I disagree with a couple of related premises -- (1) that "business decisions" should made differently than other decisions and (2) that contracts lack any moral component.  By throwing words like money, investment, collateral, and "big banks" into the mix we are able to classify this as a "business decision" and then divorce the decision and its consequences from their undeniable, non-monetary characteristics.  Why is this separation permissible?  I fully understand that the breaching of a contract is legal.  But, I don't think that legality can be an absolute surrogate for morality.  In other words, just because it's "legal" that doesn't mean it's necessarily "right."  The marriage contract highlights this point as well as any contract I can come up with after thinking about it for a few seconds.  Divorce, while fully legal, is jam-packed with morality concerns (and economic ones, to be sure).  Ask any divorced person.  Comparing a loan agreement to a marriage agreement is not a good comparison?  I'm not convinced comparing the loan to a stock investment is any better.  When you buy a stock, you are not promising to hold it for any length of time.  You are simply promising to pay a certain price for it.  Your broker promises to deliver it at that price.  That's the essence of the agreement; deciding to sell the stock at a later time is a wholly separate concern.  So, the sell-the-$250k-stock-analogy is unhelpful to me on the question of whether I should stop making the mortgage payment I promised to make.

What if the mortgage holder was a 90 year old widow who relied on the monthly mortgage payments to cover her monthly health care needs?  Is breaking the promise still void of any moral implications?  I understand that "banks are different."  They have a bajillion dollars and it's okay to screw anybody that can absorb the damage so easily.  But are the underlying agreements and promises any different?  The elderly Mrs. Johnson received the same promises and security that Big Bank did.  So, if there is any greater pause on withholding payment to Mrs. Johnson, it's not because of the "business" nature of the decision.

My point is not that short sales are moral or immoral.  The point is that they do--no matter who the players are or what the dollar amounts are--have a moral component.  And the question of what a person "ought to do" can only really be answered by that person.  So, I think the real estate professional's role is to be an expert and provide the information homeowners/obligors/borrowers/HUMANS need to make the decision.  Not to convince anyone of whether or not they ought to break (or modify) a promise that they made to someone else.

(I could write an entire article about this... good job out of you Dean in addressing this important question.)

I would have problems with a Buy & Bail Strategy but Fannie Mae guidelines now require buyers to qualify for mortgages on both homes at loan inception, unless the existing home has plenty of equity. That's because a home owner with plenty of equity would be foolish to walk away from it.

You must be a very creative financier to walk away form your home and buy another on credit..... unless, of course, you call the original an investment property, and purchase the other one immediately before you walk away from the original. If ou wait until after you've defaulted on your mortgage, 3.75% is probably not in you future.

Does selling your home short hamper your ability to get approved for another mortgage, keeping you from taking advantage of the low rates and property values?

The moral obligation flew out the window with TARP. Not to mention the promises our federal government has made and will not be able to perform on. Short sales a moral hazard for homeowners? Nope.

A mortgage is a contract, and it has rights, responsibilities, and remedies, just like a real estate purchase contract.  When a lender makes a business decision to accept/approve a short sale, they typically will not do so without a lot of documentation and disclosure from the seller.  It's a business decision based on the facts and circumstances they, and the homeowner, are faced with.

Most of the news around is that short sales are a bad thing and that many people who are anticipating a short sale to become and option on a property they have been watching which is not selling, are in fact damaging the market. It has been predicted that an increasing percentage of potential homeowners will hold off buying just so they get the opportunity to buy through a short sale. This article looks as short sales as simply another option in the cycle and in many ways can be a positive thing as it may mean houses selling and people buying who otherwise wouldn't have been able to.

Ha! The Emperor has no clothes! 

I think homeowners have surely "evolved" on this issue, particularly as they've seen a number of others on their block (plus some family, friends, coworkers, etc.) overcome any moral hesitation they had.  Of course, Realtors have also been instrumental in convincing people that this is just business.  What you should have mentioned in more detail, though, is the credit hit that people must consider.  The credit hit seems insignificant compared to how much people are upside down, but it will become more significant as people become will be less upside down as home prices increase, and it seems as if people might have to play the opportunity costs of a short sale for some time.  Also, your stock analogy would be better if that $400,000 in stock was bought with mortgage-like debt.

I usually finish up this conversation (which yes, is EXACTLY the one I have every time, and not because I learned it in Realtor school, because it's the conclusion I also came to after thinking the whole thing through) with this, "I believe you have a moral obligation to make the best financial choices for your family in long run. But a moral obligation to choose one option over another available one in a contract you signed? Uh, no. The bank didn't loan you the money out of moral obligation either. They bet on making a lot of money off of you in interest."