Ask Liz Weston

If, like millions of others, you can’t afford your mortgage payments and are getting the run-around from your loan servicer, you may be considering whether or not to walk away from your home.

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.

Dear Liz: I have tried to work with my bank to modify my mortgage loan for the last six months. I send it every piece of paperwork it requests, but nothing is done. I bought my home for $280,000 and it’s now worth $110,000. My payments are very high and I’m getting depressed.

Answer: Contact a housing counselor approved by the U.S. Department of Housing and Urban Development. You can find links at www.hud.gov. This free counselor can review your situation and help you deal with your bank.

You may need to face the possibility that a loan modification may not help. Sometimes to create an affordable payment, lenders would have to reduce the amount you owe, which few are willing to do. Even if you do get a payment you can afford, you probably will owe more than your house is worth for many, many years to come.

To help you sort through these issues, read the Nolo book “The Foreclosure Survival Guide: Keep Your House or Walk Away With Money in Your Pocket” by attorney Stephen Elias.

Later today FICO, the company formerly known as Fair Isaac, will announce its Mortgage Recovery Initiative, which is designed to help troubled borrowers find loan relief options while helping lenders identify problem loans before homeowners default.

The consumer part of the initiative will launch Friday at MortgageReliefOnline.com. Borrowers will be asked to provide basic information about their mortgages and will be told within seconds if they appear to qualify for new federal government plans for loan modification or refinancing or if they need debt counseling. Borrowers will be contacted within 48 hours by HUD-approved housing counselors for individualized help and advice.

“The main benefits for consumers,” FICO spokesman Craig Watts said, “are speed, anonymity/privacy, confidence that they are getting top-drawer professional counsel, cost (it’s completely free), and convenience.”

FICO is also offering lenders analytic tools to help them identify and expedite the borrowers most likely to benefit from modifications or refinancing before the loans go bad.

MakingHomeAffordable.gov has an interactive tool that will indicate whether you might benefit from the new modification/refi programs, as well as links to find a housing counselor. But the FICO initiative would seem to make finding help just that much easier.

For more on foreclosure:

• Is your home worth keeping?
• Facing foreclosure? 9 options
• A foreclosure fix: More bankruptcies
• Foreclosure nearby? It’s your problem

Dear Liz: My husband and I both lost our career jobs over the last two years. Since that time we have done everything to try to stay afloat, including borrowing more money on our credit cards, borrowing from our home equity credit line and liquidating our retirement accounts.

We have continued to interview while working $12-an-hour jobs, but now face not being able to borrow any more money. With the current government aid going to those needing mortgage help, should we stop paying on our first and second mortgage or stop paying on our other bills? We could probably make it if we could refinance, but without “real jobs” and enough income to cover our debts today, I would not think we would qualify.

Answer: You’re probably right. The days of people getting mortgages without being able to document sufficient income are over.

You understandably hoped for better days, but by refusing to drop your expenses below your income you’ve essentially squandered your retirement and borrowed yourself into a corner.

You still may have some options. The Homeowner Affordability and Stability Plan announced by President Obama does not require that you default on your mortgage before you can get help. You should contact a housing counselor approved by the U.S. Department of Housing and Urban Development to review your options. You can find referrals to HUD-approved counselors from a link on the department’s home page, www.hud.gov.

But you also should talk to a bankruptcy attorney. Having to choose between paying your mortgages and paying your other bills indicates a debt load that may be too high even if you do get mortgage relief.

Actually, you should have consulted a bankruptcy attorney before you touched your retirement accounts or home equity. Those assets could have been protected from creditors and you at least could have emerged from this crisis with something for your future.

No one likes figuring out their tax returns, but if you’re financially strapped, it’s smart to ask about the special provisions under the tax law that can save you money during these tough economic times.

Some tips from the American Institute of Certified Public Accountants to get you started:

Homeowners who lost their home to foreclosure or had their mortgage restructured do not pay tax on the amount of debt the lender discharged under the Mortgage Forgiveness Debt Relief Act of 2007.  This break only applies to your principal residence. It does not apply to a second home or vacation home. Married taxpayers can exclude up to $2 million and single taxpayers up to $1 million.

Investors who lost money in taxable accounts may be able to deduct these capital losses. To qualify, you must have sold at a loss by Dec. 31, 2008. (Sorry – good only for taxable accounts. So losses in your IRAs, 401-k plans or 529 college savings plans do not qualify.) You can use the losses to offset any profits made from selling bonds, property or stocks. Also, up to $3,000 of losses not used to offset capital gains can be deducted from other income. If your losses exceed these amounts, you can apply the remaining losses in future years.

Job changers who move to take a new post might be able to deduct moving expenses.  To qualify, your new workplace must be at least 50 miles farther from your former home than your previous workplace was from that home. There’s also a time rule. The time test, according to the IRS, generally requires you work full-time for at least 39 weeks during the 12 months immediately after your move.  Keep good records of your moving expenses, but note that meals are not a deductible moving expense.

Job seekers should track what you spent during your job search. Costs to print your resume or hiring a consultant to help with the search are deductible.

Low-income workers can benefit from the earned income credit (EITC), a refundable tax credit worth up to $6,500. If you were married filing jointly and earned less than $41,646 ($38,646 for individuals, surviving spouses or heads of household) in 2008, you may qualify. It’s complicated, but the EITC is worth exploring if you or someone you know has low earnings.

Check out some of my answers to reader questions on taxes:

• How long should you hang onto financial records?

• Bummer: Last year’s homebuyer credit still has to be repaid

• My son doesn’t declare income from renting out rooms