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We changed our blawg format so it is more user friendly. Articles may now be found via a "table of contents". New articles are placed at the end of the "best fit" category. Old or superseded articles are removed. Submit your comment to Info@WaynePhilipsLaw.com. Enjoy...!

ABOUT WAYNE PHILIPS LAW

Wayne Philips is a native Californian. He enjoys traveling and working throughout the United States and abroad. He is licensed to practice law in California, Michigan, Washington, and multiple U.S. Federal Courts. Bringing International experience to any situation, Wayne Philips is also admitted to the Rolls as a Solicitor in England & Wales.

His many life achievements include graduation with distinction from University of the Pacific, McGeorge School of Law, and a Master's Degree in Counseling Psychology. A former infantry Marine, military aviator, and Air Force JAG Prosecutor, Wayne Philips handles conflict aggressively and decisively. As a businessman, he pays careful attention to the bottom line. Clients are often pleasantly surprised to learn that integrity and value exist in the legal profession. These traits are the cornerstone of Wayne Philips Law.

Wayne Philips is a skilled, aggressive, knowledgeable, and highly experienced trial lawyer. He served as General Counsel for multiple businesses including an International software firm. He successfully handled hundreds of jury and bench trials.

Responding to the need for a return of "common sense" to the practice of law, Wayne Philips implemented Wayne Philips Law. When you need an expert trial lawyer, look on the top shelf! That's where you will find Wayne Philips Law. Even if trial is not in your future, you have great comfort knowing a first rate trial attorney is in your corner.

We practice law like you always wished someone would. Smart. Aggressive. Cost-effective. Wayne Philips personally tried hundreds of cases--as one client succinctly put it, "he doesn't like to lose!"

Quality lawyering from a firm that knows how to win cases--that's what we offer. Our priority is to fix your problem as quickly, painlessly, and cost-effectively as possible. Come to us for the tough problems other attorneys avoid (or make). We handle the twists and turns others don't even think of. Wayne Philips Law--worth your investment!

Welcome to Wayne Philips Law!

BUSINESS LAW

MAKE MY BUSINESS TAX EXEMPT!

These days, many businesses find themselves in hard times. Always thinking, many entrepreneurs wonder, "since I'm not making any profit, let's make my business a tax-exempt non-profit; then, I'll pay what used to be "profit" to myself as my "salary". (As an aside, did you know the word "salary" originates from the Roman practice of giving soldiers a daily allowance used to buy salt?)

Getting back to the non-profit--I say "hold on a minute". To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual.

Notwithstanding many other important words, "organized" is an important word in the paragraph above. I will give you big odds that your business was not "organized" (read: "set up") for exclusively tax exempt purposes. To the contrary, most businesses are set up to make money. So, if your idea is to become tax exempt simply because you are no longer making good money--in a word--fuggedaboudit!

The easiest and least expensive way for me to set up a non-profit is to set it up from scratch. Even if you already have a pseudo non-profit organization going, I will likely suggest that you form an entity anew. Simply put, it involves ten-fold work to restate articles and redraft bylaws to convert a "for profit" business than is required to create a new non-profit organization from scratch.

So, if profits are down, you certainly have my sympathy but converting to a non-profit is not the solution. Instead, try to find some comfort in the fact you are not alone no matter what anyone else may tell you. All businesses are hurting. Hunker down, cut expenses, continue cost-effective marketing, deliver quality products and services; and, God willing, your business will survive in the short-term and prosper in the long-term.

If you want to form a bonafide tax-exempt non-profit; then, see me before you start. We'll get you set up quickly for a remarkably reasonable flat fee.

NON-COMPETITION CONTRACTS MAY BE VALID IN CALIFORNIA (DESPITE WHAT YOU HEAR)

For many years, the question of whether or not contracts barring former employees from poaching customers and clients or otherwise competing with you, a former employer, was a somewhat open question. On one side of the debate is Cal. Business & Professions Code section 16600 which states:

"[E]very contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void."

Section 16600 seems pretty plain; however, on the other side of the debate are the laws of most other states plus each individual's right to make contracts under mutually agreeable terms.

Stated differently, California courts did not enforce Section 16600 unless the contract at issue completely barred all competition with a former employer forever. Stated a third way, so long as the restrictions on competition were reasonable in duration and geographic scope; then, the restriction did not offend Section 16600.

For more than 100 years, things bubbled along nicely under the "narrowly tailored reasonable restraint" application of Section 16600. Things changed late last year.

Raymond Edwards was hired as a tax manager by Arthur Anderson (the now disgraced former "Big 5" accounting firm). Part of Edwards' employment package was a requirement to sign a non-competition agreement that prohibited him from working with certain clients for a limited time following his termination. (Sounds OK, right? -- the restriction was a narrowly tailored reasonable restraint on Edwards' right to practice his profession.)

As you guessed, long story short, Edwards got fired; then, challenged his non-competition agreement as void under Section 16600. The trial court found the agreement valid because it was a narrowly tailored reasonable restraint. However, both the Court of Appeal and the California Supreme Court said "no". Section 16600 means what is says, mostly.

Our Supreme Court made clear the "narrowly tailored reasonable restraint" exception to Section 16600 is dead; however, our Supreme Court also stated: "We do not here address the applicability of the so-called trade secret exception to section 16600."

Perhaps more important, every California Federal District Court to address the issue since Edwards specifically reaffirmed the trade secret exception to Section 16600. See e.g., Bank of America v. Lee (C.D. Cal.) 2008 WL 4351348*6 (“the trade secret exception to § 16600 still applies. Nothing in Edwards is to the contrary.”)

What's the bottom line after Edwards? In my opinion, it is this: Agreements not to compete remain enforceable in California; however, business owners must use care in drafting these agreements. It is not enough that an agreement have a limited post-employment duration and a reasonable and limited geographic scope. Instead, the agreements must originate from and foster your desire to protect your trade secrets, confidential business methods and other proprietary information.

Drafting a non-competition agreement is not something I recommend you try at home. The boundaries for a valid and enforceable agreement are narrow. Inadvertently stray beyond these boundaries and your may create an unenforceable agreement as well as liability for intentional interference with your former employee's business prospects. Instead of trying it at home, give us a call--we'll take care of it.

FAMILY & SENIOR LAW

Divorce, Separation & Annulment

DO I QUALIFY FOR A DIVORCE?

In California, the court is not particularly concerned about the reasons for the divorce. Who has been good or bad or naughty or nice is pretty much irrelevant. The court only wants to know if there are irreconcilable differences between you and your spouse.

If irreconcilable differences exist; then, you qualify for divorce. If you and your spouse do not agree whether irreconcilable differences; then, your disagreement constitutes a sufficient irreconcilable difference.

An exception to the general rule above exists where child custody or visitation is disputed. In these cases, who has been naughty or nice makes a big difference. Courts will (and in some cases "must") consider bad behavior such as domestic violence, criminal activity, and drug abuse. If your case involves children and bad behavior, in my opinion, unless your spouse is in jail for a long time, you are foolish to try to go it alone--get an attorney!

You must meet the jurisdictional requirement for a divorce in California. Essentially, you must have lived within California State for six months and the county in which you file for three months. Jurisdiction can become tricky if one party does not meet the requirements and refuses to cooperate. If you find yourself in a jurisdictional dispute, you should retain counsel.

California also has a six month waiting period before your divorce can be finalized. In an uncontested case, a good attorney will have your divorce completely finalized to be effective on your six-month date. Everything, including court appearances if needed can be completed before your waiting period expires. In that manner, once your date arrives, you are divorced. You even receive your filed Judgment beforehand that states your divorce becomes final on date "X".

IS A LEGAL SEPARATION A 'TRIAL' DIVORCE?

A legal separation should not be considered a ‘trial’ divorce. A legal separation has the same effect as a final divorce except you cannot remarry. A legal separation can only happen by mutual consent—if one party disagrees; then, the legal separation cannot occur.

In a legal separation, all property is divided and responsibility for debts is apportioned. This division and apportionment is permanent even if the parties later reconcile. If children are involved, child support and a parenting plan will be established. Spousal support may also be ordered.

A legal separation can be converted to a divorce if the parties later decide that a divorce is more appropriate. However, to become legally separated as a baby step to a divorce is, in my opinion, a bad idea principally because a legal separation is no baby step!

Good reasons exist for legal separation. Folks usually decide to legally separate rather than divorce for religious or financial reasons. For example, if you cannot stand the sight of your spouse but your religion frowns upon divorce; then, a legal separation may be your answer. Upon separation, you are essentially single except you cannot remarry.

Likewise, if you like your spouse but he or she is about to be charged for defrauding millions from pensioners; then, you may want to legally separate so your assets are segregated from your spouse’s—otherwise, everything might go down with the ship.

WHAT IS AN ANNULMENT?

When you neighbor tells you she just married her husband so she could get a green card—that is an annulment waiting to happen. When you come home married from Vegas but don’t remember the nuptials—that is an annulment waiting to happen.

An annulment is what get when you want the marriage to never have happened. However, the grounds for an annulment are more strict than you might suspect.

One category of marriages can be annulled because the law considers the marriage void from the start. When you marry your sister or get married to a third wife while still married to numbers one and two; then, these type marriages are void from the start. Consequently, it is fairly straightforward to get these types of marriages annulled.

A second category of marriages are voidable rather than void from the start. These types of marriages involve at least one party who was too young to consent, or crazy, or forced, or tricked into marriage. They are voidable because they will be annulled only if one party asks the marriage be annulled; and, proves the marriage should be annulled. On the other hand, if both parties are content even though one or both were tricked into marriage; then, the marriage remains valid

Custody & Support

HOW DOES CHILD CUSTODY & VISITATION WORK?

Child custody and visitation is probably the most contentious part of any divorce. Children should not be used by either parent as a means to hurt the other party; however, children often become pawns in a war between divorcing parents.

Ultimately, custody and visitation is determined by the best interests of the child. California Family Code Section 3020 states that the health, welfare and safety of the child is the court's primary concern in determining the child's best interests.

Family Code Section 3020(b) declares it is the intent of the Legislature to assure that the child has frequent and continuing contact with both parents.

Nonetheless, significant disputes often arise in determining the child's best interests. Moreover, child support is directly proportional to the amount of 'parenting time' assigned to each parent (less time with your children means you will pay more support). Finally, as a general rule, the longer you allow an improper custody set-up to remain in place, the harder it will be to correct the situation.

Consequently, if you find yourself embroiled in a child custody dispute, we strongly recommend that you contact us at the earliest possible moment.

DO I GET OR MUST I PAY SPOUSAL SUPPORT (ALIMONY)?

Spousal support is not mandatory. If one party desires spousal support, the court must weigh and balance many mandatory factors; then, decide upon an appropriate award.

A spousal support determination can be complex. First, two types of spousal support (temporary and permanent). “Temporary” spousal support covers the period between the time a divorce is filed and the time a final Judgment is entered. “Permanent” spousal support is the support awarded in the Judgment. All support awards can be modified but different rules apply depending upon whether the existing award is for temporary or permanent support.

The legislature intends each person become self-sufficient at the earliest possible time. However, depending upon your age and circumstances, you may not be able to become self-sufficient at the marital standard of living in your lifetime; therefore, support can be received for life.

Handling a contested support issue is not something you should attempt alone. Even if you believe you have a solid agreement with your spouse, spend a little time and money to run the proposed agreement by a competent attorney. This bit of insurance will be well worth the price. Contact us by e-mail so that we may help!

Domestic Violence

PROTECT ME FROM DOMESTIC VIOLENCE!

Domestic violence is a pattern of coercive behavior that may include physical, sexual, economic and psychological abuse of one family member by another. Violence is directed at establishing and maintaining power and control.

Domestic violence is not restricted to physical violence. When one spouse strikes the other just one time, it only takes a threat of violence to make knees go weak the next time. No amount of apologizing can write this wrong. We all deserve to live free of violence to our person. It is wrong to live in fear! If you are afraid of your spouse; then, you are in a bad relationship. You may also be the victim of domestic violence.

Criminal conduct, drug abuse, and domestic violence are game changers regarding child custody. If a spouse is found to have committed acts of domestic violence; then, the court is required to alter the custody arrangement in favor of the non-violent spouse.

If you have children and domestic violence is in your relationship, you should not attempt to navigate the divorce process on your own. If you are the perpetrator, you will probably harm yourself because you will not understand and appreciate how forcefully the law can be used against you. If you are the victim, you will probably harm your children because you do not understand and appreciate how harmful your relationship with your spouse is to your children. You will likely be unequipped to aggressively stand up for yourself.

Perpetrator or victim, if children and domestic violence are in your relationship, don’t go it alone. Call us to get you sorted.

PROPERTY LAW

Homeowner Associations (HOA's)

RECENT HOA CASE RESULTS

WARNING! Just because Wayne Philips Law achieved outstanding results in the following recent cases, you should not conclude the same result will occur in your case. Every case must be evaluated independently on its particular strengths and weaknesses.

In most HOA cases, we look to the HOA for payment. Therefore, representation can cost you nothing or even put some money in your pocket! Contact us for a no-cost analysis of your situation.

Orange County, California. HOA sued homeowners over alleged unpaid dues and assessments. Case dismissed in favor of homeowner before trial. Homeowner awarded over $17,000 in fees and costs.

Orange County, California. HOA sued homeowner alleging three palms on homeowner’s property unreasonably obstructed the view of other homeowners. Case resolved via multi-day trial. Homeowner declared prevailing party entitled to monetary award. Client awarded nearly $60K in fees and costs.

Santa Barbara County, California. Homeowner sued HOA to quiet title to homeowner’s residential lot within the subdivision. HOA created cloud on homeowner’s title by claiming portions of homeowner’s residential lot were “common area” rather than homeowner’s separate property. HOA refused pre-litigation arbitration or mediation. Court ruled homeowner’s property was not association common area. Defeated HOA’s request for over $73K in fees.

Santa Barbara County, California. HOA sued former homeowner alleging homeowner violated CC&Rs; thus, owed association over $112K in fines plus interest. Association alleged homeowner's purported fraudulent actions prevented association for enforcing fines for more than eight years. Wayne Philips caused the association's lawsuit to be dismissed and secured an award of more than $20K for his clients to reimburse fees and costs.

HOA FEES, ASSESSMENTS, AND LIENS

Much is happening now regarding HOA fees assessments and liens. In general, an HOA has a right and a duty to assess and collect dues or special assessments necessary to administer the association. Unfortunately, in these economic times, many homeowners either cannot pay these obligations or simply choose to not pay them.

Homeowners think “my house is underwater and at risk of foreclosure so why should I throw good money after bad by paying HOA dues?”

Several reasons exist to pay HOA dues. First, most HOA’s are authorized to enforce payment of dues via liens and foreclosure. So, if you are staying in your underwater house and successfully fending off foreclosure initiated by your loan servicer, you do not want to lose your house to foreclosure initiated by your HOA. HOA dues are usually far lower than your loan payment so pay them even if you are not paying your house note.

Second, even if you lose your home via foreclosure, you will still be on the hook for HOA dues through the date of the foreclosure sale. Yes, your HOA will come after you for these unpaid dues.

Third, many associations are in financial trouble as a result of non-payment of dues. Savvy home buyers will check the financial health of any HOA that administers a property they might buy. Obviously, no homeowner wants to buy into an association only to get hit with a large special assessment. Therefore, when homeowners pay dues and keep the association solvent, the property values within the association stay higher. This means you home will be easier to sell and/or you will have a better chance to re-fi.

VIEW OBSTRUCTIONS

Orange County is becoming famous for its “view obstruction” litigation or “palm tree” litigation. Many HOA’s have view obstruction covenants or view protection policies. If you are contacted by your HOA and told to cut something down, or, if your neighbor has a ten foot hedge blocking your view; then, contact Wayne Philips Law. We can help!

Buying & Selling

BUYING VS. RENTING

Many folks are trying to sort out whether it makes more financial sense to buy or rent; however, very few apples-to- apples comparisons can be found. Below I compare the costs of buying vs. renting a $500K home in a declining market (our current market is stable or rising depending on whom you believe).

Foremost, it almost never makes financial sense to buy a home in a market you believe will continue to decline in value because it will be very challenging to make up the lost value. Unless you love the home and must have it, I recommend you buy a home in a declining market only if you intend to occupy the home for more than ten years; AND, you are satisfied the purchase price presents good value at the moment.

For comparison purposes, I assume a $500K home can be rented at about $2500 per month. Also, I use an annual reduction in value of 7%. (Because no one knows what the future holds, these types of analyses can only be done looking to the past.)

A homeowner who bought a home for $500K one year ago now has a home worth $465K--a reduction in value of $35K (or $2917 per month assuming sale of the home).

Loan payments on a $500K home (assuming 20% down and a 4.25% rate) plus property tax (1.1%) are $2,425 per month (29K for one year).

Therefore, if one wants to add both figures above to calculate the “cost” of homeownership in this scenario; then, the homeowner is out $64K for the year (not including HOA dues, maintenance or insurance.) That’s $5,333 per month on a $500K home.

Assuming your payments were made during the first year of your loan (when the smallest proportion of your payment goes to principal); then, you might pay about $24K in interest. Assuming a 20% tax bracket, a $24K deduction would reduce your tax obligation by $4800 (or $400 per month). This takes your monthly cost from $5333 to $4933.

In contrast, a renter could spend $4933 per month on a rental property and end up at exactly the same financial position as the homeowner after one year except the renter would not have an HOA dues or a maintenance obligation. Moreover, the renter would be able to purchase a home at the end of the period without making that purchase contingent on the sale of a home. Lastly, most folks probably need not rent something for $4933 per month; ergo, they would have "saved" $2433 per month by renting an equivalent home at $2500.

The above analysis is based on a $500K home. Using standard assumptions, the analysis becomes more favorable to the renter in a declining market as the home price point increases and/or the interest rate increases.

The longer one stays in a home, the more principal that can be paid off. Unfortunately, reduction of principal in a declining market does not necessarily mean you will build equity--you may only decrease the rate of loss.

Though a home should be much more than a financial investment, it is not a wise move to jump into homeownership for the short tem in a declining market.

DO BUYERS NEED A REAL ESTATE AGENT?

I will get significant flak from the real estate community for this; nonetheless, I encourage buyers to think twice before contacting an agent. Why? Simply put, the cost of services rendered is disproportionate to the value of services provided.

In the "olden days" (circa. pre-1980), the only truly productive way to search for a home was to leaf through MLS manuals. Correspondingly, real estate agents held sales information hostage and could charge a premium for a chance to leaf through the MLS. Agents justified 6% commissions by pointing out that they were willing to drive you around and guide you through real estate transactions, laws and paperwork.

Let's look at what you really get for what you pay though. By example, 6% commission on a $500K sale equals $30K. If half of the commission goes to the buyer's side (buyer's agent & broker); then, you "paid" $15,000.00 for the services of your buyer's agent.

As an aside, many will interject at this point that the buyer does not pay the commission, the seller does. This statement is technically true but not informative. You are kidding yourself if you believe the sales commission is not factored into the sales price. The buyer pays the sales price which ultimately includes the commission.

So, what did the buyer get for $15K? Access to the MLS, potentially some chauffeuring, access to the property, maybe some comparables research, help filling in forms, probably some hand-holding at an inspection; and, maybe a fruit basket. For me, that's not worth $15K given other options that exist in today's world.

Foremost, public equivalents of the MLS that are 'good enough' are readily available--Realtor.com & Yahoo for example. Find a property you like? Drive by. Still looks good? Contact the Seller's agent--his or name and number are usually right on the yard sign. The Seller's agent will show you the property today. (Make sure you explain to Seller's agent that you are representing yourself lest Seller's agent try to handle both sides of the transaction.)

Want to make an offer? Here's where most folks bog down because the paperwork itself is scary. Solution--hire an attorney to write-up your offer. You might pay $350-$750 for the work, but that is considerably less than $15K! Also, you will probably get guidance on the sales process and closing as part of your discussion. What's better--you get actual legal advice from a licensed professional as compared to hemming and hawing from an agent (who is prohibited by law from giving legal advice).

Once you are past the initial offer phase, the Seller's agent will see that most all else gets done. So long as you let the Seller's know they will not be paying a buyer's agent commission, you should have no problem getting the Seller's to take close to 100% of the commission they saved off the listing price.

Bottom line, by doing some legwork yourself and using an attorney in an effective manner, you stand to save nearly $15K by foregoing a buyer's agent when purchasing a $500K home.

Foreclosure & Preventing Home Loss

WHAT IS THE FORECLOSURE PROCESS IN CALIFORNIA – NOTICE OF DEFAULT TO REO?

Many of us are now hearing with regularity terms associated with the failure to make payments on a residential loan. We get many calls which demonstrate folks are not quite informed regarding these terms. Let’s start with some plain language definitions and descriptions.

Mortgage—a mortgage is grant of collateral you give in order to get a loan (you put up your home as security for the loan)—that transaction is a “mortgage”. You do not pay back a mortgage; you pay back a loan. If you fail to make loan payments when due (default); then, the mortgage gives the lender the right to foreclose (sell) your home out from under you.

How does it work? The length of time between missing a payment and being in default is set out in your loan agreement. Customarily, one can miss about two payments before a lender takes formal action. (This process changed drastically for many lenders over the past several months.

The lender’s first formal step in California’s foreclosure process is to issue and record a Notice of Default. This document tells you and the world that you missed payments and are in default.

The next step is publishing notice that your home will be sold if you do not become current on your loan (Notice of Trustee’s Sale). The sale cannot be conducted before 90 days pass.

Ultimately, a Trustee’s Sale is held at the location in the notice. Anyone can bid on your home. The foreclosing party is the only party who is almost certain to bid.

If you owe $400K on your loan; then, the foreclosing party will bid $400K for your home. If the foreclosing party did not bid the amount of its loan; then, I could bid $1.00 and be the high bidder. If so, you would be out of a home and the lender will get a buck for their $400K loan. So, the foreclosing party has to bid the value of the loan to protect its interest.

If a higher bid is received; then, the trustee must distribute the overage per California’s statutory scheme. [Cal. Civil Code § 2924k.] Only after all costs, junior liens, and other encumbrances are satisfied will you get what’s left over.

Because a significant portion of residential loans are upside-down in California (the loan pay-off amount is higher than the fair market value of the home), many holders of junior liens (HELOC’s, 2nd’s, 3rd’s) will not bid at the foreclosure sale. This is easy to understand—you may have a $400K first mortgage plus a $75K HELOC (Home Equity Line of Credit). For the HELOC holder to protect its investment, it must bid $475K (1st + HELOC) for a home with a market value of significantly less than $475K. With low market values, it is usually better for the HELOC to hope for an overbid than it is to try to protect its investment by bidding because the cost of purchase results in a loss greater than the original loan.

The high bidder gets the house. The lender hopes someone will outbid them so they are not stuck with the home. These days, the high bidder is usually the party who initiates the foreclosure. When a lender acquires a home through foreclosure, the home is now called a “REO” (real estate owned) or just “bank-owned”.

MY HOUSE IS UPSIDE DOWN--WHAT CAN I DO?

You're not alone. Many folks in California still owe more on their homes than the homes are worth. The situation is slowly improving. Unfortunately, the situation is mostly improving because home values are ticking up; not because homeowners are paying down home loans.

Start thinking of your home as a place to live rather than an investment. The primary purpose of a house is to provide a secure place to live. If the value of your house appreciates while you get on with living in it; then, good for you!

Ask yourself whether you want to continue living in your home; then, ask yourself if you can realistically afford to continue living in your home. If you answer "yes" to each of the above questions; then, you probably want to just live in your home and not worry about its potential fair market value right now.

If you don't like your home but can afford it; then, the best path is to sell your home. Keep in mind that if you are fortunate to receive an acceptable offer, that offer will be far lower than any offer you might have received five years ago. The upside is that the purchase price of a replacement home will also be far less than five years ago.

The real problem is for folks who can no longer afford current payments. Many reasons exist for this situation--the specific reason is not important. Boiled down, expenses increased, income decreased, or both. Ultimately, at the end of the day sufficient money is not left to pay the bills.

Obviously, your first course should be to reduce your expenses so that you spend no more than you earn. (You'd be surprised by how many people are "shocked and insulted" by the notion of living within one's means!)

Some folks find that even after eliminating all discretionary spending, they still cannot make ends meet. If so, can fixed debt be restructured? Contact your creditors and see what they may be willing to do. Can you qualify to refinance your home? Re-fi may be your best bet if you can improve your interest rate by at least one percent (1%).

Many pundits talk about "loan modification". Dispute all the ballyhoo to the contrary, I do not know a single lender who voluntarily agreed to reduce the principal balance due on any home. At best, lenders will extend your payment period (which reduces your monthly payments but costs you more interest) and recharacterize your payments as "current" by adding those missed payments to your principal balance.

So, if you cannot pay and cannot re-fi, should you walk away? Read an interesting article recently posted in the LA Times regarding one Law Professor's analysis: Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis.

But before you walk away, consider some other options. Track down your loan servicer and begin discussions about a short sale. (An agreement where the lender agrees to accept less than the loan payoff to retire the loan.) A short sale does not significantly effect your credit score. Unfortunately, most servicers will not talk seriously about a short sale until you are at least two payments in arrears. Once most folks miss two payments, they never catch up, so it is not a good strategy to miss a couple of payments just to open a short sale dialog with your servicer.

Next, do you have multiple loans against your home? If so, if you had to pay only your first mortgage, could you afford your payments? If you could, bankruptcy may be an option because you can strip subordinate loans from your house through bankruptcy. At this time a bankruptcy court cannot adjust your first mortgage but it can eliminate all junior secured loans. If this might work for you, contact a bankruptcy attorney.

Finally, think about the way you walk away. Most servicers will pay you the equivalent of two months payments if you agree to leave the property broom clean and vacate at a predetermined date and time. A representative will come to your door to exchange a check for your keys. Using this alternative, you can legally remain in your home for about one year without making any loan payments. Use this time to save your money and secure alternate accommodations.