I have stated several times here and elsewhere on the web that a homeowner should have no remorse from defaulting on a mortgage if it makes economic sense. The mortgage is a contract, not an oath or vow. Contracts cover all actions including non-payment. So, if you are way underwater on a house and renting an equivalent home is substantially below your mortgage, you might be wise to throw the keys in the mailbox and move forward.
However, I despise folks who are using default to live the high life. A New York Times article profiles some Florida residents doing exactly this. These people bought too much home and like to blame the bank for that. Now, they have stopped paying their mortgage and are spending freely.
For Alex Pemberton and Susan Reboyras, foreclosure is becoming a way of life — something they did not want but are in no hurry to get out of.Foreclosure has allowed them to stabilize the family business. Go to Outback occasionally for a steak. Take their gas-guzzling airboat out for the weekend. Visit the Hard Rock Casino.
“Instead of the house dragging us down, it’s become a life raft,” said Mr. Pemberton, who stopped paying the mortgage on their house here last summer. “It’s really been a blessing.”
If you can’t afford your mortgage and decide to move on, then move on. Don’t sit and milk the system so you can gamble and stuff your face with fat induced blooming onions after cruising on your boat. If these folks were unable to pay their mortgage, then they shouldn’t own a boat. It should have been sold to raise funds and save on docking fees. The article goes on:
This type of modification does not beg for a lender’s permission but is delivered as an ultimatum: Force me out if you can. Any moral qualms are overshadowed by a conviction that the banks created the crisis by snookering homeowners with loans that got them in over their heads.
“I tried to explain my situation to the lender, but they wouldn’t help,” said Mr. Pemberton’s mother, Wendy Pemberton, herself in foreclosure on a small house a few blocks away from her son’s. She stopped paying her mortgage two years ago after a bout with lung cancer. “They’re all crooks.”
People like this are using a defense mechanism to justify their own bad behavior of buying too much house, not adjusting their lifestyle (like owning a boat), or refinancing too many times. The article profiles this older woman with lung cancer. Using a sick woman is an attempt to create empathy, but the reality is Wendy refinanced several times and took equity out of her house. She claims the only money she used for herself was for a new roof. Every other refi was strictly a mortgage broker scamming her into higher fees. Yeah, right. The mortgage brokers motivated homeowners to refinance after showing them how much moolah could be pulledl out of their home. I am betting she visited the Hard Rock Casino on a regular basis. But, this is just a cold-hearted statement on my part because she has lung cancer.
The story goes on to show how our defaulters have used the money to revitalize their business:
Mr. Pemberton and Ms. Reboyras decided to stop paying because their business, which restores attics that have been invaded by pests, was on the verge of failing. Scrambling to get by, their credit already shot, they had little to lose.
“We could pay the mortgage company way more than the house is worth and starve to death,” said Mr. Pemberton, 43. “Or we could pay ourselves so our business could sustain us and people who work for us over a long period of time. It may sound very horrible, but it comes down to a self-preservation thing.”
They used the $1,837 a month that they were not paying their lender to publicize A Plus Restorations, first with print ads, then local television. Word apparently got around, because the business is recovering.
My comment: your business should fail. You don’t know what you are doing. If you are starting a business, then you should not have bought so much house that it would affect your business’ cash flow. You should live in a van down by the river if need be until your business is cash flowing consistently. Apparently, Pemberton didn’t take the time before launching a business to buy a $6 calculator, a 30 cent pencil, and two pieces a paper to put a budget together. Business owners who put so little thought into their business should fail. Again, call me cold-hearted, but the world owes you nothing. If you don’t take the steps to achieve, then the achievement won’t come. Basic budgeting might have prevented this situation, but Pemberton would rather vilify the banks than look in the mirror and have a hard conversation with himself.
These people exemplify the “I’m entitled” mentality that has put us in this position as a nation. They believe they deserve a big house and should have a booming business despite any legitimate planning on their part. Eventually, the market gets what it wants. It wants for people to save, invest, and act responsibly with money. It will inflict pain until folks act this way. Cop out maneuvers like the Pembertons are taking work for the short term, but they don’t last too long. At some point, they will be forced from their homes and have to rent. Their access to debt will be diminished with a horrible credit score, which will affect their ability to pay for their boat and get credit for their business. Unless they shape up, they will end up in financial ruin. This just delays the inevitable and inflicts pain on the banks.
My hope is they read my blog post and get really pissed at me. It may just cause them a second to reflect to see if they should reform their financial actions. While they would still curse a cold-hearted SOB like me, they might get a wake up call before the market gives them one. My wake up will be much less painful.