Q: We have lived in New Jersey for five years, and have been waiting for an opportunity to go back to Florida. My husband recently got offered a job in Florida that will pay $30,000 less than he makes now. He will start his new job in mid May and I will follow in when our kids get out of school. We signed a rental for a home in Florida but we can’t purchase a home at this time.

The house we currently live in (in New Jersey) is about two years old. Houses like ours in our development are now selling for $60,000 less than we paid. We could do a short sale with our lender but our credit score is close to 800 and hope not to ruin that.

Another option we explored was filing for bankruptcy. We met with a bankruptcy attorney and now I feel like that may be our only option. We have two loans on our home and our first lender would accept the short sale but the second would not.

We thought about renting out our home but our mortgage is $3,000 a month and we can only expect to receive a monthly rental payment of about $1,800. We can’t afford three payments per month (our two loans on our house and the rent for the home in Florida).

We have been advised to stop paying the mortgage payment. We do not want to do that but we really want to move to Florida. On the other hand, we want to make the best financial decisions and rebuild our credit as soon as we can.

A: You have an interesting situation. Unlike many people with mortgage troubles due to job losses, health problems or other financial difficulties, your situation appears to be self created.

You know your home value has gone down, and you know you will make less money if you move to Florida now, and you know you can’t afford to keep your current home and rent a home in Florida. And yet, you’ve gone ahead, accepted the job in Florida, and signed a lease for a home there.

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 will severely hurt your credit, and you can 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 for allowing 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 terms of the short sale, your sale with a prospective buyer will fall through. Make sure you are in good contact with each lender if you decide to go down this route. If you have a good line of communication open with each lender and each lender works with you in the short sale, you have a better chance of selling the property to a buyer that comes along.

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

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 card offers with low interest rates.

Just because you file for bankruptcy may not mean that you’re out of the woods with your lenders. If you have other assets, you may find that your current lenders want a piece of those assets. If you have savings that are not in retirement accounts, you may lose those savings. If you sat down with a bankruptcy attorney, 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 you can scrape together $60,000 from your savings, retirement accounts (you may have to pay taxes and a penalty on that cash), family or friends, you can close on the property and move on.

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

It may be too late, given the other commitments you’ve made, sooner rather than later – but if you could hold off moving back to Florida for another 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.

Published: May 1, 2008