Foreclosure Rescue Scams

The possibility of losing your home to foreclosure can be terrifying. The reality that scam artists are preying on the vulnerability of desperate homeowners is equally frightening. Many so-called foreclosure rescue companies or foreclosure assistance firms claim they can help you save your home. Some are brazen enough to offer a money-back guarantee. Unfortunately, once most of these foreclosure fraudsters take your money, you lose your home, too.

You can save yourself money and more heartache by avoiding any business that:

guarantees to stop the foreclosure process – no matter what your circumstances

advises you not to contact your lender, lawyer, or credit or housing counselor

collects a fee before providing any services

accepts payment only by cashier’s check or wire transfer

encourages you to lease your home so you can buy it back over time

tells you to make your mortgage payments directly to it, rather than to your lender

advises you to transfer your property deed or title to it

offers to buy your house for cash at a fixed price that is not set by the housing market at the time of sale

offers to fill out paperwork for you

pressures you to sign papers you haven’t had a chance to read thoroughly or that you don’t understand.

To Do

Contact your lender or servicer immediately if you’re having trouble paying your mortgage or you have received a foreclosure notice. You may be able to negotiate a new repayment schedule. Lenders generally don’t want to foreclose; it costs them money.

Contact a credit counselor through the Homeownership Preservation Foundation (HPF), a nonprofit organization that operates a national 24/7 toll-free hotline (1.888.995.HOPE) with free, bilingual, personalized assistance to help homeowners avoid foreclosure. HPF is a member of the HOPE NOW Alliance of mortgage servicers, mortgage market participants and counselors. More information about HOPE NOW is at www.995hope.org.

Mortgage Payments

Many loan servicers have expanded the options available to borrowers who are finding themselves in financial stress. Call your servicer – even if you’ve been turned down before. But be patient because servicers are getting a lot of calls, and be persistent if you don’t reach your servicer on the first try. Learn about the President's plan to help homeowners at www.makinghomeaffordable.gov.

Here are some possibilities to discuss with your loan servicer:

Reinstatement: You pay the loan servicer the entire past-due amount, plus any late fees or penalties, by a date you both agree to. This option may be appropriate if your problem paying your mortgage is temporary.

Repayment plan: Your servicer gives you a fixed amount of time to repay the amount you are behind by adding a portion of what is past due to your regular payment. This option may be appropriate if you’ve missed a few payments.

Forbearance: Your mortgage payments are reduced or suspended for a period you and your servicer agree to. At the end of that time, you resume making your regular payments as well as a lump sum payment or additional partial payments for a number of months to bring the loan current. Forbearance may be an option if your income is reduced temporarily (for example, you are on disability leave from a job, and you expect to go back to your full time position shortly). But it isn’t going to help you if you’re in a home you can’t afford.

Loan modification: You and your loan servicer agree to change one or more of the terms of the mortgage contract permanently to make your payments more manageable. Changes might be reducing the interest rate, extending the term of the loan, or adding missed payments to the loan balance. A change also may involve reducing the amount of money you owe on your primary residence by forgiving, or cancelling, a portion of the mortgage debt. A loan modification may be necessary if you are facing a long-term reduction in your income or an increase on an adjustable rate mortgage (ARM).

Selling your home: Depending on the real estate market in your area, selling your home may provide the funds you need to pay off your current mortgage debt in full.

Bankruptcy: Personal bankruptcy is thought of as the debt management option of last resort because the results are long-lasting and far-reaching. A bankruptcy stays on your credit report for 10 years, and can make it difficult to get credit, buy another home, get life insurance, or get a job. Still, it is a legal procedure that can offer a fresh start for someone who can’t satisfy their debts.

If you have a mortgage through the Federal Housing Administration (FHA) or Veterans Administration (VA), you may have other foreclosure alternatives. Contact the FHA (www.fha.gov) or VA (www.homeloans.va.gov) to talk about them.

Debt Settlement Facts

If you’ve maxed out your credit cards and don’t know how you’re going to pay off your debts, you may think that a company that promises to erase the debt for pennies on the dollar is the answer to your prayers. You need be cautious of in your choosing of debt companies if it sounds too good to be true chances are it is! However, with a good debt settlement program it can help significantly reduce and help eliminate your debt. You can easily tell the good companies from the not so good ones. Example: a reputable company will take time out and explain all the components of the debt settlement program and help you understand the good and the bad aspects of the program.

Even the reputable debt settlement companies have their critics and by now you have probably heard the critics’ negative views of debt settlement. I too have criticized many aspects of the industry, as it does have its flaws like any industry. However, in my opinion, where the critics’ views seem to fall short or lack understanding is that debt settlement is a viable option in lieu of people going bankrupt! Debt settlement is not for the person making double the minimum monthly payment due their creditors. It is for folks who can no longer afford to pay their minimum monthly payments and/or who cannot afford the payments associated with a debt management plan (DMP). It for those people who do not want to destroy their credit for 7 to 10 years by filing bankruptcy, but who desperately need relief from their debt.

Now I am going to address some of the top critic’s points:

Debt settlement has a negative impact on your credit score – As far as I am concerned, this should not a deal-breaker. Would you rather have a good credit score or would you rather be debt-free? You will have to decide what is more important to you. Every debt program will have a negative impact on credit scores. That's why only those folks who truly experience financial hardship and cannot keep up with their monthly minimum bill payments should go into one of these programs. It's completely pointless to worry about your credit score while you are facing financial ruin due to your debt. Your credit score will repair itself once you are out of debt. And, it will take far less time to rebuild than it will for you to get out of debt otherwise.

You might have to pay taxes on the canceled portion of the debt – Yes, it's possible that you may have to pay taxes on forgiven debt balances of six hundred dollars or more, but chances are you will not, because the IRS allows insolvent taxpayers to exclude canceled debts. So, unless you have a positive net worth, you probably won't need to pay taxes on your settlements. Furthermore, if you did, so what! You just saved hundreds or maybe thousands of dollars on your settlement. Any tax consequences will be far less than paying the debt in full.

For example, if a taxpayer is $10,000 in debt and owns $3,000 in assets, he/she cannot exclude more than $7,000 of forgiven debt from his/her income tax. Any forgiven debt over $7,000 that year must be reported as taxable income.

Collection activity will continue and you might get sued – If you fall behind on your bills, your creditors will most certainly make attempts to collect what's owed, and, yes, creditors may decide to file a lawsuit against you in civil court. But I fail to see a valid reason for this criticism. If you are in financial trouble, chances are you are already dealing with some form of collection activity. After all, collections are a function of being in debt trouble. Debt settlement will give you the opportunity to use the collection process to eliminate your debt through negotiations. Lawsuits are expensive, and the outcomes of these are very unpredictable for the creditor. However, creditors are becoming more aggressive, and if a lawsuit is filed, there is no need to freak out or be concerned, since they can be settled out of court. The only reason one would allow a legal action to proceed to a bank levy, wage garnishment or a lien placed on real property such as a home or automobile is because he/she does not have the financial resources to settle the account. If that's the case, then you should be seeking an attorney to file bankruptcy because debt settlement will not work for you.

Late fees, penalties and interest – If you do not pay your creditors on time they will impose late fees and penalties. Creditors will also increase your interest rates; this will cause your outstanding balance to get larger as they will add these fees to your credit card balances. However, if you are struggling to pay your accounts and you pay them a day late you are receiving late fees regardless and increased interest rates.

No Guarantee of Successful Settlements – Your Creditors are under no obligation to settle your debts for less than you owe, no one can guarantee that they will and no rules or laws that require them to settle. The fact of the matter is the banks do settle millions of dollars in debts every month, though there is guarantee they will settle with you, the chances of them doing so are in your favor.

Escrow Account – In order to take part in Debt Settlement program you must open an Escrow account, this is a special purpose account where you will save your and it will be used to settle your debts. You should have full control of the escrow account, all the funds are yours and you can cancel and/or close the escrow account at any time. Most programs automate the opening of the account and the depositing of funds into the account from the account that you specify your funds to be debited from. Your escrow accounts should be an FDIC insured account.