What's the best way to avoid ruining my credit?

DEAR PATTI: I'm behind on my mortgage payments on a house I own in Felton and probably will be foreclosed. People have told me to (1) do a "short sale" of the property, (2) give it back to the lender with a deed in lieu of foreclosure, or (3) proceed to foreclosure and then file bankruptcy. Please explain the pros and cons of each. Do I have to have a short sale before I can do a deed in lieu of foreclosure? What if I sell the property at market value, but that's not enough to pay all the debts? --Napin E.

DEAR NAPIN: A "short sale" means you sell the property for less than the mortgage balance at its market value and the mortgage lender agrees, in advance, to accept the net amount as payment in full to satisfy the mortgage.

Lenders can be very difficult about agreeing to a short sale. You need a listing agent experienced with short sales who can deal with your lender and who will insist you receive absolutely nothing from the sale.

Most mortgage lenders will not accept a deed in lieu of foreclosure. The reason is the lender then takes title "subject to" any liens or encumbrances you might have incurred during ownership. However, if you can prove to the lender there are no junior mortgages or other liens affecting title, such as unpaid property taxes, your lender might accept this alternative, which is cheaper for the lender than foreclosure.

If you let the property go to foreclosure sale, why file bankruptcy? That makes no sense unless you have other extensive debts such as credit cards you just can't afford to pay. Should you file bankruptcy while the foreclosure is pending, that delays foreclosure but doesn't prevent it.

Filing bankruptcy can be a major mistake, which will haunt you for years. Before you can file bankruptcy, federal law now requires you to get credit counseling.

If you sell the property at market value but that's not enough to pay off the mortgage and other costs of the sale, you can pay the deficit out of your pocket and walk away happy that you don't have a foreclosure, short sale or deed in lieu of foreclosure on your credit reports. Talk to your lender now to work out the best solution for both parties.