Question: We bought a house that has been a rental property for us the last 16 years. It has an adjustable-rate mortgage of $162,000, which will adjust next year. I doubt we will be able to afford the payment, which is currently more than the rent collected.

The home's current value is about $123,000. We have been approached by the note holder to modify the loan for a fee. Is this a wise choice on a home that is upside down and that we have no equity in? Refinancing doesn't seem to be an option. We've tried multiple times to talk to our loan servicer. I have never missed or been late on a payment, yet they won't discuss this unless  I'm headed for foreclosure.

Should I walk away and let this house fall into foreclosure? How does that affect my other mortgage on our family home? I really do not know what is the right choice. The stress of this financial mess is affecting my marriage and my health. Any advice will be helpful.

Answer: I applaud you for wanting to do the right thing. You might go online to www.hud.gov and click on "Talk to a Housing Counselor." You'll find a list of free or low-cost housing counseling agencies near you.

Continue to contact your lender to find out when it will help you with a modification. I would also try to find a lender who could modify your loan for as small a fee as possible. There is plenty of competition out there for your money.

Hang in there and make sure to schedule quality time for yourself and your family with no "money talk"!

Q:
If a home is foreclosed with a recourse loan on the property, can the lender come back at a later time and attach retirement accounts for the deficiency? Is there a statute of limitations on lenders seeking loan repayment after the foreclosure?

A: Because mortgage questions can get complicated, I turned to another expert, Mark Soto, the "Home Loan Coach" in Roseville, Calif. Here's what he says: Most mortgages are non-recourse, which means the lender has no recourse other than to take the house back to satisfy the debt.

Also, there is a moratorium stating that lenders cannot collect any more than the current value of the foreclosed property.

In general, under state and federal law, a lender cannot force liquidation of a retirement account for repayment of a debt.

Q: If I buy Series EE U.S. savings bonds and use them to pay for my children's college tuition, I do not have to pay tax on the withdrawal, correct? Besides a 529 plan, financial aid, scholarships, loans or winning a lottery, is there another way to pay for college?

A: You are correct that the interest earned on Series EE savings bonds is excluded from income when used for education expenses at a qualifying institution. It will be necessary to complete IRS Form 8815 when filing your income taxes; (IRS Publication 970 has additional information).

My favorite book for college-funding topics is "The Best Way to Save for College" by CPA Joseph Hurley. Also visit www.savingforcollege.com, started by Hurley and now owned by Bankrate Inc. You'll find Hurley's blog and Q&As on 529s, college costs and more.

Pamela Christensen is a Roseville, Calif.,-based certified financial planner.

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