Brad, 27, and Alyse, 24, moved into a new home in Vero Beach Estates. Within a year,
the air conditioning unit went out. No one could seem to fix it and the young couple ended up going without AC for between six and eight months.

After they started suffering nosebleeds and coughing up blood, they found the house
contains Chinese drywall. The wallboard is suspected of off-gassing sulfur compounds that corrode metallic
objects (like AC units) and may cause chronic health problems. One week after receiving the diagnosis on the house, Alyse learned she was pregnant. They realized they’d have to move out, however much damage that might do to their credit.

Their mortgage holder, U.S. Bank, wasn’t very sympathetic, Brad said. The bank refused to “abate” the couple’s $1,300-a-month mortgage payments, even though Brad and Alyse felt the house was hazardous to their health. The bank did offer some help in letting the couple catch up on their payments, but
refused to let them hold off on payments until the place could be remediated. If Brad
and Alyse vacated the home, they were told, the bank could do nothing for them.
Brad and Alyse did move out and, through friends, were lucky enough to find a rent-free
house.

Others aren’t so fortunate. They must try to pay both rent and the original mortgage
payments if they want to avoid foreclosure. Brad and Alyse have decided to walk away from their first home; they simply can’t afford to do anything else.

Their story is sadly familiar to Travis Walker, an attorney with the law firm of Weiss,
Handler, Angelos & Cornwell in Port St. Lucie. Walker speaks regularly on the Chinese drywall issue and is working with several dozen clients to avoid bank foreclosures on tainted homes.
Walker empathizes with Brad and Alyse. He has a 6-month-old child himself and says
he’d rather live in his car than stay in a home with Chinese drywall.

Some banks are beginning to be more sympathetic to mortgage holders with drywall
issues, Walker said. Bank of America, Chase, SunTrust, Countryside, HSBC and Wells Fargo (and soon
GMAC) all are offering to “stay” or “abate” payments for at least three months while homeowners work out what to do with their homes. Walker is aware that 90 days isn’t long enough to do more than the basics: photograph and document the visible damage, file a homeowners insurance claim, and assemble
any medical records of conditions caused by exposure to the drywall.

But at least, it’s a start he says. Lenders, homeowners and contractors all await some form of government protocol to counteract the ill effects of Chinese drywall, which is probably at least six months away, Walker said. In the meantime, he’s hoping the “more enlightened” banks will extend their grace
period for an additional 90 days. The acid test will come in August, he says, when the
first agreements expire.

Walker’s firm is also applying political pressure on state and federal legislators to get
the ball rolling. Only then can effective remediation begin.
The property damage alone caused by Chinese drywall will prove outrageously
expensive, Walker fears. Yet it’s the human costs that worry him a lot more.

Hugh Turner, a partner in the Fort Lauderdale office of law firm Akerman Senterfitt , said that this
summer “a fair number of banks have contacted us” after finding defective drywall in homes on which
they have foreclosed.

Turner would not identify any banks, but said some have found contaminated drywall in homes they
have foreclosed on in Florida.

Turner said some banks could be among plaintiffs in lawsuits against manufacturers and suppliers of
defective drywall, and in some cases sub-contractors who worked on homes.
Homebuilders and developers likely would be lead plaintiffs in suits seeking to recover drywall-related
financial damages, he said.

Condo Vultures® research indicates that a bank that is forced to replace contaminated drywall in
a house or condominium unit could in some cases add several scores of thousands of dollars to
its foreclosure bill. That would be in addition to property taxes, homeowners association fees and
maintenance costs as it attempts to sell a foreclosure.

Akerman Senterfitt, which has offices in seven Florida cities, has a team of attorneys that is working
on drywall cases.

“I cannot comment on whether we have filed any suits yet,” Turner said.
Turner and a South Florida banker, who asked not to be identified, said they also expect that banks
might be named as defendants in some suits by homeowners whose properties are experiencing metal
corrosion, electrical mishaps and other problems due to defective drywall.

“I anticipate we will see banks more on the plaintiffs’ side,” Turner said.

The banker noted that contracts for house and condominium units usually have clauses that exempt
lenders from liability from construction problems.

But that is not preventing a growing but undetermined number of homeowners from stopping
their mortgage payments, even though they can afford to pay, when they are experiencing drywall
problems.

“We are seeing some of this,” Turner said. “We expect that banks will seek some sort of mediation
with the borrower to avoid foreclosure.”

A spokeswoman for JP Morgan Chase would not comment on whether it is seeing a large number of
homeowners not paying mortgages because of drywall issues.
“We do not track reasons why customers ask for modifications in their mortgages,” said Nancy Norris,
the spokeswoman.

If a borrower cites drywall as a problem, it is among issues where she said JP Morgan Chase
subsidiaries are always willing to “take into account the individual circumstances” when a mortgage
holder is not making payments.

In April, Norris told CondoVultures.com that Chase has expanded its programs for “getting loans cured
to avoid foreclosure.” That includes reducing interest rates and stretching the duration of some loans.
If the number of foreclosed homes with drywall starts growing rapidly, Chase Bank and affiliates likely
would be among lenders facing that problem in South Florida.

In addition to Chase Bank, JP Morgan Chase is the parent of Washington Mutual.
During the first six months of this year, JP Morgan Chase companies filed 5,967 foreclosure notices
in South Florida. That was the most for any lender/loan servicer, according to Condo Vultures®
Foreclosure Database™ .

On July 10, Miami-based homebuilder Lennar Corp. provided an indication of the potential costs of
drywall clean-up. In a filing with the Securities and Exchange Commission, Lennar said that as of May 31 it had accrued $39.8 million in warranty reserves related to what it termed “homes identified as having defective
Chinese drywall.”

Lennar said it had identified 400 homes delivered in Florida, mostly in 2006 and 2007, that it
confirmed as having defective Chinese drywall and related damages. That represented about two
percent of homes it delivered in Florida during the period.

Lennar’s reserve per home is a staggering $99,500. The company said it is “seeking reimbursement
from its subcontractors, insurers and others” for costs of investigating and repairing drywall.
Any reimbursements would reduce the costs for Lennar, and other builders in similar situations.
Banks’ drywall clean-ups likely would have fewer legal expenses than builders and would not have the
side issues with other companies.

Thus, banks’ clean-up for home should be less than Lennar’s big set-aside.
But the time and costs of even a $20,000 clean-up on a home would add to South Florida’s large and
growing problems of bank-owned foreclosures.

Basically, it would increase the number of foreclosures that are on the market for extended periods.
Turner said developers, banks and other companies that have contacted Akerman Senterfitt are
finding drywall problems primarily in homes in South Florida and on the state’s southern Gulf Coast.
He expects that banks will soon start finding more drywall-contaminated foreclosures in California and
Louisiana. Those states, like Florida, had large numbers of builders that imported Chinese drywall in
2006 and later years.

“Mortgage-finance giant Fannie Mae on Wednesday took aim at homeowners who are walking away from loans they’re capable of paying.

The company, which has been under government control since September 2008, said it would refuse to back new loans for such walk-away borrowers for seven years after they abandon their homes, and would seek to go after those borrowers in court in states where laws allow such pursuit.

From the news release:

Defaulting borrowers who walk away and had the capacity to pay or did not complete a workout alternative in good faith will be ineligible for a new Fannie Mae-backed mortgage loan for a period of seven years from the date of foreclosure. Borrowers who have extenuating circumstances may be eligible for a new loan in a shorter time frame.

“We’re taking these steps to highlight the importance of working with your servicer,” said Terence Edwards, executive vice president for credit portfolio management. “Walking away from a mortgage is bad for borrowers and bad for communities and our approach is meant to deter the disturbing trend toward strategic defaulting. On the flip side, borrowers facing hardship who make a good faith effort to resolve their situation with their servicer will preserve the option to be considered for a future Fannie Mae loan in a shorter period of time.”

Fannie Mae will also take legal action to recoup the outstanding mortgage debt from borrowers who strategically default on their loans in jurisdictions that allow for deficiency judgments. In an announcement next month, the company will be instructing its servicers to monitor delinquent loans facing foreclosure and put forth recommendations for cases that warrant the pursuit of deficiency judgments.

Fannie and its sister company, Freddie Mac, are the main sources of U.S. mortgage financing. They buy loans from lenders, guarantee them and resell them to investors via mortgage-backed securities.

One key issue, of course, will be how Fannie and its loan servicers decide whether someone had the ability to pay their loan but decided not to.

Freddie Mac hasn’t announced a similar program targeting walk-aways, but given that both companies are under government control, it would seem odd if Freddie didn’t follow suit.
A Freddie Mac spokesman had no immediate comment.

[Updated at 4:30 p.m.: A Freddie Mac spokesman said the company currently bans walk-aways from getting new Freddie Mac-backed loans for five years. He said the company was "studying the latest change from Fannie and will consider additional changes to our policies as needed to responsibly manage risk in the current market."]“

“After the bank foreclosed on Fernando Palacios’s Gainesville home in March, he thought he was done with what he described as the most stressful financial situation of his life.

The bank sold the home for far less than Palacios owed on it, as often happens with foreclosures. What Palacios did not see coming was the letter from his lender demanding that he pay the shortfall: $148,064.02. “I really thought I was through with this house,” said Palacios, who fell behind on payments when the economy soured and his cleaning business stumbled.

Over the past year, lenders have become much more aggressive in trying to recoup money lost in foreclosures and other distressed sales, creating more grief for people who thought their real estate headaches were far behind.

In many localities — including Virginia, Maryland and the District — lenders have the right to pursue borrowers whose homes have sold at a loss to collect the difference between what the property sold for and what the borrower owed on it, also called a deficiency.

Before the housing bust, when the volume of foreclosures was relatively low, lenders seldom bothered to chase after deficiencies because borrowers had few remaining assets to claim and doing so involved hassles and costs. But with foreclosures soaring, lenders are more determined to get their money back, especially if they suspect borrowers are skipping out on loan they could afford, an increasingly common practice in areas where home values have tanked.

Palacios said he was committed to staying in his house, which he bought in 2005. He sunk $20,000 into improving it and hoped to raise his children there. But his lender refused to modify his loan, he said. To avoid personal liability for the deficiency, Palacios is filing for bankruptcy protection, as many people do who are in similar situations, said Nancy Ryan, his bankruptcy attorney.

“I am definitely seeing more people come through my door who walked away from houses a year or two ago and thought they were as free as the dead,” Ryan said. “They’re stunned when they realize they’re not.”

Several lenders contacted for this story declined to say how often they pursue deficiencies. But many said they try to collect the debt if they conclude the borrower can repay all or part of it.

“Lenders are not going after people who face a hardship,” said John Mechem, a spokesman for the Mortgage Bankers Association. “If they can’t pay their mortgage because they have a loss of income, there is no point in going after them.”

Those who had a second mortgage, such as a home-equity line of credit, in addition to their primary mortgage may find themselves particularly vulnerable, especially if they tapped into the equity line for cash.

Second lenders are last in line to get paid when a distressed property is sold. There’s usually little or no money left over for them, making it more likely that they will pursue large deficiencies, several attorneys said.

Gretchen Somers said she and her husband understood the risks last year when they completed a “short sale,” a transaction that allowed them to sell their Manassas home for about $150,000 less than they owed on it. But they felt they had no other options.

Somers said her family hung onto the house as long as possible. They tried but failed to sell it when her husband was transferred to Arizona for his job in early 2006, just as home prices were softening. They moved back into the house then tried to sell it again in 2008, after their adjustable-rate mortgage reset and their monthly mortgage payment nearly doubled. But home prices had plunged further by then, making it even tougher to sell.

Last year, their first lender and their home-equity line lender granted permission for the short sale. But the second lender reserved the right to come after the couple. Six months later, a collection agency called demanding $85,000 for related losses.

In hindsight, Somers said she and her husband should have just walked away from the house. “We took care of the house because we wanted it to sell,” Somers said. “If they were going to come after us anyway, we shouldn’t have done them the favor of making sure it looked good and cutting the grass even after we moved out, We should have mailed them the key and said: ‘Here you go.’ “

Carlos Cortez and his wife managed to escape that fate after their second lender came after them for $70,000 when their short sale was completed on his Manassas Park townhouse in 2008.

Cortez knew that was a possibility, but he went through with the sale because his real estate agent said the lender was engaging in scare tactics.

James Scruggs, an attorney at Legal Services of Northern Virginia, said the lender appears to have backed off after Cortez argued that that the loan officer falsely qualified him and his wife for a home-equity line by fabricating key details about their finances.

A handful of states do not allow lenders to pursue deficiencies, nor does a federal program that took effect April 10. Lenders participating in that initiative are paid for approving short sales and as a condition, they cannot go after outstanding debt.

In many states, lenders can go after deficiencies, though laws vary widely, said John Rao, an attorney at the National Consumer Law Center. Some states limit how long the banks have to file a claim or collect the debt. Others may calculate deficiencies based on the fair-market value of the house, Rao said. For instance, if a home sells for $200,000 yet its fair market value is $250,000, “the borrower who owes $240,000 on the mortgage would not have a deficiency,” he said.

Borrowers should get a waiver in writing from their lenders to protect themselves, said Diane Cipollone, an attorney at the nonprofit Civil Justice. “Nobody should assume the deficiency is forgiven,” she said.”

Two problems:   First, how frequently do owners negotiate short sales while keeping their payments current?   Based upon what I have seen, the lender almost always refuses to negotiate with an owner who is current.  Second, exactly what is to be gained by pursuing a short sale (unless your goal is to be aggravated by bank clerks and make money for your realtor)?

I have never spoken to an attorney who recommended that their clients pursue short sales. Not one. Excuse me, there is one exception:  an attorney who does short sales for a living.   I rarely see an advantage to a short sale when it comes to credit rating.  Most owners are of the belief that a short sale arrangement includes a release of liability; the lender accepts less than the full mortgage balance and releases the mortgage and the underlying promissory note.  Not true.  A homeowner is in for a rude awakening when he ultimately finds out that he is still liable for the balance of the promissory note after months of negotiating a short sale and endlessly furnishing financial information to the lender (It’s usually lost at least a couple of times by the bank).  This almost invariably leads to the same result:   a fight breaks out between the realtor and his client.

Alternatively, if a homeowner refuses a short sale and subjects his home to a foreclosure suit the homeowner can, by defending the foreclosure suit, position himself to negotiate with the lender. Defending a foreclosure suit deprives the mortgage lender of what it wants most of all- possession and control of the property. Attorneys are usually able, at some point during the foreclosure defense, to negotiate a release of liability in exchange for the homeowner dropping the foreclosure defense.

Although  lenders and real estate salespeople have a different opinion, I cannot help but think that the only people who benefit from short sales without a full release are the lenders who liquidate the property, the sales agent who makes a commission, and the buyer who gets a good deal on a home. The seller goes through lots of work to negotiate with the buyer and lender and in the end he may still be liable for the full mortgage amount.

Its nice to have that 800 credit score, but that won’t put your kids through college or fund your retirement. Unless a lender will release you from liability in a short sale, I think most often the homeowner can negotiate a better deal in the foreclosure process.

Many pundits, including attorneys, have pointed out that to date most banks have not pursued personal deficiency liability on first mortgage foreclosures.  Some claim that lenders will increasingly pursue or assign deficiency claims in the future. I have heard some attorneys and other so-called experts forecast that deficiency actions will become the norm in future years as either banks have more time as foreclosures decrease or as borrowers recover financially as the economy improves.

Let’s add some reality to the theory.

First, we all agree that some lenders are pursuing deficiencies and some are not.  So what?   Are you really going to suggest to a client with assets that he play Russian roulette with his life savings?  Obviously any rersponsible advisor must deal with and plan for the possibility of a lender pursuing the deficiency which, as we all know by now, is a judgment good for as much as twenty years.

Second, I personally know someone in the business that buys deficiencies (along with other bad debt) from banks at pennies on the dollar.  He collects what he can.  I can go into detail of exactly how this is done and which law firm and collection agency he chooses to get which, etc., etc.  The important thing is that the risk cannot be minimized.

The national media has  recently run segments on strategic defaults, such as the piece in 60 Minutes.  Most of these reports emphasize the risk of rich people walking away from mortgages they can easily afford.   This makes for good news copy but in the real world there is a great deal of middle ground between the homeowner who is stuggling, or perhaps just lost his job, and the wealthy investor who is thumbing his nose at the bank while driving around in his Ferrarri.  Most folks are in between.  Maybe they are investors.  So?  It’s time to stop treating investors and second home owners like they are some sort of criminals, maintaining that we should only have empathy for the struggling primary homeowner.

The examples are endless.  I know of two doctors, husband and wife, that purchased several investment properties (no need to be ashamed -  investing is not against the law last time I looked), all of which were substantially underwater.  When I say “substantially” I mean that the value has decreased by some 80 to 90%.   Now, this is obviously not the norm.   These properties were in several of the now infamous Ginn golf resort developments  (which, unfortunately, I personally know only too well).  This crash in value is only partly attributable to the overheated Florida real estate market.  There is substantial evidence of appraisal fraud and all sorts of hanky-panky which are now the subject of several class action law suits and a criminal investigation.

We know the banking apologists will say they feel no sorrow for this Trump wannabe investor who should have known better, yadda, yadda.  But that misses the point.  These people have depleted their savings trying to pay the monthly bills and they are both working 16 hour days.  The banks still refuse to make a deal.  We have outlawed debtors prisons, last I checked.  You may not feel sorrow for this couple, but the simple fact is that the banks have left them no alternative but to strategically default and stop the bleeding (no pun intended for the doctors).  Should they deal with the possibility of a deficiency judgment?  Of course they should.  This is where a good foreclosure defense lawyer and asset protection attorney comes in.

I believe a strategic default is better than spending your retirement savings on a hopelessly upside down house. If you deplete your retirement money and savings funding a seriously upside down mortgage you will find yourself with no house and no retirement savings. After all your money is gone, and you need money to retire or for a financial emergency, I guarantee your mortgage lender will not be there to help you. Homeowners need to protect themselves first.  We can leave it up to our government to protect their mortgage lender.

For Alex Pemberton and Susan Reboyras, foreclosure is becoming a way of life — something they did not want but are in no hurry to get out of.   Foreclosure has allowed them to stabilize the family business. Go to Outback occasionally for a steak. Take their gas-guzzling airboat out for the weekend. Visit the Hard Rock Casino.   “Instead of the house dragging us down, it’s become a life raft,” said Mr. Pemberton, who stopped paying the mortgage on their house here last summer. “It’s really been a blessing.”

A growing number of the people whose homes are in foreclosure are refusing to slink away in shame. They are fashioning a sort of homemade mortgage modification, one that brings their payments all the way down to zero. They use the money they save to get back on their feet or just get by.

This type of modification does not beg for a lender’s permission but is delivered as an ultimatum: Force me out if you can. Any moral qualms are overshadowed by a conviction that the banks created the crisis by snookering homeowners with loans that got them in over their heads.

“I tried to explain my situation to the lender, but they wouldn’t help,” said Mr. Pemberton’s mother, Wendy Pemberton, herself in foreclosure on a small house a few blocks away from her son’s. She stopped paying her mortgage two years ago after a bout with lung cancer. “They’re all crooks.”

Foreclosure procedures have been initiated against 1.7 million of the nation’s households. The pace of resolving these problem loans is slow and getting slower because of legal challenges, foreclosure moratoriums, government pressure to offer modifications and the inability of the lenders to cope with so many souring mortgages.   While there are no firm figures on how many households are following the Pemberton-Reboyras path of passive resistance, real estate agents and other experts say the number of overextended borrowers taking the “free rent” approach is on the rise.

There is no question, though, that for some borrowers in default, foreclosure is only a theoretical threat for a long time.   More than 650,000 households had not paid in 18 months, LPS calculated earlier this year. With 19 percent of those homes, the lender had not even begun to take action to repossess the property — double the rate of a year earlier.

In some states, including California and Texas, lenders can pursue foreclosures outside of the courts. With the lender in control, the pace can be brisk. But in Florida, New York and 19 other states, judicial foreclosure is the rule, which slows the process substantially.

Mr. Pemberton and Ms. Reboyras decided to stop paying because their business, which restores attics that have been invaded by pests, was on the verge of failing. Scrambling to get by, their credit already shot, they had little to lose.      “We could pay the mortgage company way more than the house is worth and starve to death,” said Mr. Pemberton, 43. “Or we could pay ourselves so our business could sustain us and people who work for us over a long period of time. It may sound very horrible, but it comes down to a self-preservation thing.”    They used the $1,837 a month that they were not paying their lender to publicize A Plus Restorations, first with print ads, then local television. Word apparently got around, because the business is recovering.

The couple owe $280,000 on the house, where they live with Ms. Reboyras’s two daughters, their two dogs and a very round pet raccoon named Roxanne. The house is worth less than half that amount — which they say would be their starting point in future negotiations with their lender.   “If they took the house from us, that’s all they would end up getting for it anyway,” said Ms. Reboyras, 46.

It was a stupid move by their lender, according to Mr. Pemberton. “They went outside their own guidelines on debt to income,” he said. “And when they did, they put themselves in jeopardy.”   His mother, Wendy Pemberton, who has been cutting hair at the same barber shop for 30 years, has been in default since spring 2008. Mrs. Pemberton, 68, refinanced several times during the boom but says she benefited only once, when she got enough money for a new roof. The other times, she said, unscrupulous salesmen promised her lower rates but simply charged her high fees.

“The longer I’m in foreclosure, the better,” she said.   In Florida, the average property spends 518 days in foreclosure, second only to New York’s 561 days. Defense attorneys stress they can keep this number high. Many mortgages were sold by the original lender, a circumstance that homeowners’ lawyers try to exploit by asking them to prove they own the loan. In Mrs. Pemberton’s case, Mr. Stopa filed a motion to dismiss on March 17, 2009, and the case has not moved since then. He filed a similar motion in her son’s case last December.  

From the lenders’ standpoint, people who stay in their homes without paying the mortgage or actively trying to work out some other solution, like selling it, are “milking the process,” said Kyle Lundstedt, managing director of Lender Processing Service’s analytics group. LPS provides technology, services and data to the mortgage industry.

These “free riders” are “the unintended and unfortunate consequence” of lenders struggling to work out a solution, Mr. Lundstedt said. “These people are playing a dangerous game. There are processes in many states to go after folks who have substantial assets postforeclosure.”

But for borrowers like Jim Tsiogas, the benefits of not paying now outweigh any worries about the future.   I stopped paying in August 2008,” said Mr. Tsiogas, who is in foreclosure on his house and two rental properties. “I told the lady at the bank, ‘I can’t afford $2,500. I can only afford $1,300.’ ”

Mr. Tsiogas, who lives on the coast south of St. Petersburg, blames his lenders for being unwilling to help when the crash began and his properties needed shoring up.   Their attitude seems to have changed since he went into foreclosure. Now their letters say things like “we’re willing to work with you.” But Mr. Tsiogas feels little urge to respond.   “I need another year,” he said, “and I’m going to be pretty comfortable.”

If you’re among the millions of people who will not qualify for the Obama administration’s program to help troubled homeowners, you’re probably wondering what you’re supposed to do now.

Perhaps you no longer have enough income to pay your loans. Or you can afford the payments but don’t qualify for refinancing under the new plan because the value of your home is too far below the balance of the loan. If you’re far enough underwater, you’re probably questioning the wisdom of writing a monthly check on a place that may take 10 or 15 years to get back to the value it had two or three years ago. It isn’t easy to come up with the answer, and if you have moral misgivings about not making good on your mortgage, a religious officiant may offer as much useful guidance as a financial planner.

In an economic environment like this one, however, the consequences of giving up on your mortgage may not be as painful as they were a few years ago. Yes, it’s almost always preferable to negotiate a better deal on your existing mortgage than to walk away. But if you can’t work things out with your lender, you probably won’t be sued. You shouldn’t receive a major tax bill either. And the damage to your credit will not be permanent or insurmountable.

Let’s look at these last three in order.

YOUR LENDER First off, let’s define what we mean by “giving up” on your current mortgage. It may mean trying for a short sale, where the lender allows you to sell your home for less than the mortgage amount. You may also hand over the deed to the home in exchange for the lender agreeing not to start foreclosure proceedings (a “deed in lieu” in industry terms). Then, there’s foreclosure itself, and the possibility that bankruptcy judges may soon have the power to adjust the terms of primary mortgages.

That said, just because you’re ineligible under the Obama plan doesn’t mean that your lender or servicer won’t ultimately adjust your mortgage anyhow. Collectively, there are enough people in trouble or under water on their loans that they have plenty of leverage if they’re willing to play chicken with their lender and threaten to stop paying.

The problem is, the lender can play chicken, too, by threatening to come after you for the balance of any money you owe — whether it’s the difference between what you sell the property for yourself and the remaining mortgage, or the loan amount left over after the lender sells your property in foreclosure.

The lender may not follow through, though. “What our membership is telling us is that it can be cost-prohibitive to chase down a borrower who is already in financial distress,” said John Mechem, a spokesman for the Mortgage Bankers Association. “You can’t squeeze blood from a stone.” They may, however, still come after people with high incomes who walk away from jumbo loans that are way under water or loans on investment properties.

In fact, if you want to be sure your lender (or a collection agency that it may sell your loan to) won’t chase you down, it’s a good idea to have a lawyer involved with any short sale, deed in lieu or foreclosure itself. “You must get the bank to agree in writing that any deficiency is waived,” said Chip Parker, a lawyer specializing in foreclosure with Parker & DuFresne in Jacksonville, Fla.

The biggest challenge here may simply be finding someone at the bank to help. Having a second mortgage will also complicate matters.

YOUR TAXES You also need to consider the taxman. Often, forgiven debts are taxable as income. Recent legislative changes, however, eliminate the federal tax burden through 2012 on most primary residence debt that a lender has reduced through loan restructuring or forgiven during foreclosure.

Mark Luscombe, principal analyst for CCH, a tax information service, said that people who sell their home through a short sale or give up the deed in lieu of foreclosure can also qualify for tax relief if they use a special tax form, 1099-C, that reflects the amount of debt that the lender has forgiven.

YOUR CREDIT A short sale, deed in lieu or foreclosure itself will almost certainly damage your credit report and score, and the black mark will last for up to seven years. But the amount of damage it does will depend on how much other credit trouble you’ve gotten yourself into with other lenders.

If you’re giving up the home you own, you’ll probably need to rent soon afterward. Will landlords turn you away once they check your credit and discover your troubled mortgage? “If it’s the only thing marring their credit, it’s probably not a big issue,” said Clay Powell, the director of the Rental Property Owners Association of Michigan, who added that good tenants could be scarce in economic environments like this one.

In fact, Todd J. Zywicki, a law professor at George Mason University, predicted that FICO may have to adjust its credit scores to lessen the impact of a foreclosure or similar incident. “It just seems obvious that a foreclosure in 2008 or 2009 doesn’t have as much information value as a foreclosure five years ago,” he said. “To the extent that foreclosure doesn’t predict future behavior as much as it did in the past, you’d expect that the FICO algorithm would change to adjust for that.”

Craig Watts, a spokesman for FICO, said that was an interesting idea. “We try not to get involved too much in psychobabble around what is and isn’t predictive,” he said. “If the numbers show that foreclosure is less predictive, then we’ll take it into account in future redevelopments of the formula.” That would take a minimum of two to three years, though.

Some lenders aren’t waiting that long to initiate their own foreclosure destigmatization programs. The Golden 1, one of the nation’s largest credit unions, now has a mortgage repair loan for people who have lost a home to foreclosure but want to buy a new one.

It’s hard to imagine that there won’t be a parade of insurance companies, credit card issuers and mortgage lenders in Golden 1’s wake, even though Fannie Mae and Freddie Mac may be unwilling to guarantee the mortgages of such borrowers for several years. In fact, Aaron Bresko, the vice president of lending for BECU, another large credit union based in Washington State, is putting together a panel called “How to Lend to the Newly Credit Impaired” for a conference later this year.

“Good people have bad things happen to them, so how do you find those people and reach out to them?” he said. “As the year progresses, it’s going to be an emerging market.”