The note always belongs to someone connected to you, the borrower who promised to pay the debt.

Also, the property may not have a clear chain of title, and there may be some procedural obstacles to foreclosure, but George is very correct; you are not going to be unjustly enriched with a free house because somebody else screwed up.

You still are obligated under the note, and whether the foreclosure is subject to a mortgage or a deed of trust is simply a procedural/technical issue.

I think Walt is onto the real issue. What he says is that the economics of balance sheets, loss reserves, etc, favor holding rather than liquidation. To liquidate is highly deflationary, and deflation is the enemy of the banks who hold debts secured by assets. If those assets deflate in price, that is good for consumers, but very bad for lenders.

Since the cost of money is near zero, inflation alone, in theory, will eventually overtake price deflation. This favors a “wait and see” by the banks.

Their biggest problem is that they are slow and people are quick to adapt.

What would be the best, from an AET point of view, is for the inventory to clear at market prices. Even speculators are at a disadvantage in an environment of price deflation, so housing would tend to be purchased by owner/occupiers and the price would have some relation to income and cost of living.

I don’ think that is in the economic interests of banks though at the moment, for the basic reason that Walt states.

Yes, I understood it would be with a member, not the church itself. But I disagree with this:

Morality is a religious issue.

Morality is an ethical issue. While it is true that ethical codes, as you say, may have commonality along religious lines, I think all ethical frameworks are a product of the social context. What I mean is that on certain principles, “thou shalt not kill” may bridge accross many different religious and non-religious groupings.

The ethical principles of private property, for example, are much more universal. Dependability as an ethical standard, is another important example.

It is true that these particular principles of ethics dictate what is good (respecting the santity of private property; being dependable upon your word), moral conduct is simply the measure of one’s conduct in relation to this code.

If honesty is the ethical principle, and I am dishonest, then it is proper to say I am engaging in immoral conduct, espeically where I myself believe in honesty, but give myself a pass in certain situations.

A legal contract is a product of at least two elements; the ethics that each party brings to the transaction (otherwise the contract could assume nothing, like “good faith”, and would have to be voluminous), and the intentions to agree to be bound that is created between the parties.

Contracts do not require that the parties be of the same faith, but they do require either a common understanding of the ethical context that is implied, (and an assessment of the risk, including the risk that one party will act in bad faith, and what remedies are available in that event).

The key issue depends on the question. I think the concept of good faith is one of those rather universal concepts. It is an ethical code that serves to predict what someone will and will not do, and what conduct would b e considered immoral.
Since we are likely to only want to do business with moral parties, there is a social imperrative to act morally. Otherwise, we find ourselves ostracized because of a poor reputation for morality.

But a society that was mislead and lied to would create even more negative consequences by honor their promise !
The cause of the Financial crisis was not because of the borrower’s in ability to pay,That was taken into the consideration of making the loan.The lenders model dealt with that with the idea that the defaulted loan would be insured and replaced with a higher loan.
They did not take into consideration that the bubble would burst IF the ” rate of acceleration of the private debt” (Steve Keen) were to have to increase so rapidly that another “fool” either could not or would not sign.That plus the fact that on an average of 30 times leveraged,NO ONE could make the notes whole.

I see. This is interesting:

in the anarchist society that this site tends to promote, the majority of contracts would include a bankruptcy clause.

I understand this is not be your position, but you are attributing it to the anarchists.

The assummption they seem to make is that nothing can exist outside the “contract” as described by TTT promoted by Rothbard. This is, IMHO, nonsense. It would mean in practical terms, that no contract could exist except within the terms of its own 4 corners of the document itself. You would either have to recreated volumes of legal code (try the UCC for example), or resort to physical enforcement in disputes that are not covered in the contract.

Under the UCC, for example, million dollar transactions can take place on a handshake and a minimal writing between merchants. Under an anarchist theory of contracts, contracts would each be volumes of text.

In the end, it would lead right back to where we are, which is that certain terms can be “assumed” if not specified based on legal rules.

This lack of understanding of simple reality is why I think the Ancaps here are irrelevant, in the grand scheme of things. They contruct a theory of society by simply omitting stuff that doesn’t fit very well.

In any case, I’m not sure how the concept of “debt forgiveness” as a term of a contract would work very well in the ancap society described here by most. It sounds like to me that the person with the biggest PDA wins.

Cheers

I did not express myself clearly, my apologies. I am aware that bankruptcy laws are part of public policy (and not part of contracts – duh) – which I agree with. I don’t want to see a return of ‘debtor’s prison’ any more than you do. The point was that, in the anarchist society that this site tends to promote, the majority of contracts would include a bankruptcy clause. Many anarchists seem to think that people in an anarchist society would be on the hook for their debts until they were completely paid off. I beg to differ. Banktuptcy is legitimate and necessary and would exist without gov’t involvement. The question is whether or not there would still be poor saps having to work as near slaves to pay off their debts because they chose not to have a bankruptcy provision in their contract. This kind of question is why I’m a minarchist.

Anyway, I pretty much agree with your comment. I was just speaking hypothetically.

Bankruptcy is not a matter of the contract, it is a matter of public policy based on our rejection of slavery, and economics (a debtor in prision is a net cost to society).

The alternative is debtor’s prision, which we’ve rejected.

Anyone is free to breach a contract, as long as they are willing to accept the consequences. All a contract can do is allocate the risks between the parties, and maybe create an agreement that changes the operation of law, say being personally responsible for something that you are not otherwise required to be responsible for, etc. A contract can establish collateral; i.e. the mortgage for the note.

Bankruptcy is always an option, but it is not inconsequential. That is a good thing for those of us who pay our bills. Otherwise, we (payers) would have to subsidize non-payers with higher interest rates and qualifiation restrictions.

But, failure is part of the capatilist system, subject to good faith conduct.

If this were something that would work on a large scale it would already be being done, it isn’t successful anymore because the banks are onto it. It’s also something that was more common to houses sold during the bubble, the loans processed before MERS are largely in order.

This may delay the inevitable, but you won’t get a free house out of the deal.

Pay or don’t pay, depending on what makes you better off.

We outlawed debtor’s prision some time ago, for good reason.

If you loan your car to someone with losts of money, or one with nothing, as long as both parties acted in good faith, you take your lumps for your decision.

Do you honestly think that if I loaned you my car, and I knew you were homeless with no assets, and you then totaled it, I would have the right to make you a slave or prisoner for the value of the car? What about my responsibility here?

If it was purely an accident, or if you were on drugs and drifting it at the time, wouldn’t that make a difference?

I have no problem with either party taking whatever action under the contract terms, they are entitled to, including the consequences of breach. That is not to say that in the bank/homeowner relationship, it is always and completely the risk of the bank. A loan is a bilateral agreement. Both parties have legal and moral obligations to act in good faith.

All parties have a moral obligation to act in good faith. I don’t think that means one thing when you are opposite a banker v. a church.

It’s a business transaction. If it doesn’t work out and the parties involved acted in good faith, then I don’t see the problem.

I think I am reacting to the attitude that makes it out like the borrower is the victim against the big, bad bank. If we are making moral judgments, then I think we have to look at the intent of the parties. If the motive is bad faith exploitation, it is morally offensive.

If the conduct is in good faith, well, then s..t just happens. Everybody takes the lumps they signed up for.

I can’t believe you’ve written something I agree with…the world is truly upside down…but your observation is definitely worth consideration.

It seems to me that people are confusing “walking away” with the filing of bankruptcy but the two are very different. I also believe that people are forgetting money is property.

Therefore, your assessment of the situation is very relevant…and I applaud the observation.

For the record, I’m on the fence with this issue.

It is simple enough.

A contract is contextual. It is an agreement between a borrower and a lender. Both parties assume risk.

Should it be the case that the borrower can’t service the loan, then he can try renegotiating terms or, should that fail, default the loan and walk, especially where his circumstances do not allow him to service it.

The contract between borrower and lender is not one that allows the lender to force the borrower into slavery for the rest of his life. Such a thing would indeed be utterly immoral.

Sione