I’m in San Francisco for the third ReBarCamp. As a result I got to hang out this weekend with my friend and partner  Ginger Wilcox, and spend time with her children and my friends Todd Carpenter and Andy Kaufman.

While we were having breakfast this morning Ginger asked me to read the latest post on her awesome “Blog by the Bay“. The title was “Is It wrong to Walk Away from an Underwater Mortgage”, written by George Crowe. The topic of the post was strategic default. The topic is interesting enough and struck a strong enough chord within me to require a response here ( for me, even if not for you )

If you don’t know what a strategic default is, it is a term used by people to apologize for their failure to live up to an obligation they created contractually. In other words, it describes people who are walking away from mortgage loans that they are capable of repaying.The key here is that the borrower has the ability to make the payments required by the loan, but they choose not to.

I am not a fan of strategic defaults. I can understand that people are stressed financially, but the mortgage documents don’t say that you can don’t have to pay if you get upset. I understand that the banks are being seen as the bad guys in the current economic climate, but the documents don’t say you don’t have to pay if you don’t like the actions of the lender. You borrowed the money, you bought something with it, and you’re supposed to pay back the loan.  George quotes a New York Times article:

Back in January Roger Lowenstein argued the case for strategic default in The New York Times Magazine, and he made some pretty good points:

“Mortgage holders do sign a promissory note, which is a promise to pay. But the contract explicitly details the penalty for nonpayment — surrender of the property. The borrower isn’t escaping the consequences; he is suffering them.”

I am not as familiar with mortgage lending in California or New York as I am in Pennsylvania where we sign a mortgage and a note. The mortgage document is the pledge of real property for the repayment of  debt, and the note is our personal pledge to repay the loan. Under the terms of those documents, the borrower might be liable for a deficiency judgment to return to the bank the funds that they do not recover through the foreclosure process.  But in any case, that is not a discussion of what is right or wrong, only what might be financially expedient.

Then there is the idea that “its only business” which seems to me to be another excuse. When people tell me something is business, not personal, it’s always because they are about to do something unpleasant, and they want to distance themselves from the moral responsibility for their actions. In this case, the term is being used to indicate that the decision here is a financial one, not a moral or legal one. And that’s just not the case. You can’t be moral only when its easy, or you have no real sense of right or wrong.

I don’t pretend to be able to stand in judgement of others or their actions. And I can understand the temptation to walk away from a loan because of the pressures of the economy, but your reaction to that temptation is what determines who you are.
When my late wife’s father passed away, her mom was left with debts from his business. She didn’t own a house, and was not responsible for his debts, but she worked for years to pay off each debtor. Tillie Rosen is an stand up human being. As a widow with limited resources, having only recently returned to the work force in a low paying clerical job, she made good on the obligations of her late husband (only one of e reasons I love and respect her). She could have chosen strategic default to benefit her family but she chose to scrimp and save to pay off the obligations of her late husband because she knew that was the right thing to do .

In a market like that in Marin County where Ginger works and lives, people are struggling to pay mortgages that are currently in excess of the value of their property. That’s a really tough problem, but the property was worth more when they bought it, and will probably be worth more again some time in the future.  Obviously, there is a financial benefit to the borrower if they walk away from the property and then buy another property back at the new lower value and wait for the recovery of the marketplace. But that is a financial decision, not a moral decision.  I wouldn’t blame a homeowner who was underwater and unable to make the payments for defaulting, or for “giving the keys” back to the bank through a deed in lieu of foreclosure. Those are cases of bowing to the inevitable. But for a member of the privileged class, who has a loan that they don’t want to pay, because the thing they bought went down in value? That’s just not right, at least in my opinion. Its not fun, but living up to the promises you make in life is always the right thing to do .

In closing his post George says:

If you buy into the argument that it was the irresponsible and greedy behavior of the banks that brought about the housing bubble and corresponding bust, then maybe it’s fair that they’re left holding the bag. It’s a tough question with no easy answer. What do you think?

Since the banks were not  partners in profit when  properties went up in value during the boom they should not be expected to be partners in the loss of value today. They are lenders, and they lent money to willing borrowers, who in these cases were and are able to make the payments under the terms they agreed to – even if it isn’t the most expedient thing to do, it is the right thing to do.

Related articles by Zemanta

• Fannie Mae Intensifies Penalties for Strategic Defaulters (faarforum.com)
• Most Mortgages in Default Held by the Wealthy (news.firedoglake.com)
• Study: Nearly One in Five Mortgage Defaults Are ‘Strategic’ (blogs.wsj.com)
• Richest homeowners making most defaults (commercialappeal.com)

Photo courtesy of creativecommons.org and wellzee

I just read an article about an estate agent at Jackson-Stops & Staff estate agency in Bury St Edmunds, Suffolk, England, who listed a house for 650,000 pounds (roughly $1,300,000) owned by two women, Suzanne Richards and Sarah Dobinson.

The couple obviously expected professional service from their agent (after all Estate Agent sound so classy doesn’t it?) and were shocked when they found that the word “lesbians” had been inserted into the Internet advertisement for their property where a reference number would normally be found. According to an article in the Daily Mail “they were left feeling ‘insulted and violated’ – an absolutely normal reaction I would say. According to the article the couple sent a letter of complaint to the estate agency but were shocked to receive the response, “We fail to see how we have discriminated against you.”

In our marketplace, I have to believe that this would have turned into a major lawsuit. However, this couple, in a civilized manner, settled the case out of court for roughly $10,000 US, with the agreement that the company would provide diversity and discrimination training for their staff.  

Laws in the U.K. have prevented discrimination of this type since 2006, but on a practical level, the whole story amazes me. What was that agent thinking? Why would they place private information in a public advertisement? The answers will probably not be answered, and even if I found the answer, I don’t think it would satisfy me. Without any comment regarding the lifestyle of the sellers it amazes me that their agent would violate their privacy in this manner. Where is the loyalty owed to the seller in an agency relationship? And what does their private life have to do with the sale of their property?

A cautionary tale for Real estate agents here? I would hope that it would be more of an entry for the Darwin Awards then a potential issue in our business here. The REALTOR’s Code of Ethics would have prohibited such action on the part of an agent here, but I would hope that common sense might help prohibit the action all by itself.

Photo courtesy of creativecommons.org

I read a recent rant in a blog written by a well known blogger who shall remain nameless (because I don’t feel like promoting him).

In the post there is a lot of rhetoric about doing how this blog is the only place where the truth is spoken without commercial consideration. The post talks about how self-serving a number of other web sites and businesses are, and how this blog is all about things for consumers, how wrong others are for accepting sponsorships or selling things to their core customer base real estate agents), blah blah blah.

I have to admit, I don’t get it. Almost everyone is selling someone something. Whether its a kid selling their parents or a wife selling her husband, it doesn’t matter, we’re all selling stuff. But the question is why would you condemn someone for doing what you do?

So real estate coaches write articles for news media and magazines about what they think agents should do. And those articles help establish the writer as an expert of some sort. Isn’t that what we do when we blog? I looked at this multi-author blog and saw 30 contributors. All of them were selling someting, and all of them were writing to establish themselves as a person to provide a service either in the real estate industry or to the real estate industry. In fact, the author of the post offered a prize for finding an egregious example of what he was typifying as poor business. The prize, a DVD set he was selling, was created at a conference he hosted , where I am told, sponsorships had been obtained. In other words, this gentleman chose to operate in the same manner as the other people he was castigating. In other words, if he did something it was OK. If someone else did it , it was reprehensible.

In this case, the people who comdemn the sales efforts of others are , themselves, salespeople. So what makes them better, aside from some unwarranted sense of superiority? You might not like someone else’s approach to business, but that doesn’t make the business bad. It doesn’t even make their approach bad, it just makes it something you don’t like or choose not to do.

I have always defined selling something to somone as “helping them to do something in their best interest that they moght not have done if the salesperson were not present”. Or another definition that I think works is “making the value of a product or service exceed the cost. ” In either case, its not about technique, and what works for one is not to be despised by another.

I would suggest in the future, that the pot should refrain from making comments about the kettle’s dark exterior.

Photo by KIWI NZ

I got an email earlier this week from one of my Partners.

“Would you suggest defending our listing? Check out Philly Blog – the blog is 2040 St Albans. The blog poster was a previous buyer in a failed transaction. The home inspection revealed defects. The seller was willing to correct most but not everything. The deal fell apart last week.
Bruce had an open house there this weekend and a neighbor told him about the recent posting trashing the listing. “

I called my partner and we talked about the property. He indicated that this buyer’s agreement had failed because the buyer and seller could not agree on which repairs requested by the home inspector were to be made at the seller’s expense. He also told me that the buyer was still circling around , possibly hoping that the seller would reconsider and make the additional repairs he wanted. We speculated about whether this was a strategy on the part of the buyer to discourage other potential purchasers’ from looking at the home so that they could renegotiate without fear of competition.

I have printed the post below. Before reading it, you should know that this is an area of Older homes (100 years or more) which is located near a major teaching hospital, in an area that is very popular with young professionals.

The remarks from the MLS read as follows:

Public:Great total rehab in the Graduate Hospital area.New brick front with window flower boxes,steel front door and new windows.Enter into a living room with a gas fireplace with a stunning cherry wood mantel, bamboo HARDWOOD floors, recessed lighting throughout.Kitchen has granite counter-tops with a breakfast bar, stainless steel, refrigerator, oven,cook top and dishwasher.Slate tile back-splash,beautiful contemporary kitchen cabinets, track lighting with under counter spot lights.Separate dining room with a service bar/window to the kitchen. Powder room with pedestal sink finished in travertine tiles.Large wooden deck with stockade fence and flower bed complete the lower level.Second floor has been changed to a more useful floor plan consisting of 2 bedrooms, an office/den/nursery.Bedrooms have built in closets with shelves,baskets and hanger poles.Full bathroom with his and hers oval vessel sinks, cabinets and a sky light.Laundry room with washer and dryer located on 2nd floor for convenience.All NEW mechanicals.

Her is a link to pictures of the property on an IDX site (though if you would like to buy the property, please call the listing agent Bruce Stranix at  215-465-1400  I’m sure he would appreciate it). Which shows, I think a pretty nice property.

I went and read the post which read;

My fiance and I were looking at a house at 2040 St Albans. It looks very nice on the inside, hardwood floors, recessed lighting, etc, etc. We put a bid down, worked through some negotiations, and had the house inspected. This is when the fairy tale ended. There was so much wrong with the house, our inspector (of 35 years) said that “although I’ve never said this before, I highly recommend you don’t move in here unless they fix everything on my report.”

The Seller initially agreed to fix everything, then after a day or so agreed to fix everything but 2 items, then, once we got it in writing, the Seller decided there were now FOUR items she refused to fix and she wouldn’t drop the price of the house either. We quickly decided we didn’t want to deal with her anymore and terminated our offer.

The reason I am posting this is not for the bad press for the Seller, it’s a lovely house. However, I HIGHLY recommend you listen to your inspector if you reach this point. There were SEVERAL GLARING issues with the house that the Seller had simply skipped over while rehabbing it (probably hoping they would continue unnoticed).

Anyways, if you are looking at the house and want more information, please PM me. I can even provide you with our inspection report so you can confirm the repairs have been made.”

Now the house is priced almost $10,000 less then a comparable house located two doors away. Roughly 20 feet. And as you can see from the photos in the link above the property is pretty attractive. And though the post is not incredibly inflammatory, it is perhaps more subtly damaging since it doesn’t discuss what repairs the owner didn’t want to make, nor why a home inspector would be providing advice on purchasing or not purchasing a home. I mean I could understand a home inspector saying, ” This home is unsafe if this repair is not made” but that’s a lot different from “although I’ve never said this before, I highly recommend you don’t move in here unless they fix everything on my report.” Why would he care who made a repair?

So the questions in my mind, which I hope some readers can clarify are

1. Do you think a post like this is damaging to the seller or is this a case of “no publicity is bad publicity unless they spell my name wrong”?
2. Was this consumer trying to perform a public service or was his post a self-serving strategy?
3. Do you think this is a good strategy for this buyer?
4. Why didn’t he specify the repair issues if they were so important?
5. Should posts like this be moderated by the host, and if so how?
6. Does the post deserve a response?
7. What type of response should that be?

Currently, we’re going to leave this alone and see what happens. I think the property speaks for itself, and any new consumer will have a home inspection of their own, and draw their own conclusions. Hopefully people will call the office if they read this and our agents will be able to discuss with them what the real situation is.

This is a new one for me , and I would love your input.