheat (on) your wife.

[happyscooter]

"I'm beginning to understand old people's fasination with innocence and a wish to return to such a state. "

The lid will never be placed back on Pandora's box.

[Lex Luthor]

Hello - one local YM strategic defaulter here (and there is more than one by the way).

NO, it is the same as when parents would say, if all your friends are jumping off a bridge, would you?

If you were in this situation and many of those like you were jumping off a bridge and softly landing in a giant pile of cash, you would certainly be looking over the edge.

I wonder how hard it is for these people to look at themselves in the mirror

Hmmm...let's see. <looks in mirror> Not hard at all as it turns out. The reason being, that yes - I have "justified" my actions to myself.

If enough people are doing things that are considered unethical, does it then become considered ethical? This is how it seems to me.

Not ethical so much as socially acceptable. Just like significant tattooing, obvious hickeys, and a plethora of piercings are acceptable in certain groups and not others.

If her income is needed to get approved for the loan, does anyone know how a short sale/foreclosure looks if it is on the co-borrower?

As someone with a short sale on their credit, the bank will say "hell no" to the loan, even as a co-borrower. The house we short sold was in my name only. In order for SO to qualify for a home loan after my short sale - it had to be completely on SO's income and credit alone.

Also, money wise, if the house is down by 50%, it is underwater by ~$60k. Is it worth it for that amount of $$?

Not enough information really. And truth be told - how far underwater a house is - is almost irrelevant to the question of whether or not someone should strategically default. Here are the three conditions I think need to be met in order to agree that someone should strategically default:

1. Your loans are non-recourse or you can declare bankruptcy to avoid a deficiency judgement
2. You will not be paying taxes on Debt Forgiveness Income due to the Mortgage Forgiveness Debt Relief Act (which by expires at the end of 2012)
3a. You will make a substantial amount of money by either renting or owning an alternative residence OR 3b. Your alternative equivalent cost residence is giving you a substantial amount of intangible personal gain (significantly better school systems, drastically reduced commute, much safer area, etc)