Short Sale Ethics, Strategic Defaults, and the Bible: What you need to know.

If a person desires to make a geographical move, whatever the motive, and has a house to sell and the house is worth less now than it was when it was purchased, is it ethical for that person to arrange for a short sale? Who has to “eat” the losses that result in a short sale? With the rapid rise of short sales in the United States, the question is rising in the minds of many, “Is it ethical?”  Can I simply walk away from my debts? What do I need to know? What are the ethics of a short sale? How do I feel about this?  Will I feel guilty years from now? Will it be a dark cloud that hangs over my head? Will it ruin my reputation? What about my credit score? How will it affect my chances of getting a job in the future?

All of these questions have multiple answers depending on who you talk to. Years from now, psychologists may be busy counseling people who walked away from debt when they were younger but then live to regret it when they are older. So what is the answer regarding a short sale or a strategic default. Is it ethical?

Whether you are a buyer, seller, real estate agent, lender, or curious tax payer, you must find an answer to this question. The best place to look to find the correct answer is to look at a written code of ethics. You can find many books written on ethics. One of the best books just happens to be the Bible. The Bible has a lot to say about money and debt. Jesus talked a lot about money. He recognized the fact that it is an important issue. So what does the Bible say on this subject of “short sales”?

“Who may stay in God’s temple or live on the holy mountain of the LORD? Only those who obey God and do as they should. And they keep their promises, no matter what the cost.  Psalm 15:1,2,4b CEV

One could look at this verse as saying, “A righteous man keeps his promises, even if it ruins him.” When someone signs a contract to pay a certain sum of money, that is a promise. That contract and debt could be for a car, house, education, or personal loan from a family member or friend. The word “ruin” here obviously refers to financial ruin or the ruin of a person’s reputation.

What do you deduct from these verses? Should a person, regardless if they are Christian, Jewish, Muslim, Hindu, atheist, or any other world faith engage in an attempt to rid themselves of a financial obligation through a short sale? What if they even have the financial means by which to cover the debt but their financial adviser tells them to do a short sale and hold onto their investments?

What about a Christian who feels called into the ministry and needs to make a move and sell a house that is worth less than they paid for it? What do the scriptures say about the action that person should take? A Christian especially, should uphold the reputation of his faith by fulfilling his promises – large or small.

Although legal, is the implementation of a strategic default ethical? Was the signing of a mortgage agreement a promise to pay a debt regardless of the value of your house if it went up or down? What would Jesus do? Would he walk away from his debts?

Luke 16:10 says, “Anyone who can be trusted in little matters can also be trusted in important matters. But anyone who is dishonest in little matters will be dishonest in important matters.” CEV

Should a Christian short sale their home?

What do you think? Leave a comment.

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10 responses to “Short Sale Ethics, Strategic Defaults, and the Bible: What you need to know.

  1. Chris Candide

    If you entered into a mortgage contract, and your financial has not changed, whether or not you are “upside down” on your LTV is meaningless. Your home being worth less now than when you bought it — a risk you assumed when you entered the contract — does not give you license to just walk away. If you could afford it then, and your income is the same, you can afford it now. Not liking your appraisal is never a good reason to walk away. Mortgage companies don’t “cheat” anyone, as one comment above says. Read the documents you sign! Also, what does walking away from a voluntarily entered-into contract have to do with “grace”? That is a twisted view of grace – kind of like saying “I’ll sin all I want, because, hey, God has forgiven all sins past, present, and future, right?” No, if you truly understand grace, obedience will be the fruit, not open rebellion. Unless it is your only option, defaulting is clearly unbiblical.

  2. Asking for mercy from a lender would be appropriate if the borrower were in a position to need mercy, but when a christian uses the “law” as a support for their poor financial decisions (although they are still able to satisfy the debt), just to get out from under the financial pressure they have crossed the line. I would add that just because there is a “law” that allows for something, it does not make it ethical, moral, or most importantly biblical.

    Where are the Christians who will stand for what is right even if it’s painful?

  3. I struggle with this one. My house IS pretty drastically upside-down. And I know that a short-sale or strategic default would make life a lot easier. But what’s the value of my word if I don’t intend to keep it when it’s difficult to do? Is my integrity disposable, too?

    The financial collapse in 2008 was driven by a lot of factors. We had a pretty unhealthy system. But the systemic collapse was not only a result of a few greedy CEOs, it was also the result of thousands of acts of small greed; people who used their homes as ATMs or who (like me) bought far more house than they could afford. A lot of us only asked the question, “How much CAN I borrow?” and completely forgot about the question, “How much SHOULD I borrow?”

  4. Actually, in Luke 16, in the story of the shrewd manager, there is a parable example of Jesus discussing a master and his servant. On one hand, he was rebuked for mismanaging his master’s business. Immediately after he did 2 shorted debts(short sales without security), he was commended. Short sales are a perfect example of God’s grace…if we look for it. It’s never about the letter of the law, it’s the spirit…which is grace. If you are looking to be right or wrong, you will be in judgment. All men are to be led by the spirit, not the law. The law was designed to amplify sin.

  5. site@brucesabin.com

    The author of this article doesn’t understand how to interpret biblical poetry. An important feature of biblical poetry is parallelism (synonymous, antithetic, and climactic). Consider verse 2:

    “The one who lives honestly,
    practices righteousness,
    and acknowledges the truth in his heart” (HCSB)

    Notice that we have a) honesty, b) righteousness and c) truth — three ways of saying the same thing (synonymous parallelism) — be honest

    verse 3:

    “who does not slander with his tongue,
    who does not harm his friend
    or discredit his neighbor”

    We have a) not slandering, b) not harming and c) not discrediting — again, three ways of the same thing: don’t hurt your neighbor.

    verse 4:

    “who despises the one rejected by the LORD,
    but honors those who fear the LORD,
    who keeps his word whatever the cost”

    Here we have an introduction of antithetical parallelism, a) despise those who reject God and b) honor those who fear God. Now, the third statement — c) keep your word whatever the cost — is connected to the first two statements. So, keeping your word despite the cost is part of honoring those who fear God, and despising those who reject God. Therefore, it’s not at all dealing with the current situation of mortgages. But we’ll come back to that.

    verse 5:

    “who does not lend his money at interest
    or take a bribe against the innocent —
    the one who does these things will never be moved.”

    Here we have a) not lending at interest and b) not taking bribes. Since the Bible assumes the only people who would borrow money are the poor (which is true in non-capitalist societies) then loaning at interest was considered taking advantage of the poor. That, then, is synonymous with not taking a bribe because a bribe is a wealthy person seeking to obtain false witness against a poor person.

    A Psalm must be interpreted as a whole. As a whole, this Psalm is about being a person who stands up for the poor and for those who love God. Trying to then make it apply to current mortgages is nonsense. Consider that the blogger quoted a part of a verse about keeping promises and ignored the next part of the sentence about not charging interest.

    Since keeping your word is connected to honoring those who love God and despising those who reject God–and it’s all part of the broader Psalm–keeping your word is really an issue of helping and defending the righteous (those who honor God) against those who would mistreat them (i.e., those who reject God, who take interest, slander, discredit, harm and bribe), even when honoring and defending the righteous would cost you. In other words, God would rather have you stand up for his people than abandon his people for your own good.

  6. This article does not even cover the answers to the questions? There are many many things in the Bible that discuss money. Most of them are about forgiveness of debt. The banks are gauging us and this is not a get back at them move in 90% of the cases. Most of these cases are about providing for ones family and I can give you a bunch of scriptures that talk about that, as well as has anyone read the 10 talents? God loves us He would not expect us to kill our selves to pay a mortgage that we can’t afford especially if it means that we can’t help the poor and needy just to pay a mortgage. Also you mention about dishonesty, well who was dishonest the bank or us consumers, I think we all know the question to that as all of the banks are being audited by the government and shut down because of unfair lending practices??? Most people that have stayed in their house for more than 10 years have paid the bank back in full anyways and now the bank is just collecting interest, yes that was the agreement but also the agreement was that my house would be an investment, something that I could cash in on when I retire, well…. that is a pipe dream now so is God telling me too bad? I think not, He is a loving, forgiving and just God.

    • Thank you. We have been forced to move for my husbands job and have been praying as to what was biblical solution as our new home is now worth 150,000 less!!! I agree we are asking the bank to forgive us if we both agree I believe it is not a sin.

    • Angie
      You explained my situation almost ….we are in the midst of a short sale process now!
      My husband just retired and I am out of work on disability. The timing of this evolved unexpectedly and as a result our income decreased by 200K.
      We cannot afford to pay the mortgage and because of the home being under water we cannot sell and cover the debt. We were approved for a short sale buy our primary mortgage lender but our secondary mortgage let our file sit so long that the time ran out and now they charged it off. We are faced with a decision to close on the house with first mortgage and walk away from secondary. We have a second residence in florida and are now living there.
      We have been tithes, givers and have served the Lord honorerable for 30 years and are devastated at how this situation has developed. I agree about the banks and how their issues have now become our issues at a very personal level.I believe that the Lord will honor our hearts in all this and I am still standing on a miracle with the second lender.
      We don’t want to walk away from the debt but may not have a choice as we can loose the buyer. Thank you for your comments
      Sara

  7. I’m guessing the author of this article doesn’t have a severely upside-down mortgage.

    Perhaps this person who wrote this article might like to read Christ’s parables about debts and debtors (Luke 7, Matthew 18) and ask himself if anywhere in the Bible it is written that it’s a sin for a debtor to ask for mercy from his lender, which is what a short sale application is.

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