I thought that the bankruptcy bill has eliminated that, but it's still valid in a number of places apparently - either because it's usual practice (but this may be a time to create new precedents) or because it's actually mandated by law (in California for instance, IIRC) In the long run, we're all dead. John Maynard Keynes
In the US (if I've understood correctly) anyone with a 100% mortgage and rapidly falling house prices (potential negative equity) simply sends back the keys and the debt is cleared. Don't fight forces, use them R. Buckminster Fuller.
So the lenders who never should have lent to people who never really could afford to buy take their lumps, without destroying the fabric of the neighborhood. And it seems like if the house value continue to slump, the "fair rental value" could drop with it, putting the prior owner of the house in a position to save up a down-payment toward getting into the market for a house they can afford. Utsukushikereba sore de ii
If the house is durably worth less than the outstanding debt, sending back the keys and foreclosing is the rational thing to do. There are a couple of legal and tax bobby traps to avoid, though. There are also issues related to junior mortgages and home equity loans that can make things pretty entertaining (from a bystander POV, I mean - no fun at all for home owners).
Actually, there are now businesses dedicated to doing all the paper work for defaulting owners.
Example : http://www.youwalkaway.com/
Pretty funny Facts, selfish little bastards. They don't even care about your feelings.
