Lenders to protect their money, require pledging the house as collateral. As a result of borrower defaulting on payment, the Lender has a right to seize the house. It is spell out in the Contract/Promissory Note: if you stop paying, bank gets the house back. Pretty simple.
Lender and borrower made a business decision. Lender concluded that was a smart investment to loan 125% of the value to make a profit. Borrower took a risk to buy a house counting on instant equity. Well, it turned out that both parties of the transaction made a bad business decision.
Many borrowers ask the lender for solution before they decide to walk away. They cannot afford payment for a reason. Either loan needs to be restructured, or principle balance reduced, or rent it back, or something. And then, if the lender says no and… no, then here you go - take the collateral.
In some states banks have recourse; lenders can go after personal asset, so that could be dangerous. But is that OK? Again, banks made a business decision while loaning the money. Why are borrowers held to a higher standards then banks?
Another issue: is it immoral to stop making payments on the mortgage? In most of the cases banks do not even talk to borrower unless he is 3 months behind. Otherwise you are not a priority. Call back when you late on the payment, then bank may notice the issue.
Is it okay to walk away from the mortgage for no other reason that it doesn't make financial sense? Did financial institutions approach anything from a moral standpoint?
Some opinions state: “There is no moral issue as long as the contract is legally addressed.
Morality cannot be legislated or made a clause in a contract. If the lender thought at the beginning that you had a "moral obligation to pay," it would have specified that in the contract”.
I am not an advocate for any solutions but certainly this question is being asked more often by troubled homeowners. And many times leaves me speechless.