More thoughts on short sale, foreclosure and bankruptcy
Last week, I posted about our housing situation and a large number of you took the time to respond with your thoughts and advice. I enjoyed reading through the thread and many of your comments challenged my thinking.
We are good stewards for the most part
On the outset, I think it is important to state that I do not believe that the current financial pinch in which we find ourselves was the result of reckless spending or living above our means. It is true that my wife and I made some unwise decisions early in our marriage that have increased the pressure – for instance, I hope to never again take out a loan in order to purchase a car. But I think that the fact that we have stayed financially solvent for 14 months under these conditions speaks to our hard work, strategic planning, and the resourcefulness of my wife, especially as she tries to feed, clothe and otherwise care for three children on my below-average yearly salary. However, we are down to the bone right now; there are no good options left.
A debt is a moral obligation
As I read through the comments, I especially keyed in on the idea that one or more of my housing options might be wrong. Not financially wrong, but ethically wrong. Several commentators expressed the sentiment that a short sale, foreclosure or bankruptcy might have a moral component. Marsha said:
Personally, I have a moral issue with doing a short sale, default, or bankruptcy where it is not 100% necessary. I could be misguided on this point however – and it may be that the current economy will ultimately have an effect of recalibrating our financial morals.
The more I think about it, the more I agree with Marsha. I took out these loans, I signed the papers, I assumed the risk, therefore it is my obligation to do my best to repay the money that I owe. Otherwise, I become a thief.
Now, our culture (including me) have been softened to the idea of defaulting on financial obligations. Our country does not throw debtors into prison. I sometimes watch poker on television and if you dig a little, you will find that most professional poker players have declared bankruptcy – it is simply a part of their profession. In our country, there is a sense in which it is too easy to simply default on loans.
There is certainly a price to pay for defaulting in the form of a poor credit score and the inability to get credit, but that is a small comfort to the institutions that loaned the money in the first place. Every year, our government seems to make life easier and easier for those who are poor stewards of their finances – while individuals who practice frugality, industry, good planning and financial restraint are squeezed harder and harder because they are seen as being “lucky in life’s lottery”.
But just because our culture might not value one’s word, does not make it right for me to take the easy way out of my quandary. I am going to let biblical ethics guide my decision about my house. That does not mean that I might not still be forced to foreclose or declare bankruptcy, however I am going to resolve to fight harder, to be more creative and to do everything within my power to repay the money that I owe.
So here is my next step:
A short sale means that at least one of our creditors simply does not get paid, I hope to avoid that possibility, even if it costs me more money. Foreclosure and bankruptcy are also similarly problematic and even if we have to foreclose, I hope to still repay what I owe.
Therefore, my next step is to call my home equity loan company and request that they adjust my HELOC so that it is a personal loan without my house as collateral and ask them to lift the lien on the house – could be tricky. If that happens, I plan to call my first mortgage and ask them to accept the house itself as payment – otherwise know as deed in lieu. If my first mortgage refuses to accept the house as payment, we will attempt to find a renter – a strategy that will probably cost us more money in the long run but, a renter will buy us a little more time for the market to change or our financial situation to improve.
I will let you know how it goes.
Picture by woodleywonderworks.