In 1994 I was visiting friends in Orange County California and they were experiencing some real estate woes of their own. At the time Orange County was heading into bankruptcy, the real estate values were plunging much as they are now. Peoples position at the time was similar to that of so many I see today "If the property's not worth what I owe, why should I make the payments".

Two years prior to my visit, my friends were doing well for themselves financially. They owned a beautiful new home they had spent 800k building, and had purchased an enormous commercial building for 2 million for their furniture store (putting 50% cash down).

Now that the market had taken a dive, the commercial property was worth about 800k, which was more than they owed (his million dollar down payment was gone) and their home was also worth far less than they owed. Their strategy was exactly the same as so many are employing today, dump it on the bank. They rationalized that they could lease nicer properties for far less money, and after all, why pay for something that's worth less than what's owed?

They followed through on their idea and walked away from both properties, taking the loss and the hit to their credit. They indeed were able to lease a home and commercial building for thousands less than they were currently putting out in loan payments. In the little picture, they made money with their decision.

I haven't stayed in contact with those old friends from California since moving to the Northwest, but I couldn't help but wonder how they felt 10 years later when California's property values soared to insane heights, and those properties they dumped on the lender were worth millions. I was too polite to call and ask.

Now here we are again; prices dropping, and people walking. Obviously many homeowners simply don't have the funds to continue making the payments, so they have no choice but default. However, rest assured, there are undoubtedly those that can make the payments and will simply walk away because it seems like a sensible thing to do at the moment.

There will be a time in the not-so-distant future when prices soar again, and the people that will reap the rewards will be the farsighted investors grabbing up all the properties owners decided were worthless. If you think people are mad now, wait until the day they see the house they walked away from sell for 3 times the amount of debt they owed.

Someone will make a killing, but it won't be the walkers.