NEVER walk away. This will hurt your credit much more with a foreclosure on your record. You can work with your lender by going for a short sale. Basically, you would sell your home and the proceeds for the home will not be able to pay the loan. Then, if your mortgage company oks it, the balance of the loan can be "forgiven" or dropped and it would be given to you as "income" and you would get a 1099-MISC at the end of the year for it. Then you just need to worry about paying the taxes on the balance instead of owing the whole balance to the lender. But this greatly depends on who you are working with.

Also, if someone has recently lost their job in the family, you may be able to get assistance. Mind, this requires getting yet another loan, but it can help IF the situation is temporary. Just get in touch with the Pennsylvania Housing Finance Agency (PHFA). They have a program called the Homeowner's Emergency Mortgage Assistance Program (HEMAP) which may be able to provide assistance. Their number is 1.800.342.2397 and the website is http://www.phfa.org .

If your only recourse is to sell your home as a short sale, find an agent who KNOWS the right people to get with at your lender. And as a clue, it's not the person in the collections department. Do not go with someone who just says they know. If you get a offer in a short sale situation, you don't want to wait for several weeks or months before the bank gets off their butt to respond. You and the prospective buyer would want an answer within a few weeks.

Hope that helps,

Terrence Charest, e-Pro