When to walk away from your home

Ball and chain attached to man's legs

No one wants to lose their home to foreclosure.

We have an emotional attachment to where we live. It only takes a few birthdays and holidays, family reunions and graduations to create memories that last a lifetime. One we hear a lot: "This is the only home my child has ever known."

But it's also an investment -- an increasingly bad investment -- for millions of Americans who can no longer afford their mortgages, whose homes are worth less than they owe, or both.

Given the depth of the recession and the steep decline of the housing market, it's not a huge surprise that almost one out of every four mortgages is underwater.

Could it be time to accept the inevitable, cut your losses and walk away?

Here are eight reasons why it might make financial sense to stop making the payments and allow the bank to repossess your home.

The more reasons that apply to you, the stronger the case for making what's called a strategic default and begin rebuilding your personal and financial life.

Reason 1. You can't modify your mortgage.

Between 2004 and early 2007, banks and mortgage companies systematically pushed borrowers into adjustable-rate loans with such onerous terms that they were almost impossible to repay.

The lenders didn't care because they collected big fees for originating the loans and sold the debt to investors who didn't seem to know or care what they were buying.

Lenders have been flooded with requests to reduce the interest rate or forgive some of the debt to the point where families can afford the payments and save their homes.

But after months of negotiations, most borrowers are offered deals that don't significantly reduce their payments.

Reason 2. You can't get a few payments pushed back.

If you've lost your job and don't have the money to keep up with your mortgage payments, you must ask your bank or mortgage company for forbearance.

That's where the lender allows you to make partial or no payments for up to six months with the understanding that you'll have to make up the difference later, when you've found a new job and are back on your feet.

But as with modifications, lenders often come back with terms that aren't generous enough to see you through your financial crisis.

Reason 3. You have little or no equity in the home.

Equity is the difference between what you owe on your mortgage -- or mortgages, if you have more than one -- and how much your house is worth.

Most homeowners who have little or no equity put little or no money down when they purchased their home or took cash out through home-equity loans or refinancings.

When home prices fell, many of those property owners found they were underwater, owing thousands of dollars more on their mortgages than their homes are worth.

That makes it virtually impossible to refinance or sell your home without coming up with a lot of cash. It could take years for homes to recover the value they've lost during the financial crisis and recession.

Reason 4. You're draining your retirement funds.

Depending on money from your IRA or 401(k) accounts to keep up with your mortgage is a bad idea.

When those savings are gone, your financial future is in jeopardy and you could still lose your home.

The only exception is when you're dealing with a temporary financial crisis.

If you or your spouse can't work because of an illness or family emergency that will resolve itself over a few weeks or months, do whatever you can to keep up with your mortgage, even if it means tapping your retirement savings.

But if the payments have soared beyond your regular income, don't waste your retirement savings to postpone the inevitable.

Reason 5. You're falling behind on other bills.

Foreclosure will wreck your credit score. But so will missing payments on your student loans, credit cards and utility bills.

In fact, having lots of black marks on your credit report could do more damage than a single foreclosure. And if you don't pay lots of other bills and still wind up defaulting on your mortgage, that's the worst of all worlds.

Reason 6. The tax man is calling.

In some states, lenders are allowed to sue borrowers for any costs or losses incurred in repossessing the home.

Banks and mortgage companies usually don't do that, however, because former owners have very few assets they can seize, even if they win.

But if you owe back taxes to the federal government, the Internal Revenue Service will pursue you to the grave, no matter how little you have.

It will go to all sorts of extremes, including garnishing your wages, and a black mark from the IRS can prevent you from getting a job.

So, if you have to choose between paying your mortgage and paying the IRS, Washington wins.

Reason 7. You're about to go bankrupt.

While foreclosure will wreck your credit, it won't do as much damage as filing for bankruptcy. If dumping your mortgage will keep you out of court, foreclosure is the better option.

And remember, bankruptcy can't wipe out mortgage debt. (Here's where to learn more about bankruptcy and foreclosure.)

Reason 8. You're suicidal.

No, we're not being overdramatic.

Debt is a psychological issue, and analysts, creditors, credit counselors and advisers report that they're always meeting people who are incredibly depressed about their financial situations to the point where suicide seems an option.

Yes, a home is a big investment, but it's not worth losing your life over. If the threat of losing your house is keeping you up at night -- or leading your thoughts down a dark path -- get help right away.

After reading this, if you think foreclosure is the right way to go, there's one more thing you should do before abandoning your home.

Get the opinion of a reputable credit counselor.

We recommend a member of the National Foundation for Credit Counseling, the nation's biggest and oldest credit-counseling organization.

Its 120 agencies abide by a set of professional and ethical standards that have served many individuals and families very well over the past 50 years.

Here's where to find a credit counselor in your area.

The fees will be modest and their experienced credit counselors, who negotiate mortgage restructurings and debt repayment plans every day, will know if things are really as bleak as you think.