Foreclosure Fraud

How to Protect Yourself from Foreclosure Frauds and Scams

Do’s and Don’ts if you are Facing Foreclosure

If more people knew about how to stop a foreclosure, fewer people would fall victims to foreclosure fraud and fewer people would lose their home.  Listed below are some things that may help you should you want to stop your foreclosure on your home.  Some of these steps should be done before trouble begins to appear and some are possible to do just before the foreclosure auction.

A.               Emergency Savings Account

We all have many things that we want or need every day and every dollar we earn seems to have its use determined before it comes to our hand.  This often results in people putting aside little or no savings for an emergency or other contingency.  At a minimum, homeowners should have one to three months of mortgage payments as a reserve to help stop a foreclosure.

B.               Home Equity Line of Credit

If something happens that places you at risk of foreclosure, you will need money to stop it.  However, it is when you need money that the banks usually won’t lend it to you and your option of getting a loan against the equity in your home may not be available.

I have heard estimates that at least 90% of foreclosures could be prevented or delayed if home equity lines of credit been in place and used.  Setting up an equity credit line can often be done for no cost and can lock in low interest rates.  In many cases you pay nothing each month as long as you do not access the line.   

No one ever expects sudden health problems, loss of a job or an emergency that requires getting some money fast.   These unforeseen events might prevent obtaining a loan once they happen so get a line of credit in place while you still can.  

By setting up a home equity credit line before you ever miss a loan payment, you will have money when you really need it.   As soon as your finances get back on track, pay back the line and then save it to use again the next time.  

Just be careful not to use the line for unnecessary reasons and you will appreciate your home equity credit line - especially if you never have to use it.  Whatever you do, don’t use this credit line money to buy a car, big screen TV or any other consumer goods.  I have been in many homes of distressed sellers and they have a $5000 TV sitting in the living room and a new car in the driveway.

Note that some foreclosure fraudsters and some loan scammers will use the equity in your home against you by promising you then can get you a credit line.  These loans will have extremely high interest rates and may contain hidden language to get title to your home.

C.               Missing Mortgage Payments

This may seem like a “no-brainer”, but every foreclosure traces its origin to that first missed mortgage payment.  Remember these things:

      Skipping a mortgage payment ranks as a far more serious issue than missing a utility or credit card payment.  You should consider not spending on non-essentials, ignore a different bill or use your savings before letting a mortgage payment be missed.

      Once you have missed a mortgage payment you have started a downward spiral and missing a second, third or forth payment becomes easier from a psychological point of view.

      Once you have missed a loan payment, your credit suffers an immediate hit, which may stop you from getting the loan (either refinancing or a credit line) you need to save your house. While getting a foreclosure prevention loan may remain as an option deep into the foreclosure process, how much you can borrow decreases with each corresponding decrease in your credit score.

Very often the difference between what the amount of money you could have obtained from a loan or refinance before you miss your first mortgage payment and the amount of money you could get from a loan after missing several payments means the difference between keeping and losing your home.

D.               Asking for Help

You’ve heard the saying, “A friend in need is a friend indeed” but when it comes to trying to stopping a foreclosure pride should never take a back seat.  By nature, many people are afraid to ask for help, especially over the embarrassment of needing help to prevent a foreclosure. The last thing someone facing foreclosure wants to do is admit to a relative or friend that they have gotten into trouble and need help.  Conversely, you know that if one of your relatives or close friends faced a similar situation, and you had the money, you would help them. 

If you are embarrassed over your situation and this prevents you from seeking help – get over it!  Everyone is going to find out about your situation when it hits the papers or when you have to move out of the house.  They may as well here it from you early rather than later, so if they can help you can accept there offer of assistance.

Most people whom you care about will be more understanding than you expect them to be and they will not try to make you feel like a failure. You may be surprised at what kind of help will be offered and the difference it can make in saving your home from foreclosure.

E.               Ignoring the Lender

Somehow getting behind on a mortgage comes with a tendency to believe that calling your lender constitutes a sin or that a call to a lender will result in them tearing your head off.  In reality, most lenders appreciate knowing why you are having trouble and like updates on how things are going, especially when your problems have justified reasons like health issues or the loss of a job.  

Treat letters from your lenders as wake up calls from a concerned neighbor rather than a threat.  Remember – lenders want to work with you and help you get back on track.  They want their payments not your house.  If you do not think you can talk to them yourself about a plan there are professional foreclosure negotiators who can assist in talking with them.

F.                Problem Denial

The most common method of how homeowners deal with a foreclosure or financial crisis remains the “head in the sand” method of ignoring the problem.  Many homeowners give up, lose hope and try to ignore the problem. 

Following the path of denial will surely lead to never stopping the house foreclosure.  Get off your rear end, quit feeling sorry for yourself, face the problems, deal with them, and find answers. 

G.              Exploring all Options

You may believe that you must pay your lender in full or you lose your home to foreclosure.

In fact, there are many options that will allow you to keep your house and stop the foreclosure proceeding without paying all of your arrearage at once.  We previously discussed many options available to putting off or preventing foreclosure.  Go back and review them to see which ones you can use. 

Some options may even reduce what you owe on your property by tens of thousands of dollars.  Almost everyone has some options and the sooner you act the more options you have.  The problem is that most people fail to ACT.  As a foreclosure date gets closer you have fewer options available until by the foreclosure date the only options left are payment in full, bankruptcy filing or go through with the foreclosure.

H.               Paying the Wrong Bills

After you miss 3 or 4 months worth of mortgage payments the lender may “call” or “accelerate” the home loan.  Once this happens they will no longer accept just a single monthly payment, instead they will insist that all back payments be made at once.  While other options short of paying all back payments may be negotiated, the biggest mistake many people make is taking what little cash they do have to paying other bills.

This may seem okay since you have the belief that the mortgage company does not want your money, but all the other companies you owe money to are calling everyday demanding money. If there are ten companies calling you, getting nine of them off your back means fewer calls for you and fewer headaches in the short term.   However, in the big picture this represents a critical mistake. At some point in time you will need that money to save your home.

A lot of methods exist to stop a foreclosure but they all require money. Ask yourself this, “Would you rather lose your credit cards or lose your home?”.  If you want to keep your house and you cannot pay what they demand, save what you can, you will most likely need it for whatever steps you might eventually take to save your home.

Read the next section on “Sixteen Rules on Choosing Which Debts to Pay First” to find out more.

I.                   Stopping Loan Payments

First you miss a mortgage payment.  Then comes the second month and you get a bill for two payments.    You have the some money for one of the payments, but not two, so you do nothing and don’t send any money to the lender.

If you have some money, do not fall into this trap. There will come a time when the lender will demand that you pay them all of the money you owe them and they will take no less.  Until the time comes when the lender refuses to take your money make whatever payments you can. This will show the lender you intend to pay them and show them efforts are being made.

If over four month period you have made only two payments you may be only 60 days behind.  While that may not make the lender happy, it may not put you into meeting their criteria to start a foreclosure. Keeping in touch with the lender and making some payments can delay the start of foreclosure for many months.  Hopefully during that delay you can resolve the underlying problems and avoid ever having a foreclosure.

J.                Bankruptcy Filing Deadlines

As previously mentioned, we personally do not advocate the use of bankruptcy to put off a foreclosure.  Talk to an attorney or other professional advisor to explore which options are best for you.

Proper filing of a Chapter 13 bankruptcy may stop a foreclosure, but there are risks.  When a Chapter 13 plan to pay back creditors meets approval from the court and the debtor pays all the payments under the plan the foreclosure never starts up again.  But, failure to make payments gives creditors the option of restarting the foreclosure when it left off before the Chapter 13.

Remember that you must file your bankruptcy on time because failure to meet a filing deadline could result in losing your home.  Additionally, you must make all payments required under the plan, or else the creditor can start the foreclosure process back up.