For the past few years the nation has been flooded with forms of financing which allow buyers to purchase homes that were at one time unaffordable for them. The essential philosophy going in has been: buy now, pay less than you should each month, and then within five years either sell the home at a big profit or refinance your loan and convert it over to a fixed-rate mortgage.

Truth is, it's been a great ride! Many people have followed the formula and made a ton of money. But like musical chairs, you just know that a bunch of people will be caught in the wrong place at the wrong time.

"Those low-payment loans that looked so good a few years ago are going into their second phase," says James Saccacio, chief executive officer at RealtyTrac. "Each day more and more borrowers are finding that the low 'start' payment is gone and that steeper, fully-amortizing payments have now kicked in. At the same time, homes that were once easy to sell are now harder to market. It's a brutal combination and what we're seeing in the Fall of 2006 is likely to get worse."

The instant solution to high monthly costs is to sell the property. During the past five years many areas have seen huge price increases. The odds are good in most markets that a seller with several years of ownership can readily sell the property, often at a significant profit.

But as the market evolves the odds may become less attractive. Not all markets have seen double-digit growth. In such areas price stagnation or actual declines can lead to huge inventory increases. To sell in down markets homeowners are forced to offer not only price discounts, but also other incentives such as "seller contributions" to help buyers at closing, new carpets, new kitchens, moving allowances, etc.

However, selling may not be an option for some people. Not only can a sale in a down market produce a bankrupting loss, but losses on the sale of a personal residence are not tax deductible.

So what can you do to avoid being a foreclosure statistic? To not get caught in the impossible position of loan costs that are too high and market values that are too low?

"Act now," says Saccacio. "Don't wait for the hammer to fall. If you see a mortgage problem looming in the next year or so, refinance to a long-term, fixed-rate loan before your credit report shows any late or missed payments. Take a careful look at traditional loans with liberal qualification standards such as FHA or VA financing. Speak with your lender about a loan modification and see if your adjustable-rate mortgage has a conversion feature, a right to switch to a fixed-rate within the first few years of the loan term. Because a conversion is a loan modification and not new financing, conversion can be quick and cheap."

If you find a situation where the property cannot be reasonably refinanced, if unaffordable monthly costs are certain, then it makes sense to sell now and move to a less-expensive home with reduced debt, lower monthly costs and fixed-rate financing.

Moving is a way to avoid foreclosure and dodge bankruptcy — two events no property owner should have to experience.

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