Q: I am in a very bad situation. I bought my house 18 months ago for $358,000. Now, similar homes in the area are selling only for $345,000.

I tried to sell the property but I’d have to come up with almost $30,000 to close, and that’s money I just don’t have. I can’t afford the payments anymore, and yet, if I don’t sell the property or figure out a way to come up with the payments, I’m going to be forced not to pay them.

I want to try to convince my lender to do a short sale. Can I do that before being late on my payments? Help!

A: You’re in an incredibly difficult situation. From where I sit, you only have two options at the moment, neither of them particularly pleasant: You can either get a part-time second job to help increase your income (so that your payments are affordable), or you can sell your home and find a way to get $30,000 in order to pay off the lender.

You can ask the lender to do a short sale. If you don’t have any other assets, the lender may agree to it, but that will bring up another unpleasant subject: income taxes.

What you may not realize is that the IRS treats a short sale as income to the borrower. So if you owe $350,000 on your loan, but sell your home for $330,000, you owe $20,000 to the lender. If the lender accepts the lesser amount (known as a short sale), the IRS will see the missing $20,000 as “phantom” income. You’ll then owe income taxes on the phantom income.

I know this seems unfair, so I hope you can figure a way out of this problem. Please talk to a good real estate attorney about how short sales work and whether this is truly a good option for you at this time.

Good luck.

Aug. 19, 2007.