Looking at longer-than-long-term solutions

Some problems take longer to resolve than anyone wants them to, and some can be resolved only by taking a step or two backward before making any progress. Even when you can't solve your problem or just can't stand it anymore, you still want to stay in control of the process. Doing so can lessen damage and expenses and keep your dignity - and maybe your sanity - intact.

Following are some of the many options available. And don't forget that you may have newer options as well. Be sure to check out the resources men- tioned in the section "Other available help", earlier in this chapter. Sell your home: You may be able to sell your home in a short sale if you have no equity left, or in a pre-foreclosure sale if the value of the house still exceeds the remainder of the mortgage.

· Short sale: In a short sale, you ask your lender for permission to sell your home for less than the mortgage value, and the lender uses a real estate agent to sell the home. The lender may allow a sale for an amount lower than the total debt. A short sale is gener- ally cheaper for the bank and less stressful for the homeowner than a foreclosure. Because this solution is good for the investor, you can negotiate a bit. Ask that the loan deficiency be reported to the credit bureau as a zero balance instead of a charge-off.

Congress has passed a law called the Mortgage Forgiveness Debt Relief Act that affects how a principal residence foreclosure is handled for tax purposes. It exempts up to $2 million of forgiven mortgage debt, subject to certain conditions, from federal taxes. Normally, you would have to pay income tax on that amount. We suggest that you check to see whether you have state taxes due, because they aren't covered in this federal law.

· Pre-foreclosure sale: A pre-foreclosure sale arrangement allows you to defer mortgage payments that you can't afford while you sell your house. This solution also keeps late payments off your credit report.

Deed-in-lieu of property sale or foreclosure: This option is becoming more popular. It requires listing your home with a real estate agent. If the home can't be sold, you sign over the home's title to the lender and move out. Usually, to qualify for this option, you can't have a second mortgage, an equity loan, or another lien on the property.