Dear Brooklyncyclone:

How do you know your home is only worth $425,000? Please get back to me on that.

In any case, the second mortgage is practically worthless to the bank that holds it and usually they will agree to accept pennies on the dollar because it is better than getting nothing which is probably what they would get if the first mortgage holder was to foreclose.

You would negotiate a short sale with both banks simultaneously. If you need assistance, I know a great lawyer that specializes in this stuff who could help you.

Aside from that, Margaret's answer below is also very insightful!

If I can be of further assistance, please contact me.

Sincerely,
Mitchell S. Feldman
Associate Broker/ Director of Sales
Madison Estates & Properties, Inc.
Office: (718) 645-1665
Email: MitchellSFeldman@aol.com
Web Site: http://www.MitchellFeldman.com and http://www.MadisonEstates.com

It depends whether this is your home or an investment property. A short sale always works if the net to the lender is higher in a short sale vs a forclosure. You may be asked to sign a promissory note. A short sale in most instances nets the lender more. Best to consult with a bankruptcy attorney who will explain to you all the options you have available not just BK. You also need the advice of your CPA for possible taxes due on the forgiven debt if this is not your personal home.