1) They will not owe any tax on the shortfall if the lender forecloses and sells the property for less than what is owed.

2) The best play would be to get themselves into a cheap rental and knock out the CC debt as opposed to going BK. Ironically, they could probably knock out a nice chunk of that debt by stopping all housing payments and sending that $$ to Visa…

3) This type of scenario should increase as more loans are re-cast and property values continue to fall. At some point in time, if values fall enough, I would expect that even folks who can afford the re-cast may walk away if the disparity between ownership and renting is large enough to convince them to crash their credit.