Hang Tight -- It Can't Be This Bad Forever

What are you thinking? Your life in New Jersey must be pretty horrific if you're willing to file for bankruptcy just to get back to Florida.

You have excellent credit -- now. Unfortunately, going through a short sale or filing for bankruptcy protection would severely hurt your credit, and you could expect your credit score to drop several hundred points.

A short sale is where you sell your home for less than the amount you owe on it to your lenders. Both of your mortgage lenders would have agree to take less than the full amount that is owed in exchange to allow the sale to go forward.

When a home has two lenders, the second lender is in a position to lose all of the value of its loan. In some cases, the second lender may not even respond to the request for a short sale, with the hope that it may get something later rather than agree to get nothing now.

If either lender fails to agree to the short sale, your sale with a prospective buyer will fall through. Make sure you are in good contact with each lender if you choose this route. If you have a good line of communication with each lender and each lender works with you in the short sale, you have a better chance of selling the property.

You mentioned filing for bankruptcy protection as another option. Bankruptcy will certainly hurt your credit history -- if you even qualify. Your excellent credit would be shot for years, and you would have to take steps over the next several years to restore it.

With a lower score, you may find that you will have to pay more for car and renters insurance, and it may be much more difficult to obtain credit cards with low interest rates.

Just because you file for bankruptcy may not mean you're out of the woods with your lenders. If you have other assets, you may find that your lenders want a piece of them. If you have savings that are not in retirement accounts, you may lose them. If you sat down with a bankruptcy lawyer, you should have gone through what you own, what you have in savings and what you owe to come up with a picture of where you would end up after the bankruptcy.

You do have another option: Sell your home and fund the shortage from savings. For example, if you sell the home for $60,000 less than you owe to the bank but can scrape together $60,000 from your savings, retirement accounts (you may have to pay taxes and a penalty on that cash), and family or friends, you can close on the property and move on.

For many people, coming up with that kind of money is prohibitive, but for others, it gives an option to move on without affecting their credit.

It may be too late, given the other commitments you've made, but if you could hold off moving back to Florida for a few years, you might find that the real estate market is much better. You might find that you're able to sell your home for what you owe and then move south without taking a hit on your credit score.

If you feel as though you can't live without whatever is waiting for you in Florida, then move and suffer the financial consequences. But from what you've described, it sounds like you're sticking a dagger through your wallet.

Ilyce R. Glink is an author and nationally syndicated columnist. Her latest book is "100 Questions Every First-Time Home Buyer Should Ask." Samuel J. Tamkin is a real estate lawyer in Chicago. If you have questions for them, write Real Estate Matters Syndicate, P.O. Box 366, Glencoe, Ill. 60022, or contact them through Glink's Web sites, http://www.thinkglink.com and http://www.expertrealestatetips.net.

© 2008 Ilyce R. Glink and Samuel J. Tamkin

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