Q: I am recently divorced. My ex-husband and I still own a home, which we are trying to sell. The house has been on the market for 18 months. My ex says he can't afford to keep paying the mortgage, and neither can I. We have no other options besides a short sale or foreclosure, but I don't want to ruin my credit. I have no savings and no family to help me. What should I do?
A: I appreciate how hard it is to contemplate a short sale or foreclosure, but it's also important to face reality and do what is right for you over the long term. If that means losing the house, then that's what needs to happen. But before we get there, I want you to contact your lender and see if there is any chance you may be eligible for a "mortgage modification" to reduce your current payment. Many lenders are now willing to help borrowers stay in their homes by reducing interest rates, extending the number of years left on the loan, or possibly reducing the amount of money that they owe. Modifications are not easy to score, due to a variety of market and administrative issues. But I recommend that you try. (I also encourage you to check out the 2009 Action Plan section of my website, SuzeOrman.com, for any updates on federal assistance for mortgage modification programs. As I write this in late November, federal programs have been limited at best, but that may change with the arrival of a new administration.) Another option is to take in a boarder to cover some costs.
If you can't work out a modification that makes the payment affordable, then it is time to let go of the house. Be strong. The sooner you make the decision, the sooner you can begin to move forward. It is true that a foreclosure or short sale stays on your credit report for seven years, but that doesn't mean you are doomed. With each passing year, its impact on your credit score lessens as it's given less weight in calculating your creditworthiness. You have a long life ahead of you; get past the challenges of today, and you'll be closer to reaching the happiness you deserve. I know you can do it.