There is a non-zero chance—-very unlikely: it would require a 50%-60% decrease in housing prices—-that they could lose the backyard without making income. The weighted probability might lower the Expected Value 1k. That said, foreclosure would still be beholden to the profit split agreement should the lot be profitable.
As house prices drop, more people will try to buy full-sized single family homes and the least desirable houses fall faster. You could get a 10% drop in house prices, but these split lot houses could fall 50% or more, just like condo prices.
This happened during the housing crash of 2009. I know first hand, my own condo dropped by more than 50%, which I did a strategic default on.
