The Morality of Strategic Default – Brent T. White

Brent T. White, author of  Underwater and Not Walking Away – Strategic Default has now published a paper based on the personal accounts of 356 strategic defaulters and homeowners on the verge of doing the same. His finding: People who intentionally default on their loans are not as economically rational or calculating in their decision-making as widely thought.

In fact, he said, their decisions to pull the plug “may not turn out to be economically rational.” But they walk anyway, in large part because they are at the end of their emotional rope. They have transitioned from feelings of anxiety and hopelessness to outright anger at their lenders, the government and a financial system they consider unfair.

Looks like there is much more trouble for the “lenders” then they anticipated…

Arizona Legal Studies
Discussion Paper No. 10-15
The Morality of Strategic Default

Brent T. White
The University of Arizona
James E. Rogers College of Law
May 2010

Abstract: Responding to those who argue that homeowners who strategically default on their mortgages are immoral and socially irresponsible, this article argues that breaching a mortgage contract is not only morally acceptable, it may be the most responsible course of action when necessary to fulfill more important obligations to one’s family.

See entire paper below…


The Morality of Strategic Default – Brent T. White
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4 Responses to “The Morality of Strategic Default – Brent T. White”
  1. Tony says:

    Banks will calculate the value of pursuing you for the deficiency in whatever state. Therefore, it is not in your best interest to divulge all your financial details to them. In fact, this has proven to be the point where they make the decision to lie to you and extract as many payments as possible, after which they will then pursue your remaining assets, if any, based on the information you already volunteered to them. Real estate agents, who only get paid from a closed short sale, will encourage you to “play the game.” Unless you have a true hardship and have a lender who has been proven to close short sales in your area, you should tread very carefully.

  2. Do not run before you can walk.Before one can address the morality of strategic default, one must deal with liability. Many states still permit lenders to foreclose and subsequently or concurrently obtain a deficiency judgment for the difference between the loan amount and the price paid at foreclosure. Second if the bank elects to forgive the debtor’s deficiency, the amount of the deficiency is treated as income and becomes taxable.

    Did you ever think that strategic foreclosure becomes an option only so long as foreclosure as a creditor remedy is inadequate to make the creditor whole? Many years ago, I took Bankruptcy and Debtor’s Estates with the redoubtable J. Willie Moore. Debt collection is a game of “who gets what” played with the debtor and creditors where each player jockeys for position as close to first in line as possible for priority in distribution of the debtor’s assets. The only arguments relying relying upon morality always came from way back of the line from the great unwashed and unpaid.

  3. Andrea Guice says:

    Question? In “mediation” with the bank(s). I have 1st & 2nd (piggyback 2nd) mortgage loans. 1st loan sold to Wells Fargo, 2nd loan sold to ?, serviced by Ocwen. But, Ocwen just sold 2nd loan to Faslo Solutions.
    My situation: 2005 signed gfe for $147,000 home sale. GFE stated $19,000 down pmt. Call from broker prior to closing, in which I was told lenders(Fremont Investment) would not fund unless I paid $40,000.00. I was also told I had to have the 2nd loan($6500), or I would not be funded. Never recieved any docx before closing with breakdown of fees, or any details before closing. Signed all “new” docx with the “new” changes the brokers/lenders made at closing. Was not told it was an “ARMS” loan. It is! Now, I’m in litigation, mediation, because of “foreclosure.” had an investigative forensic audit that revealed “fraud” in my loan docx. Also, never recieved a penny for the 2nd loan nor was it applied to my 1st mortgage. (is anybody good at math?…$147,000- $36,173.01=? -$6500=?)
    lenders (Wells Fargo) say I owe $110,000(plus all their “other” fees in the foreclosure)for the 1st mortgage that they hold the “note” ( plus I pay the 2nd piggyback loan) (no one knows who owns the 2nd loan!) HSBC is the “investors”, & who have foreclosed, & are nowhere on any of my loan docx. So, “question,”how can Ocwen sell 2nd loan that forensic audit proves is “fraudulent,” or transfer it to Faslo Solutions while in mediation/litigation process?”, & demand payments? “I’m a woman being “raped” by the banks!”
    http://www.andreaguice. com

    • Jean Young says:

      Just don’t walk away from your home! Keep whatever payment amounts you have monthly in a separate account and keep up with your taxes and home insurance. The game is a waiting game and they are banking on you being too scared, uninformed, tired and overwhelmed. Stay calm and just stay. Don’t make any mediated agreement without having ALL aspects of the repayment spelled out at the signing table.Go on with life and keep up with all correspondence and court dates. Even if you seek assistance of Legal Aid, keep on top of EVERYTHING they do on your behalf.

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