Does it ever make sense to let the bank take back a piece of property?

If the bank forecloses and liquidates it, you will still owe the outstanding loan amount minus what they sell the land for.

You made a leveraged investment and lost money. You borrowed money to invest, and the investment decreased in value, so you lost money that you don't even have.

The money you paid is what is called sunk cost. Nobody cares what you paid for the land (the bank cares about how much you borrowed, though). You have a very large loan. From an financial sense, it doesn't matter why you have that loan. You have a peice of property that you can buy for cheap (1/5 of what it was at the market peak). Would you buy it? If so, keep the land. If not, you can't actually sell it but you can let the bank foreclose. Considering the costs of foreclosure, keeping the land is probably your best option. If you thought it was a good investment at five times the price, you must think it is good now.

Though the market is depressed right now, one thing is certain, they are not ever going to make more land. It could be that you grossly over-paid for the lot, but even that, if you can afford to hold it, the value will eventually return. If you are in a bind with it, list it at an inflated price and give yourself bargaining power. Land price will always turn around eventually.

I am no expert and would not want to mislead you, but this is what I do in like situations.

Most likely, yes. Be prepared for your credit to take a big hit though. You may qualify for a mortgage again in a couple of years, but it will be 10 years before you are able to get a premium interest rate on anything.