The first thing you need to do is get on the phone to both of your mortgage companies. Let them know your circumstances and that the upcoming adjustment to your mortgage will put it out of your reach. See if they will freeze your rates so that you can afford to stay in your home. If they won't then you need to contact the Loss Mitigation department and ask for their short sale package. Read all of the instructions on what they require and get your documents in order. Talk to an attorney about what might happen if the 2nd lien holder decides not to cooperate with the short sale. Hopefully you will find your mortgage company to be helpful. It is cheaper for them to work with you than it is to foreclose on your home.

Tue Apr 22 2008, 18:24

Anne, I'm sorry that you are caught in this situation. Talk to both lenders and they may could work out a situation where the mortgage will not increase in August. They all realize the situation in your area. An attorney could also help negotiate this change in mortgage agreement.

Also, sometimes in a short sale, you can talk to the 2nd mortgage company (in addition to the first), and get them to realize that there will be no money for them either through the sale or through bankruptcy. Occasionally, the first lender will take a little less to allow the 2nd lender to have a little because they both realize this is a no win situation. Bankruptcy will force a foreclosure and sale in which case both lenders will likely get less entirely. The 2nd lender is definitely the least secured.

Lastly, have you considered an auction in your area? Auctions are unique in that they reverse the supply and demand economics of real estate -- i.e. this is the only house currently on the auction block today... Sometimes, auctions will get more than market value. In our area, these are also sold "as is" with no required repairs, and the seller can reject any offers that do not meet the reserve amount or are not sufficient. I don't know that they can improve your market dynamics and get you to $346, but they might could net a little more than the first mortgage -- especially if your home is in great shape. Additionally, auctioneers like to auction off personal items as well... And, if in the end, bankruptcy becomes the final solution, carefully research and interview bankruptcy attorneys. They are not all created equal. You want someone who definitely specializes in bankruptcy, not a general practitioner who occasionally does a bankruptcy in the course of practice. And, bankruptcy although painful, does not carry the stigma it once did. Best wishes.

Tue Apr 22 2008, 08:19

Hi Anne,

There are (almost) always alternatives to Bankruptcy. You would be well advised to speak with a Tax Planning Specialist (CPA) that is well versed in Real Estate Rules for your area. The regulations changed in December for Short Sales with the passage of the Mortgage Forgiveness Debt Relief Act of 2007. I've added a link for more information for you.
Also, if you can speak with your Banks to modify the terms of your note, that could be a good option too. Check with the HOPE NOW ALLIANCE (http://www.hopenow.com/) you can speak with a counselor that might be able to provide you direction about how to speak with your lender.
I hope this helps - and Good Luck!

Tue Apr 22 2008, 08:14