Never pay upfront fees to anyone or any organization promising to help you keep your home from a foreclosure. Never sign a grant deed, quitclaim deed or transfer deed unless you intend to sell or give away your property. Deeds of Trust, used to secure a home, are part of the lending process and are cancelled when the a mortgage is fully paid. Never sign anything without having your attorney review it.

There are predators lurking about to scam extended homeowners claiming to rescue them from losing their homes. They convince desperate homeowners to transfer title to their homes to scam buyers.  These predators then borrow huge sums against their victim's homes and pocket the loan proceeds. The scammed homeowners then lose their homes and all the equity they may have gained had they sold it.

Watch out for unethical investors who will try to convice a homeowner facing foreclosure to sign a quit-claim deed for the property, and then lease the property. The former owners will still be liable for the mortgage payments, even though they no longer own the house.

Sometimes homes are worth more than the mortgage amount, so the lenders are willing to increase the debt even up to the market value of the property when the homeowner is behind in mortgage payments. In this scenario, perpetrators will arrange a new loan at market value, pay off the existing loan and pocked the excess cash! These scam artists have also convinced extended homeowners that they can help avoid forfeiture of their homes by having the homeowner transfer their property to a “co-signer” with good credit who will help them quality for a short-term loan that will be used to cover their outstanding debts. The homeowners are promised that the title will not be recorded, but returned to them usually within six months. These loan applications are then submitted to the co-signer, but their information, including their name, job information, income and bank accounts are false or are information from stolen identities.

Homeowner Options

Homeowners that are behind on their mortgage payments have options. They should get guidance from accredited financial counselors to find out if there are ways to cut spending to free up money for mortgage payments. A list of accredited financial counselors can be found at HUD's (US Department of Housing and Urban Development ) website. Filing for bankruptcy is not a good idea. It will not only ruin your credit. Your lender may still be able to foreclose and the court may still order the sale of your home. If you are in financial trouble, act NOW and you may be able to save your home. If you can’t, at least you can take the steps to soften the financial blow. Here are some options:

1.  Call Your lender

Most financial experts recommend you start by calling your lender and discussing the reasons why you are behind on your payments or why you may not be able to afford higher payments should your loan rate increase. If you cannot contact a loan representative directly by phone, write a letter immediately. Some lenders will allow terms to be adjusted. Freddie Mac for one offers incentives for lenders to help borrowers get up to date on their payments. Shop around and ask for referrals. Get more than one opinion when talking to brokers or bankers about refinancing options. Be sure to work with people operating out of a regular business and not a post office box. Check the licensing and records of the persons you are dealing with. Are they licensed through the Department of Real Estate? Check their license status at www.dre.ca.gov .

Read everything carefully before signing. If you are told you don’t need to read the documents, or you are told what is in them to save you time, don’t buy it! Read everything before you sign and make sure you understand it completely or have your attorney review them first. You should also have your own signed copies of all the loan documents.

2.   Sell Your Home

You may be able to refinance if you have equity in your home. Even if you will have a pre-payment penalty, it is worth it to get an affordable loan payment.

If you can’t make the numbers crunch for you, selling sooner rather than later is the best way to go. This will get you out of the situation on your own terms with no stain of a foreclosure on your credit record, although this can be detrimental because you may not be able to afford to buy another home. If you have equity in your home, you may be able to downsize.

3.   Short Sale

A short sale occurs when a home is sold for less than the mortgage amount due. This could be an advantage for homeowners with original loans. If the property sells for less than the original purchase-money loan, the lender must by law accept that as payment of the borrower’s obligation. A refinanced loan however, is considered a “recourse” loan. This means the lender can come after the borrowers personally for payment of any difference between the mortgage and the sales price. If you have a refinanced loan and are considering a short sale, talk to your lender first and let them know. They may agree to the short sale so you won’t be obligated to pay the difference. In this case though, the lenders may choose to write off the loss. They are then required to file a Form 1099 with the IRS reporting the homeowner’s deficiency. This will cause the homeowner now to have to claim this as ordinary income and be taxed on it at a higher rate than capital gain income. The homeowner should talk to the lender regarding this and try to negotiate a personal loan for the shortfall rather than owing a huge tax bill.

Most experts agree that homeowners are better off selling their home on their own rather than letting it go into foreclosure and the bank sell it. The bank may take months before selling a property which could cause the home to sell for much less than the homeowner could have sold it for, resulting in a greater loss to the homeowner.

More Help...

HUD - How to Avoid Foreclosure

Homeownership Preservation Foundation