Answer: There’s a lot of finger-pointing going on right now about why more mortgage modifications aren’t being done, but few would argue that lenders are doing a terrible job of communicating with their customers. You might want to consider enlisting the help of a housing counselor approved by the Department of Housing and Urban Development in your quest. The counselors’ services are free or low cost, and you can get referrals at http://www.hud.gov. Good luck.

We paid the minimum monthly payment required, which didn’t cover all the interest owed, so that amount was added to our mortgage balance. Like others, we have experienced the nightmare of the current housing market, and with the negative amortization adding on even more debt, we are severely underwater.

We’ve worked with two companies trying to get a workable loan modification but to no avail. The bank is not cooperating at all.

A lawyer I consulted is advising us not to pay at all going forward, saying that the upside-down home isn’t worth saving or worth the grief. She told us to put our payment amounts into savings so that we have something to live on after we have to leave the home, which I so far have been able to do. But I’m worried about the potential fallout.

Would we be required to pay taxes on the remaining balance we owe after a foreclosure? If we can’t afford to pay the taxes on $200,000 of untaxed income (that we really didn’t earn), what do we do then? Does bankruptcy help with that?

Answer: When a lender cancels or “forgives” debt, it typically sends you a Form 1099 for the amount of forgiven debt. This amount usually must be included as income on your tax return. But there’s a big exception when it comes to mortgage debt secured by your primary residence.

The Mortgage Forgiveness Debt Relief Act of 2007 generally allows you to exclude from your income the debt that’s left over after a foreclosure. The law applies for the calendar years 2007 through 2012.

You can find more information about the act in IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments, as well as in IRS news release IR-2008-17.

In some cases, lenders aren’t content to write off the excess debt and instead decide to pursue homeowners after foreclosure for the remaining balance owed. You may be protected by state law from such a lawsuit (as homeowners in California typically are), but you’ll want to discuss this possibility with your attorney. If you are hit with such a lawsuit, you may need to consider filing for bankruptcy.

Answer: Talk to a housing counselor approved by the Department of Housing and Urban Development about your situation, including the rental property. (You can get a referral to this free or low-cost help at http://www.hud.gov.)

You don’t need the financial drag of this property adding to your woes. Ideally you’d be able to slash the price for a quick sale, or if you owe more than the property is worth, to arrange for a short sale. That’s when the lender agrees to accept the proceeds of the sale in lieu of the larger amount you owe. Otherwise, you may need to let the property go into foreclosure.

You may not be able to save your primary residence either. If you don’t have any income, you’re unlikely to get a refinance or a modification, but the HUD counselor can apprise you of your options. If you have any equity in the property, it probably makes sense to sell it while you can rather than let the bank take over and lose a small fortune in foreclosure-related fees. For more information, read attorney Stephen Elias’ book, “The Foreclosure Survival Guide.”

If you’re hyperventilating over the latest market gyrations, read Ron Lieber’s latest post at the New York Times’ Bucks Blog: “People who should sell stocks now.”

Finally, check out “Never dumpster dive for plastic containers” at Donna Freedman’s Surviving and Thriving blog. Donna and I have both lost family members to colon cancer, so I hope you’ll take to heart the serious message wrapped inside Donna’s usual loopy humor.

Answer: Lenders have different policies on short sales, which is when they agree to let a borrower sell a home for less than what is owed on the mortgage. You’ll need to talk to yours about what’s required. But expect your credit scores to take a major hit, whether or not you stop payments first.

A short sale typically will have exactly the same impact on your credit scores as a foreclosure, according to Fair Isaac, the company that created the leading credit scoring formula, the FICO. Fair Isaac recently released a chart showing the effects of various credit score blows, from a missed mortgage payment to a foreclosure or a short sale with a deficiency balance (which is the difference between the home sale proceeds and what you owe). Someone with FICO scores in the 780 range would lose 90 to 110 points with a single skipped payment. A short sale or foreclosure would trim 140 to 160 points from that 780 score. (You can see the charts at Fair Isaac’s Banking Analytics Blog, http://tinyurl.com/3eze2a5.) Your score will plummet that far whether or not you stop making payments before the foreclosure or short sale.

You might be able to reduce the damage from a short sale if you can convince the lender not to report the deficiency balance to the credit bureaus. Short sales without a reported deficiency balance would trim 105 to 125 points from a 780 score, according to Fair Isaac. But lenders who’ve been cajoled into a short sale often aren’t in the mood to grant you additional favors.

There are some advantages to a short sale over a foreclosure. One is that you can start the long road to credit recovery sooner, since foreclosures usually take much longer than short sales. The other bit of good news: you can qualify for another mortgage faster. Lenders typically will consider you for a home loan two years after a short sale, versus a wait of up to seven years if you let the current lender foreclose.

Answer: The creators of the leading FICO score haven’t revealed enough about how the formula works to predict precisely how a short sale would affect your scores. But the company has said the affects of a short sale are similar to that of a foreclosure, which would cause someone with a 780 score on the 300-to-850 FICO scale to lose 140 to 160 points. People with higher scores tend to lose more points to a black mark than people with lower scores, so you can pretty much assume that your scores will drop from excellent to near-subprime territory for a while.

Exactly how long your score will take to recover is another mystery, although you’ll start to see gradual improvements if you handle your other credit accounts responsibly. Your scores could climb back into “good” territory (over 700) within a couple of years, but you may not regain your lofty peak until the short sale falls off your credit reports in seven years.

You also should be cautious about any agreement you sign with your lender. Some short sale agreements don’t address what happens to the unpaid debt, while others specifically keep you on the hook for any deficiency balance (the difference between what you owe and the price the home fetches). Ideally, you would want this debt to be forgiven (although you may owe taxes on the forgiven debt). Otherwise, the lender could sue you and cause further financial and credit score problems.

If a short sale is indeed your best option — you can’t rent the place for what it costs you to own it, and simply wait for prices to rebound — you’d be smart to get experienced legal help.

Answer: The leading credit scoring formula, the FICO, typically treats a short sale about the same as a foreclosure, said Craig Watts, spokesman for the company that created the score, which is also known as FICO.

Where a short sale is better is when it comes to getting your next mortgage. If you suffer a foreclosure, lenders typically put you in a kind of “penalty box” that makes it tougher to get another mortgage for up to seven years. That period is typically shortened to two or three years with a short sale.

Interested but cautious, I called the toll-free number and spoke to an actual person who said the company represents homeowners in pre-foreclosure. They try to match qualified renters (there was an income requirement, but no credit check) with struggling homeowners in a win-win situation: Renters get into desirable properties, paying “rent” directly to mortgage companies, and homeowners avoid foreclosure.

This matchmaking arrangement sounds logical and appealing for both parties. However, something that sounds too good to be true usually is. Still, I can’t help but wonder whether there is a shred of legitimacy to such arrangements. If so, where can I find credible information and legitimate opportunities to help a struggling family while benefiting my own?

Answer: Think this one through a little more. Why would anyone — homeowner or “rescue” company — leave money on the table by charging below-market rents on desirable properties and to people of uncertain creditworthiness? Out of the goodness of their hearts? That’s a stretch.

Just because an ad appears on a reputable website does not mean the advertiser is a reputable business. A common scam these days is for con artists to promise homeowners salvation from foreclosure by taking over their mortgage. The scammers rent out the house but simply pocket the rent payments. The home goes into foreclosure, the renters get evicted and no one wins but the bad guys.

You can read more about foreclosure scams at the Federal Trade Commission website.

Answer: Don’t panic just yet.

Normally when a lender cancels or forgives debt, you have to include the forgiven amount in your income for tax purposes, which can result in a whopping tax bill.

But the federal Mortgage Forgiveness Debt Relief Act of 2007 provides an exception for homeowners who lose a home to foreclosure, sell it for less than they owe in a short sale or have their debt reduced through a mortgage modification.

You still have to report the forgiven debt on IRS Form 982, but it’s typically not included in your income for federal tax purposes if:

• The home was your primary residence (second homes, vacation property and rentals don’t qualify).
• The forgiven debt was $2 million or less ($1 million for a married person filing separately).
• The debt was forgiven in calendar years 2007 through 2012.

For more information, visit the IRS’ website at http://tinyurl.com/5pe43f. Details can also be found in IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments.

You’ll have to do a little research to see what you might owe under your state’s income tax laws, which could differ. California, for example, hasn’t updated its law to conform with the federal law for mortgage forgiveness occurring on or after Jan. 1, 2009, although there are several bills pending in the Legislature to do so.

If you’re in California, you might want to bookmark this Franchise Tax Board page at http://tinyurl.com /yhx89zw and check back before filing your taxes April 15 to see if you get any relief.

Before you decide, you need to read Stephen Elias’ book “The Foreclosure Survival Guide.” It’s published by Nolo, the self-help legal publisher, and is the best guide I’ve found for dealing with this nightmarish prospect.

It’s well worth the $16 you’ll spend to buy it at Nolo or Amazon. But now it’s available absolutely free on Nolo’s Web site. You don’t get a physical book or a download, but you can browse every single page on the site.