Thursday, March 11, 2010

What NOT to do when facing a foreclosure

Sign Of The Times - ForeclosureImage by respres via Flickr
A lot of desperate home owners, hoping to prevent foreclosure, end up digging themselves a deeper hole by doing a lot of foolish things. Here are some things that you should NOT do when it comes to foreclosure, and why.

* Declaring homestead -- declaring homestead will protect your house from creditors for your OTHER debts, such as business, credit card, auto, and so on, but it will not stop the lender of your mortgage from foreclosing. This will not work even in Florida, with one of the strongest homestead laws in the United States. Florida Constitution spefically states that mortgages are exempt from homestead provisions. After all, it would make no sense to buy a home, pay a down payment, and keep living in the house and make NO monthly payments EVER by declaring homestead, right?



* Deed-ing your home to someone else -- while the home may belong to someone else legally, the mortgage itself (i.e. the money you owe) is still in YOUR name. If any one suggest that this will delay the foreclosure, run away. How is "I give up my house, and I don't want anything for it, even though I still owe a boatload of money" going to help you financially? And besides, the lien on the house predates your transfer. So it won't stop the foreclosure at all. All you will lose is your equity in the house, and the lender can always ask the court to declare the transfer fraudulent, and void it.

* Get conned into signing away your house -- scammer comes to your house with offers to save you, and you need to sign a bunch of documents, stacks of them, each needs 10-20 signatures. Hidden somewhere in the 2nd or 3rd stack is a quit-claim deed where you just signed away your house. They then use refinancing, or second mortgage to cash out YOUR equity, pocket it, and disappear. Or worse, they list the property for sale, and as they now have the title, you're now a tenant. Someone else buys the house, and can legally evict you. Either way, you end up with NOTHING.

* Get conned by refinancing -- let's say you're behind on your mortgage, got foreclosed, but you can still redeem the mortgage, but you need a large amount of money to do so. if you can borrow enough to redeem your mortgage and arrange some sort of monthly payment to the investor, recover your credit rating from the foreclosure, then reapply for a loan to pay off this loan, that's great. However, scammers can get you there, as technically, you have to sign away the title of the house during the time you make the payments to the first loan. If they want to con you, they can simply take your payment(s), and NOT redeem the loan. You still get evicted. Or worse, they use some sort of excuse to claim you did not follow all the rules in the agreement and they keep the title of your house even after all your payments. You still get evicted, just further down the road.

* yet another variation of refinancing scam: tax lien scam -- tax liens are very legitimate... if you owe property tax, nothing will override it except maybe an IRS tax lien. And if you can't pay, your house can be sold from under you, with NO redemption possible (in a tax deed state) or you will have to pay the tax lien with interest (tax lien state). Scammers will scan the public list of tax lien sales and offer you a high interest loan to pay the lien off... but somewhere in the stack is a quit-claim deed... where you give up your house. Now with your signature on the quit claim deed, they can use your name to refinance the house, take out YOUR equity, pocket the money, and disappear. You end up owing even MORE money.

* Fall for overbid scam -- if you have enough equity in the house, and the bid at the sheriff's sale is enough to satisfy the debt / mortgage, you get the excess, i.e. overbid, back, but you have to go down to the courthouse to get it. And scammers will try to "help" you collect the overbid... for like 50%. As some properties can have a lot of equity, this amount can be quite large. Another way is they promise to apply the overbid to down payment of a new mortgage... if you sign the check over to them. Of course, there is no "new mortgage", and they simply disappear with the money.

* Fall for predatory lenders -- predatory lenders are lenders who lie and cheat to get your business. Often they will fake paperwork, such as claiming you have higher income than you actually do, or not mention that the mortgage rate, which seems very low, adjusts upward in a few months or years, or offer you a "silent second mortgage" for your down payment when such thing should have been documented in your mortgage application. It could be said that predatory lenders are one of the primary causes to this "subprime" mortgage toxic asset problem that lead to the recession of 2007-2009. While you probably fell for predatory lender earlier to get into this mess, you don't have to fall for one again for your refinancing.

* Sign ANYTHING you do NOT understand -- have an attorney review EVERYTHING that you may need to sign. If you get any high pressure sales pitch about "must sign now", be very very suspicious. Real business people understand you need to review the paperwork and will give you some time. However, keep in mind that some deadlines are set in stone. That's why any foreclosure defense starts when you first realize that you may miss a payment on the mortgage. The more time you have, the more options you have.

* Assign power of attorney, especialy durable and unlimited power of attorney -- durable and unlimited power of attorney empowers someone to sign ANYTHING on your behalf, including access to your bank account, even sell your house from under you, and is very hard to "cancel"! If you can sign it yourself, sign it yourself, and only assign LIMITED power of attorney if you can't physically be there! Be VERY weary if a stack of documents you need to sign includes a power of attorney!

* Pay up-front for loan modification lawyers / law groups / consultants -- any one who wants money upfront is automatically suspect. Even if they aren't really out to scam you, they often do nothing, wasting your valuable time when you could be doing something more useful to fend off foreclosure, and waste your limited money.

* Damage the property in any way -- do NOT try to take out the anger by damaging the house after you lost the title to the property. You can be charged with destruction of property, vandalism, and more. And they can always sue you for damages. And home owner's insurance may or may not cover you on this, the operative word being "owner".

* Move out before you have to (i.e. you got the pre-eviction notice to vacate) -- If you move out, squatters may move in, and destroy the place. Thieves can go in and steal water heaters, appliances, and more. Metal thieves may go in and strip out any valuable scrap metal such as pipes and wires, and so on. Worse, YOU may get charged for destructon of property and vandalism, even though you didn't do it! Also, the owner may change the locks and move your stuff out before they legally evict you. Once you're out, it'd be hard to get back in. And if you are homeless, you don't exactly have a lot of energy to countersue, do you?

* Accept ANY offer without thorough investigation -- lenders will want you OUT as soon as possible, so they may offer "cash for keys" deal, where they take your keys now (i.e. accept the house) for some small token payment. It's good for them as they take possession of the house sooner, saves the legal eviction costs, and makes sure you won't destroy the place. On the other hand, what's good for them is not necessarily good for you, as that small payment, often just a few hundred dollars, likely won't even cover one month's rent.

There are always scammers out there preying on the weak and desperate. Don't be victimized when you're already down on your luck, or do things that will make things worse. Even if you were not hit by a scam, you can be pressured into accepting something that may not be the best for you. Be vigilant, not fearful, and you should be fine.

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