I just learned something that's completely logical but still incredibly funny. Here's the set-up: you buy a house for $200,000, but its value drops to $150,000 as the housing bubble bursts. Your variable interest rate mortgage payments continue to grow making your house unaffordable, so you default. The bank takes your house and writes off the $50,000 you still owe them. The punchline? The $50,000 that the bank writes off counts as taxable income for you! Have fun paying your top marginal rate on $50,000, Mr. Homeless!