Let’s take a break from talking about refinancing in Utah to examine a really sad case of what looks like a grandson taking advantage of his aging grandmother.

I am not sure if you have seen this story or not, but it happened in Atlanta, which is a long ways from Utah. But a woman who is 103-years-old had been foreclosed on and was set to be evicted from her home and when sheriff’s deputies arrived, they refused to carry out the action. Vinia Hall has lived in the home for 53 years and now currently resides there with her 83-year-old daughter. While this sounds like an extreme case of callousness by the mortgage industry, let’s examine how she got into this predicament.

In 2002, Mrs. Hall’s grandson, Ali Mohammad, got a second mortgage on the property. He is listed as the owner in the loan documents. So that brings up two scenarios: 1. He was the actual owner and since he is in default, the fault is his that his grandmother is being put on the streets, or 2. He was not the owner and was fraudulent in completing the application. Either way I am betting that Mrs. Hall did not know Ali was getting not one but two loans on the property.

So let’s assume that Ali did not commit mortgage fraud, but did have the best of intentions. Let’s say that he used the money for an investment gone wrong. Pick from a list of possibilities and the result is the same — the money is now gone. At least the assets he purchased are not liquid. We know he has been unable to refinance his home for one reason or another.

Now it boils down to that age old argument — does the bank have the right to foreclose on the property? Of course they do. In exchange for money, the bank took an interest in real property that they have a contractual right to foreclose on. That part really isn’t rocket science. The challenge is the public image of the bank, in this case Deutsche National Trust, and how they will look by throwing an old woman out on the streets.

Ali is the one at fault here. He should take responsibility for the outcome of his actions, intended or not. I have read the arguments of moral vs. contractual obligations when it comes to mortgages and I have concluded you are going to fall on one side of the argument or the other and there will be little anyone can do to change your mind.

In this case, I would argue that Ali had both a moral obligation and a contractual obligation to pay the note that he had put on his grandma’s home. He knew the consequences of not making the payments on the home his grandma had lived in for 52 years. Regardless of his ability to pay back the money, I say shame on him.

What about the bank? Everyone from the mayor of Atlanta to a state senator has called on the bank to forgive the debt and leave Mrs. Hall in her home. I would suggest an alternative: forgive the debt and either go after Mr. Mohammad for a deficiency judgement or 1099 him and let the IRS go after him for the taxes due on the income. This way Mrs. Hall gets to stay in her home and Mr. Mohammad meets his contractual obligations.

What do you think? How would you deal with the situation if you were the borrower? Put yourself in the place of the bank. How would that change your strategy?