I think all of the answers below are very well put and there's little to add. The fact of the matter, in my opinion, is that a home does not define an individual, a family, nor should it be considered the definition of one's success.
There appears to have been a paradigm shift in the psyche of the American consumer. FICO scores are still important to the mindset of the average citizen, though, they are of little consequence if one is struggling to put food on their table, pay their health insurance premium, or support an ill loved one.
Many individuals are realizing there are few legal ramifications from walking away from their homes, aside from a temporary dent to their FICO score. As well, it is now very well known that FICO scores will recover from a foreclosure, and while it may prevent one from utilizing credit in the near-term, this may not represent a material issue to a particular individual.
That is where the paradigm shift has come into play. Credit, is simply not as important to many American's as it once was. Across all sectors of the economy, we're now seeing individuals purchase only what they can afford, and they're considering abstract and excessive purchases to be mere complications to a life that is already overly complicated and difficult, given the economic storm that has gripped our country for several years now.
The American Dream is alive and well, but many were prodded or misguided into believing that the size of their home, the brand of their car, or the cost of their wrist watch were the symbols of their success.
I like to think that there is a lot of soul searching taking place within our great Nation, which I'm confident is on a swift road to economic recovery. We're now seriously looking at alternative energy sources, as a way to preserve our environment for future generations, we're seeing our World as a large global and interconnected community, and we're reexamining what is truly important in life.
One's health, one's family, and one's character are what define an individual, not a computed credit score. People have realized this, and are now simply walking away, rather than dealing with short-sales, etc., for better or for worse.
Personally, I believe a short-sale makes sense for a number of reasons, and it should be attempted before a "strategic foreclosure," but at the end of the day if the short sale does not succeed, I can clearly understand why a family would choose to walk away from their home, with the knowledge that what's really important in life, is not a stationary object, but the sights and sounds of life, which they experience each and every day.
Those experiences are priceless, a home, unending stress, and a bank that's unwilling to negotiate to any degree, well, those things just might have to serve as learning experiences moving forward.
I am extremely bullish on the American economy and the United States real estate market, but when one is in complete despair or has lost their job, they must often take drastic measures. While, personally, I believe we're starting to see some outstanding leading economic indicators, a rebound will take time. To some, weeks may seem like months, and months may seem like years. So, it may make the most sense to "walk" and start over.
I would caution people, that there can be IRS tax consequences to doing so, depending on the loan they have on their home, and to always speak to a qualified and experienced real estate agent or real estate attorney, but after doing so, it may make rational sense from where a borrower is standing, to take the route you've mentioned.
Very good question, and one I've not seen brought up for some time. Thanks for asking Hannah. It would be great to see a few more answers from others in the professional real estate field.
Eric M. Abrams
CA DRE# R01862927
(contact info in profile)