Wednesday, January 13, 2010

Morality in Today's Financial Market

After a long conversation with a friend of mine about what to do with a property that we co-own, I got to thinking about a very important question in today's abysmal financial market. "Do I truly have a moral responsibility to repay the loan on our condo?"

This is a really intriguing question to me. My partner in the condo, who happens to be a banker, seems to side with fulfilling our contractual obligation to the bank as we originally agreed upon via our promissory note. I can completely understand where he's coming from. We promised to pay it, and put it on a contract. That is our obligation to that bank. We are able to make payments right now, so we should just keep doing it. It's very simple.

My point of view differs, however. Here's the problem with fulfilling our obligations:

1. We borrowed money from the bank on a property that was valued at $205,000.00 in 2006. That property is now worth around $110,000.00. Is that really fair to us? We couldn't even come up with the difference to re-fi if we wanted to do that.

2. The contracts we signed have lots of verbiage about defaulting on, and letting go of, the property. This makes it within the contract to do so.

3. Our government is paying millions upon millions to bail out banks in trouble, and to help people in real estate duress. Why shouldn't we get a break?

4. Now, times are tough, I'm struggling to make my monthly payments as it is, after a job transfer to L.A. I have this property that we can't even rent out for our monthly payment costing us hundreds of dollars a month.

My business mind is telling me to cut my losses right now via short sale instead of paying on a mortgage for a property that won't recoup its value for decades. Am I a bad person here? What IS the morally sound thing to do?