As has been suggested … when they can’t afford them anymore.
Just to help the conversation along here, this is my 3rd home. The first was a dump that cost around $75K. The second was better and cost $125K. The third is what I’m currently living in now and cost $250K.
Did I jump into the McMansion for 3/4’s of a million bucks for my first home? Shit no. Why? Because I knew I couldn’t afford it if something went sour. That’s also the reason we were able to live off our savings. We saved some and paid some off our mortgage.
The type of people that you seem to be defending are the ones who will crank up their debt to their maximum and if one things goes wrong, the whole house of cards will come tumbling down.
Expensive car, expensive house, expensive trips, electronics equipment, private schooling, personal fitness instructor, whatever these people seemed to need $40K a year to get by on, is obviously too much for them to cope with when their circumstances change.
Sell the car and buy a bomb (loss maker, but hey, may reduce your debt). Sell the house and move into something else. Maybe they can’t because without work no-one will rent anything to them or the bank won’t refinance. That’s a tough situation.
Even if the bank forecloses on them, they still get any profit they make from selling the property. The bank doesn’t get to keep everything, they only get to keep what they’re owed.
If they have so little equity in their home then maybe, just maybe, they haven’t been planning well or hoped that nothing would go wrong.
Well, something did and I don’t think it fair to bankrupt their way out of it.
Would I have really sold my house if I couldn’t find work. Yes. Easy to say, hard to do, but we invested a bunch of time in finding out what we owed, what we could get and what we would have left over. So it was a serious consideration, not just a throwaway line.