Foreclosure? Loan mod? Short sale? Mortgage payments killing you? Maybe It’s Time to Stiff 'em.

If you’re seriously upside down on your house, the loan modification the lender offers is useless (assuming they get back to you at all) and short selling is problematical, you can’t help but think, at some point, what if we just stiff ‘em and walk away?

Put aside the effect on your credit. Yes, it will be trashed, but if (a) you’re falling behind  on your payments already, and (b) you’re having a tough time paying medical and other bills, chances are your credit already has taken, or will soon take, some major hits.

The issue comes down to personal ethics, the morality of not making your payments and walking away from the house.  Most of us are programmed to pay our bills on time and feel like vermin if we don’t.

Look at it another way.

If you borrow $100 from a friend and don’t pay it back, that’s one thing.  If you borrow $100 and the friend writes it up, has you sign, takes your watch as collateral and he bags the watch when you don’t pay, that’s another thing.

Banks and other friends of the housing industry lobbied for years and years to get current foreclosure statutes passed into law. Before our current mortgage/trust deed rules, lenders had to sue if a borrower didn’t pay. They could get judicial foreclosures, and these had rights of redemption (still do). By modifying the laws to include non-judicial foreclosure, lenders were speeding up the process to get back collateral in the event of default.

Well, those statutes work two ways. If a person comes to the end of his rope, he has to consider if his family would be better off by not paying the mortgage and staying in the home 120 days for free (effectively longer, actually, since lenders usually wait ninety or more days before sending default notices). That’s a minimum of four months and probably twice that for a borrower to get his or her financial life together.

And the ethics of it? You have a contract with the bank. The bank has a right to make itself whole by taking the house back if you don’t pay. In the view of some people, that contract is a legal document, which differs from an ethical obligation. See friend/$100/watch above.

While the statutes came into being to aid lending and expand home ownership, people have to ask to what extent lenders took advantage of the laws to increase their portfolios, and what morality and ethics was involved in the effort. These same statutes allow the borrower to stay in the home at least 120 days after a Notice of Default. Well, both sides can follow the law.

But the feds bailed the lenders out. They didn’t bail out the borrower, whose home has morphed into a toxic asset.

And maybe real reform won’t come to this catastrophe until borrowers look at the upside, the downside and just say “Stiff ‘em.”