We have walked away from our mortgage back in Indiana, and are currently waiting to see how it all turns out. The deal was that we (or rather, I - my wife isn't on the deed or the mortgage) bought the house back in 1999, starting grad school. Housing prices seemed cheap and the school I went to offered a pretty generous stipend, so it seemed like a good idea; we would just sell it when we moved and recoup what we'd spent on it. Others had done it before us so we were assured that it would work out.
2007, done with school and a postdoc, moved to NH and put the Indiana house up on the market. No one even looked at it; this was right as the housing market was in mid-collapse. We kept it on the market a long time, spending on the mortgage all the time. Finally in 2009 we got a renter in. The renter was from section 8, meaning the government paid the rent. That sounded like a good deal, because it meant the rent was guaranteed to arrive on time.
Late in 2010 the renter starts saying they're going to move, then keeps putting it off. The house was supposed to be inspected, but the inspection kept being postponed until they left. Finally there's an inspection in December 2010 - and we find out that the nice little house we raised our kids in from 1999-2007 has become a hell hole. Nothing has ever even been cleaned, there are roaches swarming everywhere, the kitchen cabinets are torn apart, etc. etc. Thousands of dollars in work are needed to get it to pass inspection. The renter still lingers on until February of 2011, then leaves, and section 8 refuses to pay her last month's rent on the grounds that the house had failed inspection - this even though THEIR OWN LETTERS had given us a longer deadline to get the house to pass.
We had already been losing $50 a month on the difference between the mortgage and the rent, and now there is thousands of dollars in repairs to do - just so that it can pass inspection to get another renter in to repeat the process. We had a realtor look at the house in hopes that it might sell somehow, but she says she would never be able to get more than half what we owe for it.
So finally, we've decided to walk away from it. The place turned into a money pit with no realistic chance of recovering our investment in it, so it's time to cut our losses. We tried to go for a deed-in-lieu of foreclosure, meaning you just hand it over to the mortgage company, but the mortgage was an FHA and FHA rules say you can't do deed-in-lieu if you rent the property out for more than 18 months. So we're stuck going through foreclosure, and waiting to see if the company pursues the recourse route after they auction it off.
If your house is in an area where you can get a good renter and where it's likely the housing market will bounce back within a couple of years, I would avoid foreclosure. Better to lose a little money each month until you can sell and keep your credit intact. But in our situation, it finally sank in that this wasn't going to happen.
