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Imagine being one of the first home buyers to purchase a home in a new subdivision where the developer has plans to build out at least 100 homes, only to go broke shortly after your purchase, leaving the neighborhood a virtual wasteland. There are several neighborhoods in my area where this was the case. Maybe 10% of the projected homes were built out, the rest are just vacant, overgrown lots.
Let's say the value of your home was $200,000 when purchased. But that value was largely based on the assumed completion of the neighborhood. But now that development has stopped way short of completion, and no one is wanting to purchase in your subdivision, you values have been cut in half. So you have a home worth $100,000, which most likely no one would want to buy, and a mortgage around $200,000. What do you do? Would you walk away?
That is an interesting dilemma. And a real story. CBS 60 Minutes just profiled 6 neighbors who are living this situation: http://www.cbsnews.com/8301-18560_162-57344513/there-goes-the-neigh...
Interesting, though, out of the 6 profiled, only one walked, and the was because of medical issues which kept her from making the payments. One of the neighbors made the profound statement that, even though her homes value declined by 50%, she was still going to pay the mortgage because she was still able to pay. The decline in her homes value didn't affect her ability to pay the mortgage that she agreed to when she closed on the loan.
Also in this article, which profiles the city of Cleveland, Ohio, it states that city officials have already demolished 1000 vacant homes and plan to demolish another 20000 in the future. That has to make quite an impact on a community.