No Worries About "Morality" in Biggest Real-Estate Default in History

Over the past few months, arguments have raged about whether it is “immoral” for homeowners to send banks the keys to their houses and walk away from mortgages that it doesn’t make sense to keep paying.

Regardless of which side of this debate you’re on, note that experienced professional real-estate owners don’t even consider this a question.

Tishman Speyer and BlackRock Realty, the owners of the huge New York residential real-estate complex Stuyvesant Town, have decided to hand over the keys and walk away, dumping the property on lenders who provided some $4.4 billion in loans.

Stuyvesant Town is now estimated to be worth less than half of what Tishman and BlackRock paid for it four years ago, but they won’t be feeling much pain.  Tishman put up only $112 million of equity.  Other investors, like California Public Employees’ Retirement System, a Florida pension fund, and the Church of England, as well the boldholders, will eat the rest.

In none of the stories reporting this decision was the question of “morality” ever mentioned.  It was simply assumed, as it always is with corporate transactions, that the parties had reached their agreement at arms length and that default was always a possibility.

It’s no surprise why the mortgage industry tries to convince individual homeowners that they have a “moral obligation” to pay when corporate borrowers don’t — this sense of responsibility and guilt induces more of them to pay.  But it’s not fair.  There are dozens of good reasons not to default on your mortgage, but “morality” isn’t one of them.