House in Foreclosure - Trying to Sell it - Considering Bankruptcy

[boyzmom]

What is the name of your state? IN

I relocated to another state a year ago for another job. I purchased a house in that state and put my "old" house (which is located in Indiana) on the market. It's been for sale 18 mos and I've dropped the asking price from $250K to $170K over that time. House was appraised at $192K when I refinanced in 2006 with both a first and second mortgage. Primary mortgagor initiated foreclosure proceedings in December and re-appraised the house at $178K. I received an offer a week ago of $167,500 and the primary mortgagor is inclined to accept it, but will only settle the second mortgage for $2K (owe $38K on the second). House is severely "underwater" right now and it's a buyer's market. Second mortgagor has transferred my loan between departments and seems to have "lost" it temporarily. But person I spoke with indicated they have no interest in settling.

My credit is already ruined and I'm considering filing bankruptcy due to other issues in addition to this one. Most pressing is a significant tax liability related to a pension withdrawal.

I seem to be in a catch 22 in terms of getting the banks to accept the only offer I've received and I have no ability to make up the difference. It seems, that allowing the foreclosure process to proceed is the only option. And, it also appears that filing bankruptcy makes the most sense given the current situation.

I posted a similar thread in bankruptcy forum related to timing of filing bankruptcy vs. foreclosure. I did received a few helpful responses, but I thought I'd try this section to see if there are other ideas or thoughts.

I did try renting the house, btw, and could not do so to cover the mortgage without a significant shortfall.

My questions are:
- how can I persuade the banks (especially the second) to accept any reasonable offer?
- how is it that other thread posters are getting 1099's instead of judgments?
- if foreclosure is the only option, is there some benefit in filing bankruptcy before or does it make a difference? I'd heard somewhere that if the banks got a judgment that it wasn't dischargeable in bankruptcy and they could garnish wages for the amount of the judgment.

Thanks for any insight you can give!