Is it because corporations have more rights than you do? Or is it because corporations are amoral legal fictions, concerned only with profits for their owners (and officers)? Or both?
Five Supreme Court justices believe that corporations should have unfettered rights to free political speech, just like you and me. Go figure.
Tishman Speyer Properties walks away from 11,232 Manhattan apartments because it can’t pay its mortgage. That’s good business.
Rick Gilson, a college custodial supervisor in South Dakota, wants to walk away from the mortgage on his mobile home. If he does, he’ll be a deadbeat.
Those two borrowers face the same financial dilemma: Their mortgages far exceed the values of their properties. Yet one gets to walk away without guilt, while the other can’t.
Until now, the focus of the real estate crisis has been on individuals. One in four U.S. homeowners, or nearly 11 million Americans, are underwater on their mortgages. In some parts of the country – Florida, Nevada, Michigan, California and Arizona – the share tops 40 percent.
Some experts say it makes sense for some people to walk away if they’re deeply underwater, even if doing so could wreck their credit score for seven years. It may not be worth it to keep paying a mortgage when they can find comparable rental housing for considerably less money.
The argument against walkaways is that they will wreak economic havoc if a lot of people do it. Banks will have more bad loans on their books. They’ll make fewer loans. Home prices will plunge more.
The rules are different, though, for the walkaway of all walkaways.
That title is reserved for what happened to one of New York’s trophy properties, the 56-building Stuyvesant Town and Peter Cooper Village complex. Spanning 80 acres on Manhattan’s east side, it’s the largest single-owned residential area in the city. Its red brick buildings, built by Metropolitan Life in the 1940s for World War II veterans, are still a haven for the city’s middle class.
Commercial real-estate firm Tishman and its partner, investment firm BlackRock, paid $5.4 billion to buy the property from MetLife in late 2006 – right at the market’s peak. They hoped to make money by converting rent-regulated apartments into luxury condos and raising rents.
Then the housing crash hit. The value now: $1.8 billion.
And you thought you overpaid for your house.
Tishman exits the deal with a ding to its reputation, but it will be fine. It still has Rockefeller Center and the Chrysler Center in New York, and dozens of properties in cities worldwide. The company has about $33 billion in assets.
Residential homeowners wouldn’t get off so easy.
University of Arizona law professor Brent White, who has written about mortgage walkaways, says societal pressures often trump what’s actually legal. He thinks individual borrowers believe they are obliged to repay their loans even when it isn’t in their financial interest.
“The problem is that we have a structure whereby corporations can walk away with impunity but individuals can’t,” White said.
Gilson is frustrated that real-estate tycoons can default on a $4.4 billion mortgage, but he’s not supposed to do the same on his $31,000 loan.
How can you blame him?