They get a huge tax write off as a loss as well. 

I do not have any idea how big your existing contract is and how much may be in dispute, but making sure what your rights and liabilities are now will help you know when to haggle over money and when to write a check and take your losses. 

Maybe a real high end unit (on the beach for example) may be different.You need to determine if the appreciation will be able to offset the losses to make it worth it. 

Therefore, the bank will work with you on a short sale or other loss mitigation and tell their attorney to pursue the foreclosure as well.

I'd also remove that geometric rug I see in some pictures.The shades are unlevel in several pictures.

So at $125k you're limited to $12,500 loss.

So I am completely at a loss on how to properly calculate the profit/ loss.  

Performing: the borrower is paying (typically for 12+ months)Nonperforming: the borrower hasn't paid for several months/years (you need to make them restart paying or foreclose)Reperforming: the note was non performing but as a result of loss mitigation efforts the borrower restarts payingPpr sells reperforming notes where the borrower has restarted making payments for like 3-4 months.

@Chris PurcellMake it cash flow all night as well in order to compensate for the real loss in property value as explained by  @Russell Brazil  , should you have a zero appreciation property.

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