Never judge a man until you have walked a mile in his moccasins.
Native American proverb
Some have criticized George Guzzardo over his strategic foreclosure on an investment property in Arizona. I’ve gone over this story several times, and I’m still trying to understand exactly what the criticism IS…
Real Estate Bubble
There’s no question that there was a real estate bubble in Arizona that burst in 2011, with development land (like that Guzzardo bought) going for less than 10% of what people paid for it at the peak. The real estate company that had started the development of the area went into bankruptcy, leaving the future development (and value) of his property highly uncertain.
Strategic default is a common strategy used to get banks to renegotiate the terms of a loan. As Wikipedia reports on the ethical issues of strategic default:
Some ethicists have questioned the morality of strategic default, arguing that one has a duty to make payments on debt if one is able. Others argue that there is no such moral duty, a loan being a contract between consenting adults, and noting that financial investors routinely default on non-recourse loans that have negative equity. Some argue further that there is a moral duty to strategically default, and that one should make such decisions based on one’s financial interest “unclouded by unnecessary guilt or shame”, as lenders who do not modify mortgages do the same, “seek[ing] to maximize profits or minimize losses irrespective of concerns of morality or social responsibility,” or more bluntly stating that “The economy is fundamentally amoral.” Further, obligations to honor a contract are balanced by obligations to oneself and one’s family, the latter speaking in favor of strategic default, some arguing “You need to put yourself and your family’s finances first,” while one also has obligations to a community, which may be damaged by default.
Basically, the critics are taking the first of the several ethical positions described above. Clearly there are other arguably valid ethical positions to take on this. Choose yours, but don’t judge someone else for choosing a different one.
One thing Guzzardo didn’t mention in his blog post (probably because he really couldn’t) was that the Amway lawsuit judgment was pending. Depending on the outcome of that, he could potentially be losing the property anyway. If you know you’re likely to lose something anyway, how long do you keep paying on it? Facing something like that, you have to make difficult choices. Until you’ve walked a mile in someone’s shoes, don’t judge them for making a difficult choice.
By The Book
Guzzardo did this by the book. First, he acted under advice of legal counsel. And he worked with the bank to agree on a foreclosure plan…not simply a walkaway.
Bottom line is, he got through it:
After discussing my options, I restarted payments to the bank and I am contemplating accelerating the payments. The bank reinstated my good credit and the property is no longer in foreclosure.
So, what is the criticism here? Simply that he didn’t buy it for cash???
Sure, that’s preferable, when it’s an option. That doesn’t mean a mortgage is a bad thing. Borrowing money, in and of itself, isn’t a bad thing, and LIFE certainly doesn’t teach that. It’s the debt-driven model that most Americans follow that’s destructive. Whether or not this particular purchase was the right thing for George Guzzardo is up to him, with guidance from his accountant, attorney and mentors.
So again…what’s the problem here? I just don’t see it.