I didn't see anywhere in the article how having an inflated appraisal causes the homeowner to quit paying on the mortgage.
Are mortgage companies demanding the difference be paid immediately based on independent audits or something?
In my reading of the situation, I can see what may be a mitigating factor. The new owner was REQUIRED by the terms of the purchase agreement to add landscaping that was not in place at the time of purchase.
It would not be unreasonable for the buyer to rely on a certified appraiser to assure him that he would still have equity in the home after making the improvements.
As time went on, the nature of the fraud would become apparent and the entire neighborhood, instead of becoming the landscaped community expected, would be filled with vacant, un-landscaped, foreclosed homes with no buyers.
The defrauded buyer now has to choose from several unappetizing options. None of those options will prevent the buyer from owing $50k or so more than the value of the property. In fact, the purchase contract obligates the buyer to do the least economically attractive option, which is to throw good money after bad by landscaping a property with every expectation that the additional expense will be a loss.
I was involved in a situation in which it appeared that a fraudulent transaction had previously taken place. In my case, the previous buyer appeared to have been in the know and ended up taking part of the loss.
In the posted situation, if the buyer was innocent (though perhaps ignorant) he shouldn't be expected to purchase a home whose value was appraised fraudulently.