Short Sale a Property to Myself

Greetings BP Family,

Thinking out loud here and would like your feedback.

My buddy brought his 1st home in Dec '07. We all know what happened to the market after that. He purchased for 165k and has paid on time since then. Current value is approximately 65k in it's current condition. My question is could my buddy negotiate a short sale w/himself as the end buyer? He would have to miss a few payments before considering this. Arbitrarily, how many do you think he would need to miss for the bank to consider a short sale? Will the bank ask for proof of hardship? He has the 65k in cash but he doesn't think it makes sense to pay this mortgage payment every month for a house that is worth less than 50% what he purchased it for. Is this feasible guys? Have you all done it? Do you know someone that has done it? Should he just walk away from it and let it go into short sale/foreclosure? If bank is smart they will know that they will lose more money by going through with foreclosure versus shorting it to him, no? Will bank modify a loan this drastically if one can prove severe hardship?

Thanks in advance.

Sincerely,

Eric H.