The process of taking a home through foreclosure, from beginning to end, is extremely different in every state. Depending on where a property is located, different types of foreclosure will be pursued, different terms will be used to describe a foreclosure auction, homeowners may receive many notices of the process or very few, and the time frames will range from a few months to over a year. One of the few relative constants in all of this, though, is the eviction process that is used after foreclosure to remove the homeowners from their property.

The eviction process usually lasts about 2-4 weeks, in most cases. It is a straight-forward legal mechanism where the new owner (usually the foreclosing bank) will prove that they now own the property and wish to take possession of it and remove any people and personal items still remaining. The bank will file a motion with the court asking that the sheriff be ordered to evict the former homeowners and their belongings. The bank will usually have no problem proving to the court that they now own the house, as the agents of the court ordered the granting of the foreclosure judgment, scheduled the sheriff sale, and signed off that the foreclosure auction was valid.

Once the order goes to the county sheriff, it can take just a few weeks for the sheriff to give the homeowners notice of the pending eviction and then they will show up a few days later to remove the people and property and change the locks. At this point, the homeowners should have moved out already, because it will be almost impossible to get more time to stay in the house, especially after missing numerous mortgage payments, working through various methods to stop foreclosure, and then enduring a lengthy foreclosure process. So the actual eviction process is relatively straight-forward with few possible outcomes, compared to all that goes on before it.

However, when this process starts at all varies widely by state. One of the first steps that homeowners should take in trying to save their homes is to look up their state foreclosure laws to find out if they have a redemption period either before or after the sheriff sale. Some states give them extra time to remain in the property after the auction, when the bank can not start the eviction process. This is a redemption period and it can not be denied to the homeowners by the bank or the court system, as it is guaranteed under state law. But the state law will also provide the time frame in which the homeowners will eventually find themselves put into the foreclosure process, and they should have a final plan for how to avoid this and get out of the house before being kicked out.

Some states grant foreclosure victims a 10 day redemption period, others have 6 months, and some even have a year after the sheriff sale that the homeowners can use to remain in the house and attempt to pay off the redemption amount. During all that time, the bank can not try to evict them by force, although they may offer a cash for keys deal or otherwise attempt to persuade the homeowners to leave the house prematurely. In this case, the bank may be able to take over the house early, to protect it from vandalism or damage. But, they can only start the eviction process once the redemption period has ended, regardless of whether or not the homeowners have some workable solution that would stop foreclosure in the end.

So the best way for homeowners to find out how much time they have before being evicted is to look up their state foreclosure laws to find out how much time the entire foreclosure process will take. Otherwise, there is a very real possibility that they might move out too soon or find out about the eviction too late. If they move out too soon, they will lose valuable time to save money for an emergency fund and repair your credit. If they do not hear about the eviction until a few days before the sheriff shows up to remove them, then they may not have anywhere to go. Either possibility should be avoided, if at all possible, and homeowners can protect against either with the right information.

One of the most intriguing figures of this election season so far has been Congressman Dr. Ron Paul, a Republican from Texas. He has long been the most consistent defender of liberty and free markets in all of Congress, possibly in all of American history, having served ten terms thus far and now running for the Office of the President. The grass-roots movement that has coalesced around his candidacy, dubbed the “Ron Paul Revolution,” has shown an amazing intellectual depth, echoing Dr. Paul’s own extensive awareness of history, economics, and politics. Unfortunately, his voice has been effectively silenced, cut out of the mainstream media, and an important, consistent, and logical argument for returning the nation to its constitutional foundations is being ignored by the controllers of the largest media companies in the nation, not allowing his message to reach the average person.

Over the life of this blog, I have, when discussing monetary policy or various reasons for the state of the economy, linked to a small number of Dr. Paul’s writings, mostly on his economic beliefs, presented in articles and speeches before Congress. Not wanting to change the point of the blog to examining deeper political issues, I had chosen to remain institutionally neutral in terms of political positions. Thankfully, though, Dr. Paul has published a new book, entitled Pillars of Prosperity: Free Markets, Honest Money, Private Property, which contains an extensive compilation of his thoughts on economics. As a series of special posts, over the next few days (as time allows), I will attempt to examine each part of the book and present a summary of his positions, which have been woefully underrepresented to most Americans. “Part 4 – Giving Money Back to the Taxpayers” is discussed here.

This section of the book, similar to the discussions on Social Security, is mainly presented through the various pieces of legislation that Ron Paul has supported. All of them focus on providing tax credits, repealing certain taxes, or attacking the federal income tax as a whole. It is no secret that Paul’s belief is that the 16th Amendment, supposedly authorizing the income tax, should be completely done away with and replaced with nothing.

Instead of doing away with the income tax and replacing it with a value-added tax, or a flat tax, his solution is to reduce the size of the federal government so that its expenses can be paid through other means. The income tax did not even exist before 1913, and repealing the income tax now would allow for a government the size of what the US had in ten years ago, which was not insubstantial. The size of the government should be cut back, according to Paul, because of the numerous ills of big government (socialism, central planning, the business cycle, special interest lobbying, perpetual war, attacks on civil liberties, destruction of the value of money, and so on).

Thus, it is no surprise that many of the bills that have been supported or introduced by Paul have to do with allowing the people to keep more of their money. Some of these include the Family Health Tax Cut Act, which would have provided a tax credit to families with children with serious medical problems in order to provide medical care; as well as the Teacher Tax Cut Act, which would have provided credits to teachers, counselors, librarians, and all employees who work in the public K-12 public education program. If the entire tax can not be repealed all at once, then it should certainly be reasonable to allow people to reduce their tax burdens.

Some of the other bills he has supported attempted to do away with certain aspects of the tax system that he (and most logical people) views as unfair. For example, there is a tax on the sale of livestock sold by children who participate in an agricultural education program. With so many laws being passed in Washington sold to the public as “for the children,” it certainly does not make sense to expose them to the complexities and absurdities of the income tax code before they are even able to vote for the candidates who will pass laws about and administer the system, does it? But the Congress, those ultimate protectors of “the children,” is only too happy to take their share of a child’s revenue from the sale of livestock used in an education program.

Paul attempts to prohibit another thinly-veiled attempt at outright theft by the IRS when he introduces the Public Safety Tax Cut Act. Certain local governments are in the habit of using volunteer public servants to provide for firefighting, for example, and these volunteers may be given incentives to encourage their participation. These incentives usually include the waiving of fees for water, sewer, or garbage pickup services. The IRS, though, decided to tax the value of these incentives as income to the volunteers, even though they may receive no money directly from them, and they may be one of the main recruiting tools used to procure volunteers. Paul attempts to overturn this ruling, exempt the incentives from the personal income tax, and then goes another step: he even wanted to provide a tax credit to these volunteers for their time and effort.

Another of his concerns is education. With the Teacher Tax Cut Act, he attempted to provide tax credits to workers in the public school system, and with the Family Education Freedom Act, he looked at the other side of the coin: those who send their children to school. The purpose of this bill was to provide a $3,000 tax credit so parents could send their children to any private, public, or religious school, or home school them, without feeling unduly financially chained to the public school offered locally. Paul makes the point of pointing to the concept of consumer sovereignty, another term borrowed from Austrian Economics, to emphasize that it should be the market that chooses which forms of education succeed or fail.

But Paul does also take aim directly at his target of eliminating the income tax and IRS completely. He has introduced the Liberty Amendment, which does exactly this by repealing the 16th Amendment to the Constitution. But this amendment would go even further, by specifically prohibiting the federal government from passing any laws not authorized by the Constitution. As Paul states, “The income tax opened the door to the era (and errors) of Big government.” Thus, it was the imposition of the income tax that led to the trend of massively increasing the size of the government..

Of course, this section would not be complete without at least one attack on the other institution equally or more responsible for Big Government: the Federal Reserve System. The federal income tax transferred more of the peoples’ money to Washington, allowing an enormous growth in the size of government. But growing government breeds more growth, which can not be contained by revenue or borrowing, especially with a legal printing press like the Fed. One of the many consequences of this is that all restraints of spending are thrown out the window, while such other companions are invited in, like the business cycle, debasement of the currency, and growing deficits.

It is this philosophy of spending that Paul eventually returns to, as well, in discussing tax cuts. His thoughts on this issue are quite prescient, as Congress is now planning to issue $150 billion in tax rebates. But, according to Paul, the politicians do not even know what will happen with a tax cut, whether the economy will be stimulated and for how long. And the idea that some bureaucrats have which considers a tax cut a “cost to government” falls even wider of the mark. Spending is the problem in the first place, and the peoples’ money is simply not Congress’ to spend.

Although the government does not know what will happen with any tax decrease, Paul does profess to know what happens when an income tax is imposed or when taxes go up. The fact that a large amount of money is taken out of the economy all at once will certainly not stimulate growth. The very process of taxation takes peoples’ earnings out of the market, taking from them the decision-making power that creates value in goods and services, and puts that power in the hands of the central planners.

Thus, Paul’s concern with giving the people their money back or allowing them to keep it in the first place, fits neatly into his philosophy of free markets, and the fact that markets work more efficiently than government planners will ever be able to manage. His beliefs in the individual sovereignty of the people is also represented in his attempts to repeal certain taxes, overturn unfair, unproductive IRS rulings, and do away with the 16th Amendment entirely. Rolling back the size of government and increasing personal freedom would work in conjunction with each other, just as the income tax, Federal Reserve, growth of Big Government, and loss of civil liberties have worked together to bring the country to its current instability.

Part I - The Economics of a Free Society
Part II - Mises and Austrian Economics: A Personal View
Part III - Reforming Social Security
Part IV – Giving Money Back to the Taxpayers
Part V - Money and Banking: Gold versus Fiat
Part VI - Free Trade: Real versus Phony
Part VII - International Affairs
Part VIII - How Government Distorts the Housing Market
Part IX - Spending, Taxes, and Regulations

One of the most intriguing figures of this election season so far has been Congressman Dr. Ron Paul, a Republican from Texas. He has long been the most consistent defender of liberty and free markets in all of Congress, possibly in all of American history, having served ten terms thus far and now running for the Office of the President. The grass-roots movement that has coalesced around his candidacy, dubbed the “Ron Paul Revolution,” has shown an amazing intellectual depth, echoing Dr. Paul’s own extensive awareness of history, economics, and politics. Unfortunately, his voice has been effectively silenced, cut out of the mainstream media, and an important, consistent, and logical argument for returning the nation to its constitutional foundations is being ignored by the controllers of the largest media companies in the nation, not allowing his message to reach the average person.

Over the life of this blog, I have, when discussing monetary policy or various reasons for the state of the economy, linked to a small number of Dr. Paul’s writings, mostly on his economic beliefs, presented in articles and speeches before Congress. Not wanting to change the point of the blog to examining deeper political issues, I had chosen to remain institutionally neutral in terms of political positions. Thankfully, though, Dr. Paul has published a new book, entitled Pillars of Prosperity: Free Markets, Honest Money, Private Property, which contains an extensive compilation of his thoughts on economics. As a series of special posts, over the next few days (as time allows), I will attempt to examine each part of the book and present a summary of his positions, which have been woefully underrepresented to most Americans. “Part 3 – Reforming Social Security” is discussed here.

In this relatively short (six pages total) section, Ron Paul outlines some of his positions on the issue of Social Security. It is not really any secret that the system is broken, unfair, and soon-to-be insolvent, with much of the trust fund consisting of the equivalent of IOUs from the government, as receipts in excess of current expenses are spent by Congress, instead of being allowed to collect interest in a secure fund that would allow the system to survive. When Social Security takes in more than it pays out, the government sells the fund a bond, taking the actual money and spending it.

With Paul’s well-known propensity for voting against anything that could be considered spending by the government, as well as cutting back current levels of spending, his position on the Social Security question is pretty basic, and has been presented in numerous interviews he has done. Essentially, he would allow the younger workers to opt out of the system and take care of themselves, with the end goal being the abolishment of the entire system. In the meantime, those who are dependent on Social Security payments for their retirement or medial benefits would still receive their payments. No one would have benefits eliminated.

The source that Paul presents for this solution is cutting back on the nearly one-trillion dollar per year military budget, saving hundreds of billions of dollars by bringing troops home from across the world. Instead of providing subsidies care of the American taxpayer to governments like Japan, South Korea, and Germany, where the US still stations troops to provide for the defense of these countries, this money could be used to pay the promised benefits to those who are in the Social Security system.

The section of the book discussing Social Security, though, presents more of Paul’s arguments against the flaws in the system itself, and Congress’ willingness to lower benefits and take the money in the trust fund for its own benefit, rather than his arguments for shutting down the American Empire. Of course, it should be mentioned that the over spending, borrowing, and raiding of the trust fund are all integrally related to the 700 military bases in 130 countries. But Paul’s arguments in this chapter, surprisingly enough, are not against the Social Security system itself; he argues for the protection of the fund, and his positions are presented through his discussions of four pieces of legislation he has supported over the years.

The first of these, the Senior Citizens’ Freedom to Work Act (H.R. 5), aimed to repeal earnings limitations on seniors who choose to work, in addition to being eligible for collecting Social Security benefits. If seniors decide to provide some benefit to the economy, if they are too valuable and are paid too much, the government will reduce their benefits. This is unacceptable to Paul, who argues that these benefits were promised to the workers for paying into the system for many decades. Reducing their benefits because they choose to continue working encourages seniors to keep collecting their government checks while providing no services to the market. Ironically enough, these seniors became eligible for Social Security benefits by paying into the system through working; and now the government tries to reduce their benefits if they keep working.

The Social Security Tax Relief Act (H.R. 4865) aims at another ironic policy of the federal government: namely, that of taxing income from Social Security payments. This bill’s purpose was to repeal the 1993 tax increase on benefits. Paul states that repealing this tax had been one of his goals in Congress for a long time. He argues that taxing these benefits is a form of double taxation, where workers were taxed to pay into the fund and are then taxed when receiving their eventual benefit from the trust fund. Taxing Social Security benefits is also an underhanded method that Congress uses to reduce the total amount of benefits paid out. In addition to their inclination to seize any excess money in the trust fund, the fact that Congress would also attempt to reduce benefits represents nothing more than double theft of a worker’s income, while calling it a benefit.

It is this raiding of the fund that is the target of the next legislation presented in the book. The Social Security Preservation Act, introduced by Paul in 2003, attempted to require all payments made into the trust fund to be used solely to pay out benefits. Any excess receipts would then have to be invested in interest-bearing certificates of deposit. He is obviously concerned with Congress’ ability to make good on the promises it has made to the American people to pay them their benefits for paying into the Social Security system. This bill’s purpose was to protect the system from the massive deficit spending making even greater the temptation to steal from the trust fund due to the “conservative” policies of the Bush administration and Republican Congress which was in power at the time.

The final bill presented accompanies some of the most surprising information in the book up to this point. The name of the bill is the Social Security for American Citizens Only Act and was introduced by Dr. Paul in 2003. Paul discusses two serious problems with the Social Security system that this bill is designed to address. First, it ends the practice of totalization, which has been used to determine eligibility of Americans who spent time working in other countries and was not paying payroll taxes.

But the most astonishing portion of the bill is its forbidding of the government from paying Social Security benefits to noncitizens, as if this should have to be spelled out specifically to lawmakers! Even more astounding is Paul’s statement that the United States currently provides benefits to citizens of 17 other countries. He is also targeting a rumored deal between the American and Mexican governments, which would make hundreds of thousands of Mexican citizens eligible for benefits, even if they come to America and work illegally, and worked for less than the required amount of years to qualify for benefits. But they would be able to collect Social Security back in Mexico regardless of this fact.

Paul presents a quite logical argument against this absurdity and the illegal immigration problem as it already stands when he states, “How many more would break the law to come to this country if promised U.S. government paychecks for life? Is creating a global welfare state on the back of the American taxpayer a good idea?” He also equates this policy of providing Social Security to noncitizens as another form of foreign aid, which Americans are already forced to provide, in addition to all of the voluntary donations the American people contribute to foreign countries and charities. It is inconceivable that any person would volunteer to pay taxes into a fund to provide retirement benefits to citizens of other countries, or think that this is a good idea.

Although this is the shortest section of the book thus far, it contains some of Paul’s least-discussed positions in relation to the problem of Social Security. Although he has stated numerous times that he has never voted to spend a penny of the trust fund, and he would like to give young people a choice to get out and fund the system with savings from dismantling the Empire, it is clear that Ron Paul has been waging a smaller battle for years in Congress to preserve the system and make sure that the government makes good on its promises to the American people.

Part I - The Economics of a Free Society
Part II - Mises and Austrian Economics: A Personal View
Part III - Reforming Social Security
Part IV – Giving Money Back to the Taxpayers
Part V - Money and Banking: Gold versus Fiat
Part VI - Free Trade: Real versus Phony
Part VII - International Affairs
Part VIII - How Government Distorts the Housing Market
Part IX - Spending, Taxes, and Regulations

One of the most frustrating aspects of the entire foreclosure experience is the fact that a bank is involved. So many problems would be solved simply if there was no bank to deal with. Unfortunately, this would make foreclosures virtually disappear overnight, a scenario that most lenders making billions of dollars from their victims would find horrifying in the extreme.

But this does not eliminate the fact that it is almost impossible to get representatives of lenders to call anyone back, either to approve a loan modification or other plan or issue a short turn-down. For one reason or another, mortgage companies are quite capable of incessantly calling homeowners who are behind on their payments, but are equally incapable of returning a phone call to these same foreclosure victims when they are attempting to find a solution.

The irony of the situation defies logic and is beyond belief: lenders try to contact their clients to get their money, but when offered a plan to get them their money, they ignore the same exact clients for months, pushing them to the brink of losing their homes to a sheriff sale. Can anyone honestly determine, based solely on their actions, if lenders want foreclosures or not?

But what should homeowners do when faced with this situation? There are probably two main options that they have to deal with the event of the lender ignoring their attempts to save the home from foreclosure. They can either try to file a complaint with regulatory agencies, or fight back in the court system.

Although there are numerous regulatory agencies that oversee the banking industry, most of them represent dead ends for homeowners. Complaining to the Federal Reserve system about a bank that is a part owner of the Fed reflects some conflicts of interest that will not be easily overcome. As well, complaining to a government agency that receives the money for its annual budget from these big banks, through the Fed, will also result in a quick disappointment for homeowners. No, it seems that there is no agency that foreclosure victims can report the bank to for their failure to give them a phone call back. Besides this, if the mortgage company called them back and said their modification or payment plan has been turned down, they still would not have anyone to complain to.

It is really not surprising that the lender's loss mitigation specialist is unable to return the homeowners' calls, though, as these lenders are notoriously incompetent, and will wait until the very last second, mere days away from the foreclosure auction, to tell their victims that they did not submit all the right paperwork, the four-month old paperwork is not out of date, the owners do not make enough income, or could not qualify for the modification. The bank's customer service representatives just put it off as long as possible. Complaining, unfortunately, will get the homeowners less than nothing and will waste valuable time that could be used finding other methods of saving a home.

Another almost equally futile attempt might be made by the homeowners if they really think there is a possibility of qualifying for a plan from the lender. In this case, they would want to keep trying to get in contact with someone at the bank and try speaking with other people in the same department and explain that they have not had a phone call back in 45 days or however long it has been. In most cases, though, they will simply be told who has their file, reassured that they will get a call back, and then transferred back to voicemail.

The immense frustration that homeowners experience when working with the bank is just one reason that they should have backup plans to stop foreclosure. Try dealing with the lender, but also try other options. There are professional companies that specialize in this kind of loss mitigation negotiation and may have better contacts with the lender, and other companies can help refinance, work with an investors, or file bankruptcy to avoid foreclosure. The homeowners will just have to figure out what the best ways to stop foreclosure are for their situation, regardless of how the bank acts.

As a last resort, the homeowners should go to the courthouse and ask for a hearing before the judge in the case. The can explain that they have been trying to work out a modification outside of the legal process, and had been told that they would receive an answer, and that they have not gotten one, despite sending the lender all of the required information and documents months ago. Time is now running out, and the lender should be forced to respond or the foreclosure process should be put on hold until they have figured out what is going on with the loan they are trying to foreclose. The judge can order the lender to give the foreclosure victims their answer, or not allow the mortgage company to go through with the foreclosure auction. That means keeping the sale date off the schedule entirely until the bank lets the homeowners know whether they have qualified for a workout program or not.

Going to the court like this may seem intimidating to the vast majority of foreclosure victims, but it should not be. The lender will not hesitate for one second to use the legal process to their advantage, and owners ignorant of how the system works are one of the bank's greatest strengths. The clerks of the court can usually tell the homeowners which forms to fill out to request a hearing, though, as well as how to file and when the hearing will take place.

Once the hearing date is set, the foreclosure victims should make absolutely sure that they can attend. Then the most important point will be for the homeowners to make sure they bring records of their calls to the lender requesting an answer, as well as documents they have submitted to satisfy the bank's checklist for a workout plan, and explain that they have so far received no response and are losing valuable time and the opportunity to work on other solutions by trusting in the lender's offer of potential workout plans.

Complaining to a regulatory agency about the bank's nonresponsiveness will most likely result in the homeowners getting a form letter saying that the bank has been investigated and they did not do anything wrong. The regulatory agencies will have no resource to provide direct help to homeowners anyway, and the foreclosure will proceed. But using the courts can force the bank to get their act together, or else they will have to pay their attorneys more, and have the foreclosure postponed.

Banks definitely do not want to lose even more money on the foreclosure than they are already expecting. Until banks are taken out of the foreclosure process entirely, which is not expected to occur anytime soon, the best resource available to homeowners may be finding options to stop foreclosure that do not involve the bank, or working in the court system to force the bank into competence.

One of the most intriguing figures of this election season so far has been Congressman Dr. Ron Paul, a Republican from Texas. He has long been the most consistent defender of liberty and free markets in all of Congress, possibly in all of American history, having served ten terms thus far and now running for the Office of the President. The grass-roots movement that has coalesced around his candidacy, dubbed the “Ron Paul Revolution,” has shown an amazing intellectual depth, echoing Dr. Paul’s own extensive awareness of history, economics, and politics. Unfortunately, his voice has been effectively silenced, cut out of the mainstream media, and an important, consistent, and logical argument for returning the nation to its constitutional foundations is being ignored by the controllers of the largest media companies in the nation, not allowing his message to reach the average person.

Over the life of this blog, I have, when discussing monetary policy or various reasons for the state of the economy, linked to a small number of Dr. Paul’s writings, mostly on his economic beliefs, presented in articles and speeches before Congress. Not wanting to change the point of the blog to examining deeper political issues, I had chosen to remain institutionally neutral in terms of political positions. Thankfully, though, Dr. Paul has published a new book, entitled Pillars of Prosperity: Free Markets, Honest Money, Private Property, which contains an extensive compilation of his thoughts on economics. As a series of special posts, over the next few days (as time allows), I will attempt to examine each part of the book and present a summary of his positions, which have been woefully underrepresented to most Americans. “Part 2 – Mises and Austrian Economics: A Personal View” is discussed here.

This short essay, originally published by Paul in 1984, represents his personal reflections on the influence of the Austrian School of economics on his political life. He states that his original decision to run for office was based primarily on the wage and price controls established by President Nixon in 1971.

Once he was elected as a representative, Paul has tried to influence policy through educating his fellow colleagues in the principles of the free market and the dangers of interventionism. He does admit the difficulties in pursuing this path, with politicians relying on the usual techniques of Washington, which aim to serve the special interests of various powerful pressure groups. However, this type of utilitarianism is ultimately doomed to failure, as it breeds more and more economic interventionism.

Paul states that every argument made by politicians on the House floor is based on utilitarianism, rather than principle. In such an environment, it is all to easy for them to rationalize any position at any time for any purpose and serve as little more than demagogues. They even begin to believe in their own central planning abilities. What these unprincipled positions represent to Paul, though, is the average Washington politician’s lack of will in standing up to and resisting the special interests. “For the most part, the Members [of Congress] are well-intentioned, ostensibly pragmatic do-gooders –- ‘pragmatic’ enough to latch on to the interventionism most beneficial to their particular political needs and to provide an intellectual defense.” Thus, the pressure groups are able to convince representatives to defend almost any policy, persuading them to abandon principle and argue how one position or another is the best right now.

It is clear that the Austrian subjective value theory has heavily influenced Paul’s opposition to intervention in the free market. In fact, he says that the theory explains why intervention does not work, and refers to Austrian economist Ludwig Von Mises’ explanation that prices under a socialist system can not be established. Either the people use their judgment to establish prices and what should be produced, or the government arbitrarily imposes prices and production through force. The argument of the labor theory of value, used (consciously or not) by politicians to establish and secure “fairness” in the economy distorts the market; the subject theory of value explains that planned economies are simply impossible.

Another argument that has obviously influenced Paul is that money is a commodity in the market. In the hands of government, though, politicians try to make money a product of the State. This is another unnecessary, dangerous intervention in the market, though, as the value of money must be determined subjectively by the market. Even the positions of pseudo-free market advocates of the Chicago School of economics miss this point through their “quantity value” of money, which supports the manipulation of the money supply and interest rates by a central bank. Also, by its condemnation of commodity money and rejection of the subjective theory of value, monetarism proves itself to be wrong.

A short but interesting analysis is made by Paul when discussing the pivotal year of 1913 in the history of the United States. Mises had published his “The Theory of Money and Credit,” but America, led by Woodrow Wilson at the time, chose the path of central banking with the creation of the Federal Reserve System and the institution of the income tax. According to Paul, “The subsequent cost in human suffering and loss of freedom has been immeasurable.” Much of Paul’s career has also been a response to the interventionist legacy of Wilson and an attempt to put the country back on the path toward free markets and liberty.

It is this acceptance of economic interventionism, through the central bank and fiat currency, which creates such social woes as the business cycle, unemployment, international crises, and war. The business cycle is caused, according to Paul, by the distortion of interest rates, which causes malinvestment in certain sectors of the economy, leading to skewed economic calculation due to the manipulated credit creation. Preferential treatment by the government of business and constituencies also contribute to weaknesses in the market.

But when the bubble inevitably bursts, the real causes are never examined. Instead, recoveries lead to more spending and credit creation, which is directed to another segment of the economy, looking for a new bubble to form to keep the speculation going and the entire system from collapsing.

Paul has always been concerned with government intervention in the market, arguing along the lines of Mises that American interventionism will eventually lead to a German-style of fascism. Big government in bed with big business, with the apparent private ownership of business and corporations, which receive most of their largesse from the government, which imposes its authoritarian control over the economy, will be the result of increased meddling with the market. Such rules allowing for emergency impositions and an economic dictator are already on the books; according to Paul, this is the inevitable outcome of economic intervention.

As he lists the consequences of these policies, such as excessive nationalism, protectionist policies, economic isolationism, militarism, and war, it is difficult not to hear echoes of the current state of America in the world, waging war thousands in two countries thousands of miles from its shores, more dependent than ever on imported energy resources, and increasingly distrusted by governments across the world, with a currency that is quickly falling in value.

In the final part of the essay, Paul returns to his focus on individual liberty, arguing against Mises’ position on utilitarianism and natural rights. Whereas Mises believed there was no room for a concept of natural rights, Paul argues on the basis of semantics that “Though Mises states that the ‘idea of natural law is quite arbitrary,’ I might suggest that so are the interpretations of utility… Only a concept of natural rights can condemn the ‘perceived’ utility of interventionism.” In the absence of a philosophy of natural rights, the socialists can rush into the vacuum, claim utilitarianism, and win the argument for government intervention.

When a philosophy of natural rights and individual liberty is combined with the utilitarian argument against government interventionism becomes much more powerful. In fact, according to Paul, the power of natural law is such that “those who accept a natural rights philosophy have no choice whatsoever but to accept laissez-faire capitalism.” There simply is no place for the government to intervene in the free market, if people would accept the concepts of natural rights and personal freedom.

Part I - The Economics of a Free Society
Part II - Mises and Austrian Economics: A Personal View
Part III - Reforming Social Security
Part IV – Giving Money Back to the Taxpayers
Part V - Money and Banking: Gold versus Fiat
Part VI - Free Trade: Real versus Phony
Part VII - International Affairs
Part VIII - How Government Distorts the Housing Market
Part IX - Spending, Taxes, and Regulations

"When it rains, it pours." Homeowners with more than one mortgage who have fallen behind on all of them know that old cliche possibly more than anyone else. When a financial hardship comes up, and there is not enough income to make all of the mortgage payments, more than one of the lenders may initiate foreclosure proceedings in the county court at roughly the same time. In fact, if one starts the process of filing paperwork in the court system, all of the others may also file as soon as they are aware of the first foreclosure, and that the homeowners are behind on all of their bills. This situation can be somewhat confusing for homeowners, though, if the second mortgage files first, followed by the first; or the HELOC holder filing first, followed by the first and then the second.

But, to put it in as simple terms as possible, filing foreclosure is simply one creditor, who has had the house pledged as collateral for a mortgage loan, asking the appropriate local court to sell the house, in order for the mortgage company to regain any losses experienced on the nonpayment of the loan. The fact that more than one lender is claiming losses at once, when all of the lenders are behind on payments, should not be surprising at all.

It will be the court itself that orders the sheriff sale of the property, as long as the plaintiff in the case, the bank, can prove that the loan is in default and that the property is collateral. This, of course, is usually quite easy to prove, and, far too often, homeowners do not even make an appearance at the foreclosure hearing to make an answer or request more solutions outside of the legal foreclosure process. However, in any case, it does not matter if one mortgage company or lienholder files foreclosure paperwork first or second, as the proceeds from the eventual foreclosure auction will be paid out the same way. The order of payments is determined far in advance, even before the house is sold to the foreclosure victims to begin with.

At the sheriff sale, any back property taxes will be paid off first. Then, the first recorded mortgage will be paid off. After that, any other parties will be paid off in order of when their lien was filed with the county recorder. The only exception would be for a mechanics lien, which may not be recorded at the time of the foreclosure or auction, but the creditor may be able to collect a portion of the proceeds before an earlier-recorded lienholder. This is a somewhat more uncommon event, though, and most homeowners in foreclosure will not experience it. It is also a broader topic than can be discussed fully in this post.

It is the order in which the parties had filed their liens, for the most part, that will determine who is paid off with the proceeds from the auction first, second, third, and so on. Not surprisingly, county property taxes are always paid off first, since the government needs to make sure it gets its share before anyone else. Also, this prevents the new purchaser from having to pay off the back taxes or worry about a tax foreclosure if the transfer does not take place quickly. County property taxes are almost always paid to a current status or otherwise settled in any sale of real estate, whether through foreclosure or otherwise.

Thus, the payment of proceeds from a sheriff sale is not determined by which lienholder files for foreclosure first; rather it is decided solely by the recorded date of the lien. Any lien is counted in the determination of order, whether it is a first mortgage, second mortgage, judgment lien, income tax lien, or other assessment.

This is also a major reason that second mortgage companies are often far more willing to work with homeowners in setting up a repayment plan or taking less money on a short sale: they know that, in a foreclosure auction, they will probably not be paid any of the proceeds after the taxes and first mortgage are paid. Other liens beyond the second mortgage often have even less of a chance of getting any real benefit from forcing a sale of a property through foreclosure.

However, any lienholder who has had the property pledged as collateral for a loan can initiate foreclosure proceedings. Even second mortgage companies will start the process if the homeowners are not in contact with the bank and have not expressed an interest in getting the monthly payments back on track. They may hesitate to file for foreclosure, but no response by the owners will eventually force them to take action in the courts. Homeowners will most likely be facing only one foreclosure action against them by a first mortgage company, but this does not preclude the possibility of facing more than one foreclosure lawsuit at a time.

One of the most intriguing figures of this election season so far has been Congressman Dr. Ron Paul, a Republican from Texas. He has long been the most consistent defender of liberty and free markets in all of Congress, possibly in all of American history, having served ten terms thus far and now running for the Office of the President. The grass-roots movement that has coalesced around his candidacy, dubbed the “Ron Paul Revolution,” has shown an amazing intellectual depth, echoing Dr. Paul’s own extensive awareness of history, economics, and politics. Unfortunately, his voice has been effectively silenced, cut out of the mainstream media, and an important, consistent, and logical argument for returning the nation to its constitutional foundations is being ignored by the controllers of the largest media companies in the nation, not allowing his message to reach the average person.

Over the life of this blog, I have, when discussing monetary policy or various reasons for the state of the economy, linked to a small number of Dr. Paul’s writings, mostly on his economic beliefs, presented in articles and speeches before Congress. Not wanting to change the point of the blog to examining deeper political issues, I had chosen to remain institutionally neutral in terms of political positions. Thankfully, though, Dr. Paul has published a new book, entitled Pillars of Prosperity: Free Markets, Honest Money, Private Property, which contains an extensive compilation of his thoughts on economics and presents an excellent opportunity for a special book review. As a series of special posts, over the next few days (as time allows), I will attempt to examine each part of the book and present a summary of his positions, which have been woefully underrepresented to most Americans. “Part 1 – The Economics of a Free Society” is discussed here.

In the first part of the book, Ron Paul’s overall economic thoughts are outlined, starting with is long-held belief that the path the government has been on for decades is a crisis in the making. This is due to the out of control spending, high taxes, regulation of the market, inflation, invasion of privacy, massive welfare spending, massive military spending, and interventionism overseas.

Paul is obviously concerned that the crisis will have much to do with the destruction of the dollar, which will lead to higher prices. The government will feel the need to intervene in the economy, resorting to “Nixonian-Keynesianism” in the form of wage and price controls. The currency destruction will also create a rush out of the dollar as foreign governments dump the dollar in favor of more sound money.

The role of government in general is also examined. Should the US government be the protector of life, liberty, and property; or should is be the ultimate provider and policeman of the world? Paul strongly argues for the former, with a government based on a constitutional foundation, as opposed to the current system of authoritarianism. As he states, “Current problems that we now confront are government-created and can be much more easily dealt with when government is limited to its proper role of protecting liberty, instead of promoting a welfare-fascist state.” Taking aim at the failed Drug War, he argues that it is based on the concept that the government needs to protect us from ourselves and throw nonviolent drug users in prison, and even curtail the rights of individuals and healthcare professionals to utilize alternative medical practices. On the other hand, he also argues that the government, while infringing on the right to liberty with these types of laws, also infringes on the right to life by legalizing and subsidizing the practice of abortion, both in the US and in other countries. This he sees as dangerous and ironic, which is also a somewhat accurate description of nearly every action governments take.

The theme of international interventionism is also discussed at considerable length, as the move toward more centralized, world government is viewed by Paul with extreme caution. “For over 50 years, there has been a precise move toward one-world government at the expense of our own sovereignty,” he writes. Extra-governmental, international institutions such as the International Monetary Fund and World Bank are funded by the American people, who have no say in what their money is used for, and where it is applied. Poor Americans have their money taken from them and given to an international, unaccountable institution, where it is then given to corrupt leaders in other nations in the form of kickbacks.

Of course, this trend of government giving out favors is nothing new, according to Paul. He mentions former Congressmen who, once they leave office, team up with members of the opposing party in lobbying for special interest groups. After all, the entrenched interest groups need the support of both parties to obtain their handouts from the government in the form of taxpayer money. But government benefits, either to corporations, interest groups, or welfare recipients, causes two problems at once: it takes away money from someone else, and it makes the receiver dependent on government.

The main culprit in this corrupt system, according to Dr. Paul, is the banking system itself, with the Federal Reserve as the head of the snake. The Federal Reserve and the government has undertaken a form of central economic planning, through the tools of fixing interest rates, subsidizing credit, attempting to stimulate the economy, aiding the sick, federally managing education, and creating other welfare programs. This system allows the government to administer these enormous programs and wage perpetual war anywhere in the world whenever the interests of America are involved. The Federal Reserve manipulates interest rates and creates credit out of thin air, allowing us to live well beyond our means with low and negative savings rates, resulting in the fact that “we have abandoned a necessary part of free-market capitalism, without which a smooth and growing economy is unsustainable.” The bubbles in the economy, such as the recently burst housing market bubble, are created from the Federal Reserve creating easy credit; and the nonexistent savings rate, a key driving force of true capitalism, is allowed and encouraged by the system.

In fact, Paul argues that the market system now in place has no evidence of capitalism at all. It is instead a form of “Keynesian inflationism, interventionism, and corporatism.” “A system of capitalism presumes sound money, not fiat money manipulated by a central bank.” According to Paul, this will have to come to an end one day, and it is up to us to determine if it ends gracefully or in a full-blown crisis.

Because of the standing of the dollar as the reserve currency of the world, we have been able to get away with this on such a large scale for so long. Due to the Bretton Woods agreement, the world accepted the dollar as if it was as good as gold until 1971, when the US defaulted on the gold exchange rate. Luckily, though, by this point the dollar was the established reserve currency, which allowed the government to continue its policy of credit creation and inflation.

The manipulation of the gold price itself for many years, as well, contributes to the ongoing belief in the system. Paul cites the fact that, from 1945-1971, the US sold nearly 500 million ounces of gold for $35.00, in order to prop up the value of the dollar. This manipulation still exists today and is practiced by many more governments than just the American one, and is a well-documented occurrence.

But all of this manipulation and intervention can not last forever. Eventually, inflation will catch up with the system, and no amount of government-rigged indicators of “low inflation,” such as the CPI or PPI, will prevent the crisis. Even now, the value of the dollar has been declining, as resources costs and food costs are increasing. Yet, the Federal Reserve stays quite about terms such as “inflation” or “recession.” But inflation is not just rising prices; it is more accurate to define it as an increase in the supply of money and credit, evidence of which is abundant in the market over the past half year, from the Fed injecting billions of dollars into the subprime mortgage bond market, to the new proposal to send millions of Americans tax rebate checks while doing nothing to decrease government spending.

Amidst all of these dire warnings, Paul offers one solution after another in an effort to prevent the potential crisis. Many of the solutions he presents focus primarily on a return to a smaller role for government which protects private property and equal rights and promotes free markets and a sound monetary system. This include returning to a sound money system, reduction of federal spending, lowering income taxes, abolishing taxes on savings, dividends, and capital gains, reducing regulations, ending subsidies to special interests, and no protectionist policies for certain sectors of the market.

Cutting the size of government is integral to all of the policies that Paul discusses. Both domestic welfare to special interest groups and military spending should be ended, as well as doing away with subsidies to various industries or corporations. As well, cutting government does not mean token cuts in the proposed increase of the size of government, according to Paul. The result of decreasing an increase is still a net increase, which does nothing to save the individual or promote the cause of liberty with less government intervention.

These solutions, though, would require the Congress to put a stop to the seemingly endless sideshows of investigating corruption and fraud in the market. These “excesses of capitalism” are presented as failures of the free market, when they are actually the logical consequences of constant government intervention in the market. Billions of dollars have been spent and tens of thousands of pages of regulations have been written on regulations, and more of them will not solve the problems caused by the ones already on the books.

If Congress actually desired to end the largest source of fraud and corruption, it would investigate itself, according to Paul. Shifting the blame onto markets, corporations, or capitalism is missing the real source of the problem; namely, easy credit created by the Federal Reserve, along with interest rate manipulation.

After the near-complete loss in faith of the government by the American people, less than 20% of whom actually cast a vote for the winning president, more government is clearly not the answer. This is central to Paul's argument in this first section of the book, as well as his faith in the individual to act logically and ethically in a free market. It is the passing out of favors, welfare spending, and the loss of individual liberty that are at the heart of this current loss of faith in big government. The government can not create trust in markets. Only trustworthy people can do that.

Part I - The Economics of a Free Society
Part II - Mises and Austrian Economics: A Personal View
Part III - Reforming Social Security
Part IV – Giving Money Back to the Taxpayers
Part V - Money and Banking: Gold versus Fiat
Part VI - Free Trade: Real versus Phony
Part VII - International Affairs
Part VIII - How Government Distorts the Housing Market
Part IX - Spending, Taxes, and Regulations

With continuing record foreclosure rates, more people, pundits, and politicians are calling for more direct involvement by the government in the market. Freezing rates, punishing banks, and offering rates as low as 0% to borrowers have been proposed. But holding the banks themselves accountable through government intervention will not serve the overall purpose of convincing banks to begin making prudent lending decisions again. In fact, it was government intervention in lowering interest rates and offering cheap credit that significantly contributed to the real estate bubble to begin with.

Rate freezes and low interest rates

The problem with creating rate freezes or giving extremely low interest rate loans to those with poor credit is that many of the largest banks that would be making these loans are owned by shareholders who are attempting to capitalize on the highest returns and lowest risk that banks can offer. Many of these investors include pension funds, mutual funds, insurance companies, individual investors, and other institutional investors.

If the government got involved and started regulating interest rates and lending programs directly, many of these large investors would take their money out of the financial institutions, looking for better returns in other markets. How happy would any person be if their 401(k) was returning 0% for18 months with a low interest loan with a freeze? Probably not very pleased at all. What if it was returning a negative rate, because collecting 0% interest does not pay for the direct costs banks have when making loans, and profits would have to be taken out of the principal amounts coming in? This would be even worse, because no one wants a negative investment return.

Fewer Foreclosures? Doubtful

Furthermore, these programs would not even prevent foreclosures from occurring. Homeowners fall behind on their loans for a variety of reasons, including job loss, medical illness or disability, and financial mismanagement. Freezing mortgage rates at a low level would not prevent weaknesses in other industries and contributing to job losses if firms close or are shipped overseas. The responsibility having a plan to provide for an emergency and finding solutions to stop foreclosure rest squarely with the homeowners and the banks. If they can not come together to work out plans, the government will have a tough time bridging the gap.

In cases of medical disability or sudden accidents, the high cost of insurance and medical care are directly caused by government intervention in the medical industry. Direct government intervention in the lending industry would cause much the same problems, with banks having to add more up front fees or requiring higher down payments in order to make up losses from artificially low rates that do not eliminate or adequately transfer the risk.

No Financial Education -- Who's in Charge of Schools?

On the other hand, advertising to kids just entering college to pick up a credit card is not a good practice for banks to be engaging in. This just traps them in the credit nightmare at the earliest age possible, and entry-level jobs for high school graduates who are pursuing a college education are not reputed to be the most stable. In addition, many college kids can not afford halfway decent food every day, let alone pay 29% interest rates on a credit card that they use to purchase their $200 school textbooks. Maybe banks should offer students jobs or internships, or colleges could offer more work programs, instead of offering credit cards to the kids the second they leave their parents' house. Arguably, this would be a much more effective manner or creating "brand loyalty."

But is is the government-run public schools that are directly responsible for the lack of financial education being given to the vast majority of kids. Through their first eighteen years of school, students do not learn even the very basics of financial management, from how to balance a checkbook, to the importance of saving up an emergency fund, to the real costs of credit cards, to how to read a simple contract, and so on. If they did have any kind of basic financial education, then, presumably, they would not be such easy targets of lenders.

Government is not Here to Protect You from Yourself

The more government gets involved in any activity of a person's life, the more uninformed people will allow themselves to become, because "government is here to protect us" if they make a mistake. They can simply demand "change" and their representatives will offer them more free bailouts to appease the public and regain election. But government is not there to protect anyone from mistakes caused by their own willingness to remain uneducated, and government is especially bad at protecting people from themselves.

If homeowners enter into a voluntary contract that they say they understand, and sign dozens of papers admitting that they understand what they are reading, but in actuality have no idea what is going on, then it is up to them to speak up and have it explained to them, either by a mortgage broker, real estate agent, or title company representative. If none of them are able to explain the contracts, then it is best to hire an attorney who can explain in plain English what a mortgage means.

Are Banks Learning?

But banks are starting to wise up now, although their reaction has been to deny credit across the board, rather than make more prudent lending decisions. Such success, if it can be called so, is a small step in the right direction (three steps in the wrong direction, one step in the right). So many defaults have wiped out their reserves and now credit card delinquencies are increasing. Citigroup is effectively bankrupt, Countrywide is being eaten up, and over 200 mortgage lenders have stopped making subprime loans or have gone out of business. They learn when they lose money, even if the Fed bails them out with billions of dollars of inflated money (see, there goes government intervention again helping banks avoid the effects of their poor decisions).

In nearly all cases of foreclosure, homeowners should seek out legal advice. This does not have to mean filing bankruptcy necessarily, but instead having a basic understanding of the legal process and how foreclosure will work its way through the courts. The lender spends thousands of dollars on lawyers who will pursue the legal process, and homeowners would be well served with the same type of advice. In the cases where legal help is absolutely essential, foreclosure victims can hire a lawyer to try and help defend against the foreclosure lawsuit by the bank, or to help file bankruptcy.

With defending against the foreclosure, the owners will be hiring their own attorney to go up against a whole firm of the lender's attorneys. This is not a very appealing situation for any individual lawyer to be in, no matter how sympathetic he may be to the homeowners' situation. And, if the foreclosure victims really are behind on their mortgage, what is their defense? They will most likely have to find a way to have the case thrown out of court and not play by the rules, but attorneys are specifically hired to make sure that the parties have played by all the applicable rules.

The homeowners signed a contract stating that they had an obligation to make the mortgage payments or they would lose the house, and then they defaulted on the contract. Arguing this side of a case in court in front of a judge is a bit of a losing battle for both the homeowners and their attorney, while it is quite an easy process for the lender's attorneys. And the more that the homeowners try to fight the foreclosure, the more the attorneys will be paid by the foreclosing bank for legal fees, filing fees, court costs, and anything else they can charge.

But in the case of filing bankruptcy to stop foreclosure, many attorneys know exactly what paperwork to file, where to file it, and how much to charge for these services. In most cases, the homeowners just fill out a few forms with general information and their name will be inserted into the same form motions and pleadings used by everyone else. For attorneys who specialize in it, filing bankruptcy is a relatively simple process and it will stop the foreclosure process immediately. Of course, it is not an inexpensive process for homeowners, who may have to come up with thousands of dollars to file and then establish a very expensive payment plan to reorganize their debts, but it is easy enough for the lawyers.

Homeowners should absolutely get as much legal advice as they can afford from a competent attorney before taking any step in the foreclosure legal process. But the lawyer has a choice between attempting to defend the homeowners in court against a lawsuit that has very little chance of getting thrown out, or helping them file bankruptcy and actually working on a short-term solution that will stop foreclosure in its tracks, at least for a little while. And it is much less work for any lawyer to go the bankruptcy route, and the results are probably more optimistic in the short term.

Obtaining legal advice, as stated before, should be a path pursued by every homeowner in danger of losing a home to foreclosure. While many will recommend bankruptcy, it is more important that the foreclosure victims have a solid understanding of how foreclosure works, rather than just pursue the most expedient method of stopping the process. Consulting with a lawyer for some general information will allow the homeowners to work more easily with the courts, if necessary, and will help them understand how much time they have to come up with a solution that will stop foreclosure for the long term.

Many homeowners seem to believe that they will have a very difficult time of buying a home after facing foreclosure, especially if the home went all the way through the process and was lost at a sheriff sale. However, this fear is, for the most part, unfounded, and previous foreclosure victims should be able to qualify for a new mortgage within a few years of the experience. There is at least one little-discussed method of qualifying for a new mortgage that home buyers should be more aware of, especially if they have recently gone through the process of losing a home to foreclosure.

In fact, a significant number of banks are often willing to loan money to former homeowners even just a few months after they have lost their homes. As surprising as it sounds homeowners are able to get a mortgage for nearly any property they want. And even more surprisingly, this can be done even with horrible credit scarred by foreclosure or bankruptcy. No cosigner may be required, as well.

Of course, this kind of loan is not advertised very heavily, because the practices that are required to qualify for it are not common financial habits, whether of previous foreclosure victims or consumers in general. The secret is having a large enough down payment so that the bank will loan the applicants the rest of the money with almost no questions asked. The amount of the home buyers' investment in the property secures the loan to such an extent that the bank is not as worried about the credit risk So, hopefully homeowners who have lost their homes to foreclosure, or are working on repairing their credit and would like to invest in the real estate market in the future have been saving up quite a bit of money for their next house purchase.

Otherwise, with a small down payment, the bank will have to look more carefully at the overall credit rating to determine the probability of the loan applicants making enough payments so that there is enough equity that the lender will make a profit if they have to foreclose in the future. They would like to see the mortgage applicants invest a significant amount of money in the property they are purchasing; if this is not the case, they will want to see that the buyers have established good financial habits of borrowing manageable amounts and paying them back on time. If the former foreclosure victims' credit is not good, and they are unable to come up with any money to put down, then there is a strong possibility that they will not get the mortgage to purchase the house.

Offering a lot of extra cash in the form of a down payment will pretty much get rid of any objections the bank has about the home buyers' credit. Making the loan will be worthwhile to them even in the rare case of the homeowners never making a payment, since they can foreclose, take the equity, and sell the house for a profit on the market. Of course, this is not what lenders want to do at all, since they would prefer to make money on the interest collected; most banks have no desire to manage property and have to split profits with real estate agents, title companies, and attorneys. But a large down payment will ensure the potential of reclaiming any large losses on the loan due to default.

Besides saving up for a down payment, foreclosure victims should also start immediately working on their credit after saving the home or having to move and make a fresh start. In either case, if they wish to qualify for better mortgage rates or purchase a home in the future, the two keys to success are having good credit and having money. But even if the home buyers are unable to repair their credit, many objections against lending them money will be overcome with a large amount of cash to put down on the purchase.

With the possibility of an economy-wide recession becoming clearer every day, and the realization by more and more homeowners that they are experiencing their own personal recession, the outlook for the housing market looks even dimmer than it did even a few months ago. So-called experts can be seen recommending that people spend money and buy to prop up the economy, but an attitude of instant gratification and overspending by both consumers and the government have led us to this economic situation. The problem of overspending should not be met with the solution of more spending.

Actually, spending too much money is exactly what caused some of these problems in the economy. During the real estate boom of the early 2000's, when interest rates were manipulated downwards to provide economic stimulus after the tech bubble and 9/11, home buyers went out and spent as much as they could getting a home. With the artificially low interest rates, lenders gave every loan applicant as much as possible, believing the rising prices in the real estate market would take care of any potential foreclosure problems. Then the homeowners kept right on spending with their credit cards and HELOCs until they had all the cars, computers, and other consumer goods that they wanted.

But spending on credit means that, eventually, the bills will come due, and homeowners found that out the hard way when their subprime ARM mortgage rates increased. Then, in order to keep the mortgage on time, they had to miss a payment on this credit card or that personal loan, which drove up the interest rates on these loans. When a payment is missed, credit cards often drastically raise the interest rate, doubling or tripling the original, in some cases. Interest rates of less than 10% skyrocketed to 29.99% after a missed payment, and then the homeowners had to decide between paying the mortgage at all or paying the credit cards. In the meantime, collectors from all companies were calling several times every day looking for their money.

Factor in inflation due to government overspending and devaluation of the currency, and prices for transportation, home heating, and food were going up 10% or more per year. For homeowners who did not have to drive to work, heat their home, use electricity, or buy food to feed their families, the financial situation remained stable. For the rest, higher expenses translated into a decrease in the amount of income the homeowners could use for savings, paying down debt, or maintaining their current standard of living.

Thus, homeowners spent their way from a 6% mortgage rate to an 11% rate, and from a 10% credit card rate to a 29.99% rate. And in turn, the government also spent the homeowners' way from the dollar being the reserve currency of the world to a tripling of oil prices and inflation rates of 30% in some commodities. After all, the government really does not have anything, except what they take from consumers in the form of taxation or inflation, or borrow from other sources.

And what about the savings that homeowners should have been putting away to meet any emergency? Well, that was nonexistent, as the savings rate in America has been negative for years now. Consumers spent so much, that they had to borrow even more money just to make ends meet and continue their spending. Of course, now, instead of borrowing for unnecessary items, they are spending borrowed money just to make their increasing payments on the mortgage and credit cards, while borrowing even more to spend for basic items like food and gas.

Government interest rate manipulation and inflation are the two main reasons for the crisis being experienced now. And the solutions that have been offered so far are simply more rate manipulations and inflation! This is like a doctor giving a patient a medication he is violently allergic to, and then prescribing more of the same medication to combat the additional illnesses caused by the medication in the first place. At some point, either the treatment will need to be changed, or the patient will die. For now, though, if we could get spending under control, and consumers saved even a little bit to get through financial hardships, the fear of recession would probably be much less, and the economic downturn itself would be less dramatic.

One of the most overlooked methods that homeowners may have available to save their homes from foreclosure is obtaining a specific type of loan called a reverse mortgage. Because of its limited applicability, it is not frequently discussed as an option, but it may provide certain foreclosure victims with one more valuable solution.

A reverse mortgage is usually used by homeowners over the age of 62 who are trying to supplement their monthly income. Instead of paying a mortgage every month, the reverse mortgage will pay the homeowners. The payments can be taken in a number of ways; for example, the homeowners may receive one lump sum from the mortgage company, get a certain amount every month, or be given a line of credit to be used whenever it is needed.

Even if there is already a mortgage on the property, a reverse mortgage can be used. The main consideration will be how much the home is worth and how much is still owed on the loan. For example, if the property is worth $200,000, but the homeowners only owe $150,000, a reverse mortgage for the full amount of $200,000 can be obtained, which will pay off the $150,000 balance on the original loan, and still allow the owners to use the $50,000.

In the case of a foreclosure, a couple over the age of 62 who is facing the loss of the home can turn an expensive mortgage payment into potential income. The foreclosed loan can immediately be paid off and the home taken out of the foreclosure process.

Some of the drawbacks of this type of mortgage include higher up-front fees, and the fact that homeowners under the age of 62 would not be able to obtain this type of mortgage. There are no certain equity or income requirements to be met, but the equity situation may cause problems in the current real estate market, as property values have been in decline. Homeowners interested in a reverse mortgage should contact a mortgage professional as early as possible to ensure that the value of their home does not fall further while their defaulted mortgage increases due to added interest, fees and legal costs.

Although the reverse mortgage applies only in certain situations, it can allow a specific class of homeowners to stop foreclosure very effectively. It is also a quite-overlooked option that is not discussed frequently as a possible solution to save a home. Despite some of the drawbacks of a reverse mortgage, though, homeowners who may be able to qualify for this method should research what they need to qualify for this type of loan, and which lenders could provide it to them.

We have all heard the more commonly given reasons for the ongoing weaknesses in the real estate market: greedy lenders tricked ignorant home buyers into adjustable rate mortgages, and greedy home buyers overstated their incomes and tricked lenders into giving them loans amounts that were too high. While there is a lot of truth in these arguments, they do not explain the big picture of what has happened in the economy to cause such a foreclosure crisis.

One of the most important reasons so many Americans are in financially difficult situations is the lack of economic knowledge and leadership by the politicians. This leads to massive overspending by Washington, which spends more money than it brings in through taxation. So, to make up a portion of the shortfall, the bureaucrats resort to borrowing money from China and other countries, but this still is not enough. At this point, Washington asks the Federal Reserve to print money, which inflates the currency and devalues the dollar. This causes prices to rise for everything else in the economy, like food and transportation. Homeowners whose income is stagnant or falling can not keep up with 10% inflation rates or more, and when their mortgage payment goes up 15% due to an adjustable rate, financial disaster is one paycheck away.

An ill-conceived foreign policy that is beyond wasteful also contributes to this problem. The nation borrows $2 billion a day from the communists China, politicians give $12 billion in foreign aid to a military dictatorship in Pakistan, then wage a $1 trillion war in Iraq "promoting democracy." Again, Washington can not afford to do all of that just with the money that actually exists, so the Fed again prints the money to fund the shortfall. It should not be any wonder that oil-producing nations want more dollars due to the devaluation, which drives up oil prices through inflation, which were already being driven up through the instability caused by our military adventurism.

Finally, another problem relating to the foreclosure crisis is the public school system. For over one hundred years, there has been a systematic dumbing down of Americans through government-run public schools, which teach students how to respond to things like bells and orders to be quiet, but do not teach them how to think critically or analyze situations in a broader context. Therefore, it is little surprise that many people read less than one book per year, but refinance their homes with extremely complex mortgage instruments every year. They not only do not understand the paperwork, they do not even attempt to read it or have it explained to them by an attorney that is often mandatory for them to hire in order to close the loan.

And this lack of basic financial education contributes significantly to the problem of homeowners' failure to understand what they have gotten themselves into. Thus, people do not know how to balance their own checkbooks or realize the importance of planning for the future beyond the next 10 minutes of their lives. If they could analyze their finances in a little more depth, they might set up an emergency fund to get them through a financial hardship or downturn in the market. But people who can not save even an extra 2% of their income towards an emergency fund are not going to be able to realize that even more of their money is being stolen through inflation and the contradictions of borrowing money from communists to give it to dictators and then going to war to spread democracy.

Furthermore, this lack of an ability to think critically is one reason why many of them will dutifully go and vote for the presidential candidate this year who will promise them the most "free" stuff, not understanding that they will be the ones to pay for it, through higher taxes, more of the economy sold off to foreigners, or a further devalued dollar. Everyone likes free programs and free handouts, but they simply do not exist in the world of politics and economics. Someone has to pay for all of that, and bureaucrats enjoy making the people who enjoy the benefits least the ones who pay for it most, as long as they can get a piece of the action.

The foreclosure crisis is not an isolated event caused by the failures of the market and greedy buyers and lenders taking advantage of each other. Although this certainly happened, there are much broader forces at work. Unfortunately, though, few of the homeowners facing foreclosure will be unable to realize the context of their hardship, and even fewer will be able to do anything about it. For homeowners who are in danger of losing their homes, the most important action they can take is to find some way to stop foreclosure, and worry about the macroeconomic issues after they are financially sound once again. Hopefully, though, this experience will teach many of them that the solutions to the problems that caused the foreclosures in the first place do not lie with those same institutions.

When homeowners attempt to sell their house for less than the total amount they owe on it, certain tax liabilities may be triggered. This is one of the reasons that every foreclosure victim should carefully consider whether selling their house short is the right decision for them, and what other options may be available. The danger of getting an income statement on an IRS 1099 form at the end of the year for thousands of dollars may result in a higher tax liability than the homeowners originally anticipated.

Essentially, being 1099'd means that the homeowners, after the short sale has been used successfully to stop foreclosure, will be responsible for paying the taxes on the amount of debt that the bank forgives in order for them to proceed at all with the sale. Taxes would only have to be paid on the amount forgiven, not on the contract price, final payoff amount, or foreclosure judgment.

For example, if the foreclosure victims owe $150,000 on the mortgage, but the bank accepts $100,000 as their final payoff in order to facilitate the short sale, the difference of $50,000 is the amount that is counted as "forgiven debt." The IRS considers this $50,000 as if the bank gave the homeowners a gift for that amount, which was immediately used by the owners to pay down their mortgage. Therefore, taxes would be due on the amount given by the bank.

The homeowners would be responsible for paying taxes on the $50k, at whatever their marginal tax bracket will be that year. There are ways to get around this, though, such as if the homeowners are insolvent at the time of the sale. This means that, when the short sale went through, they owed more on the mortgage than the home was worth. To better understand the issues that may affect the tax liability on a short sale, it might be worth visiting the IRS website or consulting with a CPA to find out more before closing on the deal.

But the bottom line is that the homeowners facing foreclosure will only get a 1099 if the bank forgives any of the debt owed to them and allows the short sale. It will not be an issue if the house is otherwise disposed of, even if it is sold at a county sheriff sale for less than the total amount of the foreclosure judgment.

When the house is auctioned off at the sheriff sale, the bank does not forgive any of the debt. They are just using the legal mechanism of foreclosure to force the sale of the house and get back as much as they can. All that the bank has in this case is a loss, so there will be no income to the homeowners that can be considered as forgiven debt. The bank would not be able to show that the foreclosure victims received income in this form when the owners did not voluntarily sell the property and the mortgage company did not voluntarily forgive any of the debt. No voluntary agreement to take a lower payoff equals no forgiven debt equals no extra income tax liability.

Since the whole foreclosure process is coercion by the state to sell a property to enforce a contract, a sheriff sale would not be an event that triggers extra income to the homeowners. A short sale, though, can be an extremely effective resolution to stop foreclosure, especially in the type of real estate market as exists right now. Many homeowners are underwater with the equity in their homes, and they are much more likely now to fall under the insolvency exclusion than they were even a few years ago during the real estate boom.

One of the many problems with the legal process known as foreclosure is the fact that the plaintiff in any case is typically an institutional lender with tens of millions, if not hundreds of millions or billions, of dollars in a bank account. Combined with a large mortgage portfolio, these banks can hire the best attorneys in the country in order to sue homeowners for foreclosure. But the very large size of these banks also creates inefficiencies and may lead to unjust foreclosures.

Homeowners, though, will find it very difficult to fight back against an unjust foreclosure, because of the prohibitive cost of hiring a law firm experienced in fighting banks against mortgage fraud practices. The Law does not readily accept amateurs who can not speak the confusing, ambiguous, empty language of the practitioners of The Law. Thus, even if homeowners are able to mount a defense to prevent from losing their homes, they may experience nothing but disappointment and defeat at the hands of some missed technical procedure. Justice in the court system is second to correct procedure and speaking the correct language.

Homeowners, though, should make every attempt to work inside the court system to avoid losing their homes, even if it means taking on a steep learning curve in a short amount of time. There may be no other way to defend against blatant mistakes made by the lender, and the judge will simply take the bank's word for it if the homeowners do nothing to answer the foreclosure complaint and do not show up at the court hearing. For foreclosure victims who are unable to afford their own legal counsel, they will have to defend themselves on their own.

The first time to start preparing a defense is as soon as the bank believes the homeowners to be in default of the loan. This may be long before any formal complaint is filed by the attorneys. But, when the foreclosure complaint is filed, the homeowners should have their answer already prepared, for the most part. Possibly the most important source for researching how to answer a complaint is through the county and state websites and find the court procedures. These will explain where, when, and how certain documents must be followed, and the general rules of the court. They should also give the homeowners various guidelines to follow when answering a complaint made against them.

Especially in a case where the homeowners believe they are being taken advantage of by the lender, the answer is vitally important to explaining their side of the story. They can state the sequence of events that have led to this lawsuit being filed, the fact that they paid on time, and that the bank lost or did not apply the payments as agreed. Of course, it is also a good idea to submit any supporting documents, such as canceled checks, hardship materials if appropriate, and payment records, among others.

When the lender files the foreclosure paperwork, the burden of proof lies on the bank to show that the homeowners are guilty of defaulting on the mortgage contract. The homeowners do not have to prove anything, but can cast doubt on the assertion that they are behind because of mistakes they have made, rather than due to mistakes made by the bank. If the homeowners have made all their payments and can show this, the lender will have a more difficult time keeping up an appearance of fairness and justice. When banks, through their own incompetence or greed, damage themselves, they can not hold their clients accountable for the damages.

Again, though, the best place for homeowners to start researching ways to defend against a foreclosure lawsuit is to read through the state and local court rules and procedures. The county clerk or courthouse often has copies of these that can be faxed or photocopied right in the county office. The clerks in the courthouse or clerk's office can also provide some general guidance, even if they can not provide legal advice directly. They can, though, give homeowners the basics of how to make sure the answer they file is not thrown out on some small technicality. Remember, it is procedure first and just second in the court system.

Filing bankruptcy is one of the more complex issues for homeowners attempting to save their homes from foreclosure. The likelihood of ever completing the plan is very small, and the drawbacks are numerous, from poor credit to higher monthly payments. Most foreclosure victims file bankruptcy just to get more time to work out a solution, but how much time they will actually obtain is almost entirely dependent on their financial situations.

In theory, filing bankruptcy is designed to delay the foreclosure process indefinitely. There are really only a few ways to take the property out of the Chapter 13 bankruptcy, all but one of which is usually not a very good idea. But if the house is never taken out of the court-ordered plan, the process is designed to get the house caught up and out of foreclosure.

A bankruptcy is designed to give the foreclosure victims time under the protection of the law and the courts to reorganize their debts and pay back the amounts they have fallen behind. In the event they are able to make it through the entire payment plan with the bankruptcy, then they will be caught up on the mortgage loan. The foreclosure will be completely over with, since a bank can not foreclose on a house where the loan is not in default. This is obviously the most desirable resolution to filing bankruptcy to prevent foreclosure, but it is also the most uncommon.

Far more likely is the possibility that the homeowners will simply find themselves unable to keep up with the bankruptcy plan payments. In this case, if they miss a payment, the case will be dismissed from the court, and the lender can start the foreclosure process up again from the day the homeowners had initially filed the bankruptcy. There is no reason for them to start over from the beginning, as bankruptcy just puts collection efforts on hold; it does not stop them entirely. Thus, as soon as the bankruptcy is dismissed, the bank will try to sell the house at a sheriff sale and add all those other late payments to the homeowners' credit report, and increase the total mortgage payoff again, get the attorneys involved again, and do whatever they can to get as much money as possible.

The final way to take a property out of bankruptcy is for the homeowners simply to request that the mortgage be taken out of the plan. They can do this at any time, although it is not recommended except under certain circumstances. Also, if they voluntarily decide to dismiss the bankruptcy, because they have found someone to refinance the loan or a buyer to purchase the property, the foreclosure process can start up again, just as in the case of missing a payment on the plan. Of course, if the foreclosure victims inform the mortgage company that they are working on a solution, and prove that this was the reason the bankruptcy was dismissed from the court, the lender may be very willing to give some extra time to close on the deal.

If the homeowners make all the payments on the reorganization plan during the bankruptcy, though, the process is designed to end the foreclosure entirely. But it will not delay the foreclosure if they start missing payments on the plan. Homeowners who are currently in a diminished or unstable financial position, relative to their position before falling behind, should carefully consider whether or not filing bankruptcy to stop foreclosure is a wise decision or not. This should involve interviewing several potential attorneys who can file the paperwork and walk the foreclosure victims through the process. Going into bankruptcy is never an easy decision or a magic solution, but it can give the homeowner the extra time they need to work out a more permanent conclusion to the foreclosure.

The year is 2008, there is a presidential election coming up (I assume), the economy is headed into recession (or worse), and the real estate market is in a depression (or worse). How did all this happen? Just a year ago, in 2007, the housing market, to all appearances and according to many of the so-called "experts," was set to keep booming.

But then the bottom fell out of the market as investors realized that people could not afford their homes, and property values started falling dramatically in some areas. Hedge funds at Bear Stearns were bailed out by the Federal Reserve's printing press, investors from Abu Dhabi bailed out Citigroup to the tune of billions of dollars, Bank of America entered the process of bailing out Countrywide Financial Corporation after its subprime portfolio went into meltdown mode. Who is responsible for all of this mess?

To have some inkling as to why so many Americans are facing foreclosure all at once, it is necessary for one just to drive around to the closest shopping center in the neighborhood. Take a look at all the pointless, expensive garbage that people keep buying, because they can just whip out a credit card and never have to think about actually paying for their items. And they have no reason not to keep buying, as getting approved for a new credit card is as easy as ordering from McDonald's.

And when interest rates were lowered close to 0%, to combat the bursting of bubbles in 2000 and 2001, banks started giving out mortgages like they were credit cards. Homeowners, trained from birth to be greedy impulse-buyers, started purchasing houses and refinancing their homes as if they were ATMs. Banks would approve a family for a maximum loan amount, and appraisers would give the house a value of that amount, in order to increase fees and commissions for the mortgage broker and real estate agent. The item of the day was greed and everyone had a place at at the table.

Homeowners, in order to get as much money as possible, just lied on their loan applications, overstating their income by 50% or more. After all, decades of public schools encouraged cheating, and now the teacher-lender was not even attempting to grade the worksheets. Banks, eager to hand out money, approved the loans no questions asked.

It did not take too long for the first homeowners who could never afford their homes to begin with to find out that they could not afford their homes. This had little to do with interest rate increases, as people who make only $2,000 a month, and have $1,000 a month in credit card bills, are unable to afford a $3,000 principal payment, regardless of how much interest they pay every month. But several foreclosures in an area will start to drag down home values. And homeowners with good credit who financed 110% of the purchase price could not sell quickly if they ran into a job loss or medical problem. The fallout from the greed of the subprime buyers and lenders started seeping into the rest of the market, which should have been entirely predictable knowing how many poor loans were being made by banks, securitized, and sold off to hedge fund investors.

Property values declined, making it even more difficult for homeowners to sell to avoid foreclosure. And more foreclosures could not be avoided, pushing property values down even further. A market decline turned into a panic which, despite the best inflationary efforts of the Federal Reserve, turned into a recession which, despite the best interest rate manipulations by the Federal Reserve, turned into the depression now being experienced by homeowners who are now effectively trapped in their homes, with loans amounts much greater than the current value of the property. For years, they will paying for their greed of the past years, instead of building equity in their homes.

So, the real estate market experienced a number of big banks handing out money and homeowners lying to receive money. That imbalance paved the way for the housing market to enter a depression at the first sign of defaults and property value declines. The problem in the first place was created by inflation and interest rate manipulation by the Federal Reserve, in an ill-advised attempt to combat one bubble. Manipulated bubbles, though, can not be effectively dealt with by transferring the problem from one segment of the market to another. And in transferring a massive bubble to homeowners and consumers, the road to hell foreclosure victims are walking now was paved by the Fed.

One of the main points I try to keep hammering away at in terms of advice to homeowners facing foreclosure is that they should keep up with the legal process as much as humanly possible. This might involve looking up court records, receiving copies of documents that have been filed by the attorneys in the case, and even attending hearings before the judge. But unless homeowners keep themselves informed of what is going on during the foreclosure, they may find themselves making hasty decisions based on incomplete knowledge.

For example, take the case of the attorneys filing a motion to postpone the scheduled sheriff sale. Until this is done, even homeowners who have been attempting to get more time to stop foreclosure may have no idea that they are being another opportunity. If a sale is scheduled in the very near future, and the bank then decides to postpone it, they will more than likely not inform the foreclosure victims of this decision until after the sale would have taken place to begin with. Homeowners, though, can usually find out directly from the court system if their sale has been canceled for the time being.

The attorneys in the case will usually file a motion to stop the sale and request that it be rescheduled within thirty days or so. That is why banks, soon after making the decision to postpone, will already have a new foreclosure auction date; the attorneys just reschedule the home to be sold at the closest date within the coming month. In effect, this means that the homeowners have asked for more time to save their home, and the lender has agreed to delay a scheduled sheriff sale for a short period of time in order to give their clients the benefit of the doubt and all them another chance to save their home. At that point, the lender has ordered its local attorneys handling the foreclosure to move the court to stop the sale and postpone/reschedule it.

So, until the sheriff sale is rescheduled and the house is sold, the homeowners will have some time to work on another solution. Of course, the lender will want to see some kind of proof that a solution is being worked on even before deciding whether to postpone or not, but homeowners can provide a minimal amount of paperwork and a letter explaining their intentions. For instance, maybe they have found someone to buy their house, or they are working on a qualifying for a loan modification or forbearance agreement. All they really need to present to the bank is the offer and supporting documents explaining why they fell behind and what is being done to fix the situation.

But, until the house is sold at auction, the foreclosure victims can keep living in the property. The bank, since it is the plaintiff in the foreclosure lawsuit, has great leeway to extend the sale or work out a solution out of the courts. They can dismiss the case at any time if the homeowners are able to avoid foreclosure, or they can ignore any further requests to stop the sheriff sale, if they do not believe the homeowners will be able to work out the difficulties.

In a small number of cases, homeowners may find that the sale has been postponed even without their knowledge or intervention. Although this is quite uncommon, it deserves a passing mention. What most likely happens is that the attorneys have entered the postponement with the court if they found out that they made a mistake somewhere in the foreclosure process. If they proceed with the sale despite not giving notice, not following the law, or otherwise missing something important, they will probably just start the sheriff sale process over again and not risk having the foreclosure reversed. But again, this is pretty rare.

The most important element in saving a home from foreclosure is the time needed to work out a solution. Homeowners are free to request as much time as they need, and banks are free to extend sale dates as many times as they want. But, it is ultimately up to the homeowners to keep track of when their home will be sold out from under them, and it is important that they understand how to get a sale delayed. Even knowing how to do this, though, is not enough. They also need to keep track of the lender through the court system and make sure they have been given the time they requested, and they need to learn this as early as possible, in order to make the most effective use of their options to stop foreclosure.

There is no question that the foreclosure industry has scam operators simply running rampant throughout it. The reason for this, of course, is not very difficult to figure out. After all, families in desperate situations are trying their hardest to save their homes, but are immensely terrified of dealing with the mortgage company. So they decide to hire an outside, unrelated third party with no interest in the situation to help them deal with the lender. Is it any wonder why the industry attracts some of the worst, least ethical, most immoral bottom feeders?

Unfortunately, we come across numerous homeowners every day who say they were taken advantage of by a foreclosure scam, who promised them help, took their money up front with no guarantees, and then disappeared. Preventing just these sorts of victimizations is exactly why our website encourages homeowners to read and understand the foreclosure process on their own, before taking the next step and hiring any company to help them stop foreclosure.

But for the homeowners who have already lost a significant amount of time and money to a scam operator, there are a number of resources that may be available to get their money back, or at least alert other foreclosure victims of the danger of a particular company or individual.

Homeowners who have been scammed, though, should be aware that if the person who tricked them simply left town with their money and moved on to another city or state with no forwarding address, the homeowners will have a tough time finding the person even just to request their money back. Foreclosure scams are notorious for shutting down one business and opening another every few weeks or months in order to keep operating under the radar. The homeowners' money is probably gone and spent by now, and it might not be enough to initiate a small claims lawsuit against the company, even if they can even find the owner to serve him with the suit. It may be best to move on and attempt other methods of saving the home, rather than spinning their wheels and trying to get back the wasted money.

Many homeowners looking for a foreclosure help company perform some due diligence, but not nearly enough. One of the first, and usually the only, source they check for information about a company is the Better Business Bureau. However, the BBB is little more than a membership program for companies who want to make themselves appear legitimate. Anyone can register their company the BBB by paying a fee and giving out some information about the location, owners, and contacts for the company.

If the homeowners search for a brand new foreclosure help company, or one that has not received numerous complaints up to that point, they may feel very secure in trusting the legitimacy bestowed by the BBB. In many cases, though, the BBB will know even less about the company and its owners than the homeowners who have been speaking with them for some time.

In fact, only when there are numerous complaints will the BBB take any kind of action, which is usually just removing the company from its membership rolls. Of course, knowing a company is a scam after having one's money stolen is very small consolation for most homeowners, as the scam may have led directly to their inability to save the home from foreclosure. Thus, trusting in only the Better Business Bureau to prove the trustworthiness of a certain company is simply a mistake.

Homeowners who have been taken advantage of by a scam company, though, should try to complain about the company to the BBB, but take it even further to regulatory agencies. Some of these resources may involve contacting their state's and the state's in which the foreclosure help company was located attorney general consumer fraud division. The attorney general can initiate an investigation into a company and order a "cease and desist" letter, ordering the company to perform no other services or spend any of its money until the attorney general has investigated.

This only happens in cases where there are numerous complaints, but homeowners should alert the state if they have been taken advantage of. If enough foreclosure victims do this, the attorney general will have no other choice but to open an investigation and attempt to shut down the scam.

Other sources to file a complaint about a company include the state office of banks and real estate supervision, the city or county the business was located in, the Federal Trade Commission, and any other agency that handles real estate, banking, or consumer fraud. Every state will have different names, different divisions, and different agencies, but homeowners should have numerous resources available to them. If they do not get their money back, as is most likely the case, they can help make sure the illegitimate company does not further victimize foreclosure victims.

A final source to get the message out, so to speak, about the scam involves contacting local news stations where the homeowners can give out their story of being scammed while trying to stop foreclosure. News media and television stations are always looking for human interest stories, especially if the homeowners have not yet saved the house but were taken advantage of for their life savings or several thousand dollars that could have been used to pay the mortgage. Using this media, though, depends on how much publicity the homeowners are willing to take on. It might alert other foreclosure victims to the company's scams, though, and the record foreclosure rates in the country show that there is no shame in falling behind.

After falling victim to a foreclosure scam, homeowners may be better off just moving on and finding some way to stop foreclosure on their own with the time they still have available. There are numerous resources online, including (especially) our website's foreclosure information section and blog to educate oneself about the foreclosure process and what options might be available for any specific set of circumstances. To save a home from foreclosure, it is usually better to trust no one for now, until the homeowners understand more about how foreclosure works, and only hire a help company if they know exactly what they are getting.

Hiring the right foreclosure help company can mean the difference between saving a home and negotiating a realistic deal, and losing the home, wasting time, and falling victim to scams. But, unless homeowners know enough about the process to assess the possibilities of being taken advantage of, and the very real benefits of hiring a company to assist them in avoid the loss of the house, they should trust only themselves.

Watching the news, it is hard to believe that there is any major problem with the US economy. Or, if there is a problem it is hard to understand why it is more important than the entertainment section or the sport commentary. In fact, I'm finding it more difficult to differentiate between economics, politics, sports, and entertainment in the mainstream media, which has spent the better part of the past year focusing on the potential use of steroids by well-known athletes from track stars to baseball players. The raging foreclosure crisis, a topic with much more personal effects on the average consumer, causing a depression in the real estate market is almost completely ignored.

Why is this? It seems to me that all this focus on irrelevant sports and entertainment is simply part of the public relations plan put on by the government, which spins its wheels investigating worthless events that harm no one but involve celebrities and professional sports players. And from the perspective of the media, consumers and homeowners worried about foreclosure are much less likely to spend their increasingly unstable incomes on the products of advertisers running commercials on the stations. It really is just easier for everyone involved to pretend that problems do not exist.

But the governmental focus on investigating sports and entertainment also helps politicians build themselves up and increase their own celebrity status. By appearing to be investigating important issues like one person taking a substance or not taking a substance, it helps create an aura of higher celebrity around government officials, who are never lacking in ego. It also gives these professional lawyers another forum in which to spout off their opinions of "universal truths" about "The Law," "fairness," "justice," and all the rest.

The pointless inquiries also takes time away that could be used to investigate real potential issues, such as war crimes, financial crimes, economic incompetence, and so on. But all of those, of course, are depressing to most Americans, whereas a daily dose of two-minutes hate against an "overpaid," "arrogant" baseball player instills a healthy amount of fear of and trust in government violence.

The real objective, so far as I can tell, is not even to prevent athletes from shooting up. I think it is a safe bet that many of them are still doing it and will continue to do so. The lesson to be learned here is that, if an athlete is planning on taking steroids, they better do a good job of not getting caught. And if they are unlucky enough to make a name for themselves and get caught, they better not lie to their surrogate parents (the State), or else they can expect a televised dog and pony show to illustrate their humiliation every day by lawyers in Congress who have never played a sport in their lives and have absolutely no idea what they are even talking about (but who are only too happy to take contributions from drug companies and medical interests).

Not to mention the fact that almost no one in Congress (with a few notable exceptions ) has any idea what they are talking about in terms of economics, foreclosures, or foreign policy, either. I think it would be safe to bet that they wouldn't do a better job of investigating those topics than they happen to be doing with steroids, and the results will be just as worthless and irrelevant to the vast majority of homeowners wondering how they will make their mortgage payment next month.

So maybe the best we can hope for from the government is just to keep on investing topics that are wholly irrelevant to most people. Leave the people and the market to work out its own instabilities and get over the current recession with as little interference as possible. But would it be reasonable for the media to focus slightly more on providing homeowners with more important information that they can use to keep ahold of their finances and navigate through the housing depression, rather than bombarding the viewer with irrelevant celebrity trials for victimless crimes?

One of the most justified concerns homeowners have about being in foreclosure is how much time they have to save their homes. This is such an important issue that many homeowners simply give up on their homes and move out long before they have run out of time. They simply assume the sheriff will show up any day and kick them out! Unfortunately, this is a dangerous assumption to make, and homeowners frequently have more options than they could ever believe possible to increase the time they have available.

In fact, it is reasonable to state that any homeowner can still stop the foreclosure process at nearly any time up until the date of the sheriff sale. Of course, if that date is on the horizon or approaching in the next few weeks or months, then there is still some time, but the foreclosure victims need to get something together rather quickly. Stopping a sheriff sale is vitally important if there is any realistic plan to save the home and pay off the mortgage or reinstate the payments. A sheriff sale will nullify almost any plan that was being worked on before the auction.

It is also important to not that the bank will not accept just a regular payment once the home is in the foreclosure process, nor will they accept any form of partial payment. The lender will most likely demand the entire amount that is behind right now, unless they are willing to work out some sort of repayment plan with the owner. This is one reason that homeowners, as soon as they have recovered from a financial hardship, should call the lender to find out exactly what plans they can offer and how much money will have to be forked out to them to begin a plan.

But, if the bank does not accept a forbearance agreement or other plan, there are a few other ways to stop the foreclosure date that do not involve direct intervention by the mortgage company. Sometimes, the homeowners need to take control over their home and take advantage of other opportunities.

First, the homeowners can simply file Chapter 13 bankruptcy to avoid foreclosure. That puts all creditor collection efforts on hold (including the mortgage company's attempts to collect) while the debt is being dealt with by the court system. It can stop a sheriff sale the day before the sale, and might work as a last-ditch effort. Although it is not the most preferable way to stop foreclosure, homeowners should keep it in mind if they are seriously short on time. In many cases where the homeowners are nearly out of time, no other way to postpone the auction will work.

Second, just paying back the entire amount behind will get the mortgage reinstated. It will bring the status of the loan back to "current," and end the foreclosure process. If there are no arrears, and no part of the loan is in default, the bank can not continue foreclosing. Admittedly, this is also the most unlikely scenario presented here, mainly due to the unwillingness of the bank to work out a solution and the fact that they typically add thousands of dollars of late fees, interest, court costs, and attorney fees to the total amount needed to reinstate the loan. But if homeowners can come up with the money, they will be able to save their home immediately.

Last, going into court and asking the judge to order the lender to try to work something out is always a potential solution. Very few homeowners take up this opportunity, though, simply due to an (ir)rational fear of the legal system. But the judge can order the bank to consider a repayment plan, or offer some other resolutions besides going straight through with the legal process of foreclosing on the home. The judge can also put a hold on the sheriff sale, since he is the one ordering the sale in the first place. In fact, the judge wields an enormous amount of power over the bank, for some unknown reason, but this power can be used by the homeowners in self-defense, if necessary. Passing up this option is a major mistake for homeowners attempting to prevent foreclosure.

The bottom line is that foreclosure is never inevitable once it starts. To make sure they have the best chance of saving the home, foreclosure victims merely need to take advantage of what options are available and make sure they can make the payments on time again, or come up with the money to reinstate, or have enough time to pursue an option like a foreclosure refinance or a sale. Having a sheriff sale scheduled is obviously a major stumbling block, but homeowners have more options than they are aware of to obtain the time necessary to work on a solution to foreclosure.

Foreclosure victims are almost universally worried about their ability to qualify for a new mortgage loan after filing bankruptcy or facing foreclosure. Because of the negative credit effects of both events, it may seem like it will be impossible to purchase a new home or refinance any time within in the next seven years. However, this is no reason to give up hope. In most cases, with a bit of hard work and dedication, homeowners can buy a home again after bankruptcy or foreclosure; it just will not be easy.

If the bankruptcy is used during the foreclosure as just a temporary solution, and homeowners are unsure of their ability to sell the house, it might be better just to take the foreclosure and avoid filing a Chapter 13. In either case, it is best for the homeowners to have an appraisal on the property done as soon as possible and find out if they owe more on the house than it is currently worth. It they are underwater, then a bankruptcy that they can not afford will not be an effective, long-term solution to the problem.

When bankruptcy to stop foreclosure is used to get more time to work on a longer-term resolution, it is important that homeowners know their chances of selling or refinancing. If the house is worth less than what is owed to the lender, finding any option to end the foreclosure for good will be much more difficult. Agreeing to an unmanageable bankruptcy payment plan may be acceptable for the very short term, but homeowners need a quick backup plan in order to avoid ending up with both a foreclosure and bankruptcy on their credit.

There is no mistaking the danger of this event: having a bankruptcy and a foreclosure in quick succession will look very bad to any potential future creditors. Even with just one of the two, the foreclosure victims will have to spend a lot of time working on cleaning up their credit report, getting old negative information removed, and establishing a positive history after foreclosure. With both showing up in a short period of time, getting the credit and financial situation back in shape will require even more dedication. This is not to say it can not be done, and there are numerous resources online to help consumers with credit problems, but it will take concentrated efforts by the homeowners.

Thankfully, nearly all foreclosure victims can avoid at least one extra judgment from showing up against them. The bank will probably not come after the former homeowners for a deficiency judgment after foreclosure, if that is something they are worried about (and most homeowners are worried about having assets repossessed or wages garnished ). But from the lender's perspective, they are not collecting anything currently from the mortgage or from the foreclosure, so there is no reason for them to spend the time and money to sue the homeowners again. In fact, the former owners probably do not even have the financial ability to pay tens of thousands of dollars in judgments after losing their homes, so why would the bank waste its time and money after taking a loss on the defaulted loan? In fact, it will not waste its time, instead focusing on selling the house on the open market.

It might take a few years to qualify for a mortgage after the foreclosure is done, but it can be done. Of course, former foreclosure victims should definitely not expect to get a 100% financed house. These loans simply do not exist any longer, even for consumers with excellent credit. Furthermore, they will need to show the lender that there is money for a significant down payment, plus a savings account to be used in case of emergency, plus stable income and employment. Honestly, though, without those three things in order anyway, no one should consider buying a house in the first place. A down payment, emergency fund, and stable income are absolutely necessary if a family decides to purchase a home, to make sure the possibility of losing that home to foreclosure is extremely remote.

The best idea for homeowners after filing bankruptcy or losing their home is to use the time after foreclosure to start repairing and improving their financial situation. In effect, that is the best they can do for now, and within a couple of years, there is a real possibility they can apply for a new mortgage and be approved, as long as they have saved up, shown wise use of credit, and maintained a stable financial condition since the end of the foreclosure process.

Some homeowners simply come to the conclusion that they can not keep their current house out of foreclosure. This may be for any number of reasons, not all of which are financial. While having changed jobs and not making the same level of income, or losing an income due to a medical disability may wreck the most damage to the ability to keep a home, some foreclosure victims decide that saving the home is just not worth the trouble. Dealing with threatening banks, waiting weeks for attorneys to answer a simple question, being pushed off from one department to the next, and being turned down for one solution after another are quite convincing in getting homeowners just to leave their homes. They would rather not deal with the extra stress than find a way to stop foreclosure.

Few homeowners, though, know exactly what will happen if they just up and leave the home. What will the ultimate fate of the house be? Will the lender go after both spouses' credit records if only one is on the mortgage? What about being sued or having wages garnished after the foreclosure is over? These are important questions homeowners need to ask themselves before giving up the fight and leaving the house.

If they decide to walk away from the house, the lender will immediately begin trying to collect their money, by making hourly phone calls and sending collection letters. After a few months with no response from the owners, they will hire local attorneys and sue for the foreclosure. Once the foreclosure judgment is awarded to the lender, the house will be sold at a scheduled county sheriff sale. And finally, after the house is sold, ownership will transfer to the high bidder at the auction and the eviction process will start in the courts. Within a few weeks to a couple of months, the county sheriff will be ordered to change the locks and remove any remaining people or property. The house will then be put up for sale by the bank, if they were the winner, or the new owners will move into the house.

Of course, if the homeowners have moved out prior to any of these events, this entire process will go ahead without their involvement or knowledge. The most dangerous part is the eviction, but the foreclosure victims will not be evicted if they have already moved into a new apartment or rental house and are no longer living in the original property anymore.

The bank could possible go after the spouse's credit because the husband and wife are married and therefore count as one "economic unit," so to speak. Whether the lender is able to do it or not depends on how much the bank knows about the spouse who is not on the loan. They need to have quite specific information in order to report negative information to the credit bureaus, or else anyone would be able to report unpaid debts about anyone else for any reason at all. Do they have a social security number? A birth date? Is there some document proving the marriage and that the spouse is responsible for the mortgage, even as a community property issue? If this information is not provided to the credit reporting agencies, it may be difficult for the lender to report the late payments and foreclosure.

The lender may be able to go after other assets and income after the foreclosure, if the state in which the property is located allows for deficiency judgments. Not all states allow this, so it is important that homeowners look up the applicable foreclosure laws. But banks almost never sue their former clients after foreclosure; they know that they could not make the mortgage payments to begin with, so there is little reason to assume that they can make payments on a judgment involving the mortgage. And it will cost the mortgage company more time and money to hire attorneys to sue the former owners again, when they have not collected a single cent from the original foreclosure lawsuit. In other words, it is just not worth their time.

Making the decision to give up on a house is never an easy one, and one that we do not ever recommend. There are always various methods that can be used to stop foreclosure, and homeowners should exhaust all of them before admitting defeat. But, not all circumstances allow homeowners to work vigorously on numerous options to save their homes. In these cases, knowing the potential consequences of simply leaving the home is vital for homeowners to make an informed decision and begin the process of starting over with no regrets or worries about the former home.

Using a deed in lieu of foreclosure is becoming a more common solution for homeowners to escape the pain of the foreclosure process. They will not be able to save the home using this method, but it can effect a mutually beneficial solution to the problem with the lender. The homeowners will have to give up title to the property, but this may be a better solution than having it forcefully sold out from under them at a county sheriff sale.

A deed in lieu of foreclosure would not directly affect the foreclosure victims' credit very much at all, which is one of the few drawbacks of using this tactic, along with the fact that the house is not saved in the first place. Their credit report will show the mortgage loan's status as being closed but reflecting the use of a "Deed in Lieu." This is only slightly better than if the credit report just said the loan had been closed due to a full "Foreclosure."

However, the deed in lieu can affect the homeowners' credit history indirectly in a number of positive ways. These should not be overlooked, as they can vastly increase their financial footing just after the foreclosure and for years afterwards.

First, by giving the deed in lieu, the homeowners will end the foreclosure process sooner than if the house is allowed to go through the entire court system until it is sold at the foreclosure auction. That means the foreclosure victims' credit reports will show fewer months of late mortgage payments. Instead of nine months of late payments and then a foreclosure, the credit history may reflect six months and then a deed in lieu. Admittedly, this is only a small consolation, but the credit score may stabilize and start to increase easier with even a few less late payments. In other words, the fewer late payments the homeowners show, the easier it will be to recover.

Also, the deed in lieu can help because, by ending the foreclosure earlier, the foreclosure victims will immediately start getting some distance from the whole process. The deed in lieu can make an end of the ordeal months sooner than watching the home be taken away by the legal mechanisms of foreclosure. The further away in time the homeowners can get from the foreclosure, the less it will affect the decisions of other creditors to loan them money in the future, including buying a new home.

For example, a foreclosure that has just ended two months ago will look very bad to a creditor, and will ensure the applicants receive the highest interest rate, if they can get approved for a loan at all. But a foreclosure that is six months ago, or two years ago, will allow the homeowners to get back on track just that much quicker, and qualify for better loans with lower costs of borrowing, if they decide to finance a purchase.

Therefore, if a deed in lieu is the only option that homeowners left to stop foreclosure, it is probably a good idea to offer it to the bank and just try to move on with their lives. Giving up a house voluntarily is never an easy decision, but it can give the foreclosure victims an escape from the entire process and give them the fresh start and opportunity they need to begin the rough road of financial recovery.

One of the more common fears among homeowners facing foreclosure is that the bank will suddenly start garnishing their wages in order to pay back the loan. With how far behind some homeowners fall, this fear can result in the anticipation of their not having enough money to pay the bills, keep the lights on, or feed their children. Especially if the income situation has deteriorated quite a bit, there may just not be enough money to pay the mortgage at this point.

However, the good news is that banks can not garnish a homeowner's wages during the foreclosure process. The very simple reason for this is that the real estate is collateral for the loan -- no other assets or future income source is pledged. If a car loan goes into default, the car is repossessed first; same with a mortgage in default: the bank can only take back the collateral that is pledged on the loan and there is no recourse to any other asset or income source.

Thus, the bank will have to take the property all the way through the foreclosure and have the court order it to be sold at a county sheriff sale. This auction is the legal mechanism by which the bank is allowed to attempt to recover the amount it is owed on the loan. If the sheriff sale pays off the mortgage in full, there is nothing further to collect.

If the property does not sell for enough to pay the loan off completely, some states allow mortgage companies to sue for a deficiency judgment after the foreclosure. Again, not all states allow this under the foreclosure laws, but it would give banks the right to garnish wages after the foreclosure, if they decide to sue for the judgment. But again, this comes only after the sheriff sale, and there would be no wage garnishment during the foreclosure process itself.

Banks rarely, if ever, sue former clients for deficiency judgments, though, because they know foreclosure victims do not have a lot of extra cash to pay down another judgment after losing their homes. It would take the bank too much time and money to sue again, when they didn't collect very much on their original foreclosure lawsuit.

Lenders, of course, do nothing to dissuade homeowners from having the fear of wage garnishment. In fact, being sued after foreclosure, and the threat of losing their job, income, or other assets is often used by customer service representatives of mortgage companies to compel homeowners to keep making payments, even if they can not afford to do so. But foreclosure victims do not have to fear that the bank will come after their income during the foreclosure, and will not have to worry about the possibility even after losing the home.

With the record foreclosure rates, many homeowners are able to see the tragedy coming. Once they know they will lose a job, or a medical crisis suddenly hits, it is just a matter of time before the mortgage payment is missed, and homeowners know it. But, what happens if you are just renting your home and the landlord falls behind on the bills?

In this case, you may not find out until long after the fact that there is a problem, especially if the owners do not say anything. They may, of course, finally inform you of the foreclosure problem when the sheriff sale is approaching, but this may give you only a small amount of time to find a new place to move. And how much time do you have, exactly?

If you are renting a property that you have recently found out is in foreclosure, you need to find out what part of the foreclosure process the house is in, and determine if there is a redemption period after the sheriff sale.

Unfortunately, because of their limited rights to the property, renters have fewer options available to them to stop foreclosure before the process goes all the way through. Thus, they have to rely on the landlords much more than they would probably like.

Find out from the owners if a sheriff sale has been scheduled yet with the county. The county courthouse or sheriffs office will also have this information. Knowing the foreclosure auction date will give you a good estimate of when the landlords will no longer be the owners of the house. The sheriff sale transfers ownership of the property to the purchaser at the auction, which is usually the foreclosing bank itself who buys the property back.

After knowing when the sheriff sale will take place, look up your state foreclosure laws to find out if there is a redemption period after the sale. If there is no redemption, then you have to move out soon after the foreclosure auction, or you will be evicted. In fact, the eviction may take place within as little as two weeks after the sale. It is possible to negotiate with the lender for more time, but there is no guarantee to be given extra time to move out.

However, if there is a redemption period, you can stay living in the house until after the period is over. This is a length of time guaranteed by state law for homeowners to keep possession of the house and attempt to pay off the amount owed or sell the property outright. So the bank can not evict you until after the period is over, no matter how much they would like to do so.

In some cases, after the foreclosure the bank will offer to give you (or the landlords if they are still in the picture) a thousand dollars or so just to move out. This is called a "cash for keys" deal, and the amount offered will not be very much. Banks do it as a sign of good faith, and as an attempt to persuade homeowners to leave the property in good condition without destroying anything or stealing all of the copper pipes to sell for moving expenses, or ripping out the water heater and furnace.

But how long you have depends on how much time has already expired and what the state foreclosure laws have to say. One of these pieces of information can be obtained from the landlord or through county officials, and the other is freely available online on any number of foreclosure websites, as well as official state websites which will have the exact language of the foreclosure laws.

It is no secret that large mortgage lenders and mortgage servicing companies function more like enormous government bureaucracies than anything else. In such environments, mistakes are bound to occur, either by fraud or incompetence. Homeowners who have had foreclosure proceedings unjustly initiated against them, though, should know some legal tactics they can use to fight back against the process, whether they are actually behind on their mortgages or are the victim of a tragic mistake.

In most foreclosure cases, it would probably be best for the homeowners to hire an attorney to file any necessary paperwork with the courts. The main reason for considering this is that every state and county and court has its own rules of evidence and rules of procedure, and not following these rules can mean the homeowners' paperwork is thrown out on some technicality, which would allow the bank to continue the unjust foreclosure. Getting the paperwork right and following the procedures correctly can mean the difference between winning and losing the case and winning and losing the home.

But one legal action may be getting an injunction against the bank for any further foreclosure proceedings until a hearing is scheduled to determine the merits of the case. This prevents the bank from trying to collect further payments, send representatives to drive by the house, send appraisers to determine a value, or ask the sheriff to change the locks. In effect, it protects the homeowners from further loss or harm during the legal process of foreclosure.

Also, filing a motion to dismiss the case for a failure to prosecute would be another tactic that could be used. The homeowners should take the paperwork they have that shows the loan was paid in full, including the final payment (either canceled check or confirmation number for online payment), or paperwork showing a repayment plan has been established and is current and speak with the judge presiding over the case. The judge can determine there is currently no legal basis for the proceedings and throw it out of court without it ever going to trial.

A final legal action is for the homeowners just to file an appropriate answer with the court to the lender's complaint laying out the reason for the foreclosure proceedings in the first place. The judge will have to take into account the fact that the homeowners are claiming the loan has been paid on time or are working with the lender to resolve the situation and have submitted evidence to prove that point. But foreclosure proceedings can not be started against a homeowner who is paying the mortgage on time, regardless of how corrupt or incompetent the bank is acting. And many banks will simply keep going after the foreclosure, even if they have been shown there is no legitimate basis for it, so homeowners should be comfortable with having to answer the bank's claims in front of a judge who can make a legal decision.

But again, these actions should be taken only if the homeowners understand the rules of the court. If they do not understand the rules, then they may want to hire an experienced attorney to file the paperwork for them, or to show them how it should be filed. Attorneys can be hired as "coaches," in some cases, just giving advice on how to file motions and argue cases. That might be appropriate for some homeowners who wish to defend themselves in court, but can not afford the higher fees of having the lawyer take over the case completely.

While I was out running this weekend, it was difficult not to notice all of the new houses for sale in the area, along with all of the old houses that have yet to be sold after nearly a year. I have little doubt why these properties have not yet found buyers, as banks are simply not lending to new loan applicants unless they have great credit and lots of cash. In a community built on manufacturing jobs, those two circumstances are not likely to be met.

But it was also not surprising to notice that gas is now well over $3.00 a gallon in the middle of the winter. Of course, the fact that Americans are spending more of their shrinking supply of dollars on transportation costs just to get to their increasingly insecure job contributes to the problem of not having enough money to pay the bills, let alone save up for a down payment or overcome a financial hardship.

Why is it that the cost of nearly everything essential, such as food and oil, has been going up, even as consumers are saving less money and the economy is slowing down?

Looking to the government, the problem should become obvious. As the banks realized how much bad mortgage debt they held, panic set in. The Federal Reserve bailed out the banks with newly-created money, attempting to inject liquidity into the system. But the banks did not use that money to keep operating and lending, instead using it to bail out underperforming hedge funds or to serve as a reserve for future losses.

In essence, the banks got free money which will help them ride through the economic slowdown without having to make wiser financial decisions to make back their losses. So they will not have to provide mortgages to home buyers and create profits from offering a service that will benefit customers. They can just use the inflated money to prevent from having to make good lending decisions.

Now the homeowners who are facing foreclosure are simply being shut out by large lenders, who refuse to lend them money to refinance or work with them to put together a loan modification or repayment plan. With the banking industry bailout, the banks have no incentive to do anything but foreclose on the houses and let them sit until the real estate market recovers and they can make a larger profit. After all, the money they would have received from collecting payments on good loans has been provided free of any risk by the Federal Reserve.

Why not just do away with the entire lending process altogether? Banks can now start giving out loans to those who can not afford homes at all, then get the money they would have made on a good loan as a gift from the Fed, and end up with the real estate, as well.

If this sounds like many mortgage lenders are parasites using homeowners as their hosts, sucking away as much cash as possible and then leaving the house an empty shell after the foreclosure victims are evicted, this analogy may not miss the mark by much. It's just more evidence of the "Tapeworm Economy" in action.

Of course, not every homeowner will experience this in action, but many will find out just how little their bank cares about them when they begin missing payments. We get emails every day from homeowners trying to stop foreclosure, asking why the bank is not accepting their payment any longer, or why they can not get a call back from the bank, even when they want to work out a solution.

In an economy where the banking industry can do as it pleases, making loans it knows will never be paid by the homeowners, but knowing they will make their money back through inflating the money supply, and end up with the underlying asset, is it any wonder banks would rather make new loans instead of provide service to their existing customers?

It would be interesting to examine how banks would act if they were not certain that poor decisions would result in a central government bailout.

Watching the meltdown in the subprime mortgage market over the past year, I could not help but be reminded other recessions and industry meltdowns. The junk bond scandals of the 1980's, the Savings and Loan crisis in the early 1990's, the collapse of the Russian bond market and Asia crisis in the late 1990's, and the Enron debacle of the early part of the twenty-first century have apparently taught lenders and investors absolutely nothing.

The most important difference between these other scandals and the ongoing foreclosure crisis, though, is how deeply personal this crisis is to homeowners losing their homes. A drop in the value of their 401(k) or other investments is certainly disturbing, but finding out that one has been a victim of the most incompetent lending practices of recent memory and that has led to an inability to stop foreclosure is another matter entirely.

When other markets were heavily leveraged or securitized, the inevitable bursting of the speculative bubble was largely isolated to a specific market or industry. When internet and tech stocks collapsed in 2000 and 2001, the average homeowner in, say Ohio, was not as affected as the state of California. When the Russian currency collapsed in the late 1990's, there was no widespread concern about the American dollar.

Even other hedge funds that collapsed in the past did not engender the same amount of financial concern as the foreclosure problem. Long-Term Capital Management, a hedge fund that was bailed out by the Federal Reserve in the 1990's, was interested mainly in the Asian and Russian markets, and the collapse of the fund was a reflection of the weakness of those markets, rather than the American economy.

But the lessons of these other collapses have apparently not been learned by lenders or investors. Or, maybe, they have been learned all too well, and it is the average consumer and homeowner who has not learned enough.

When interest rates were lowered as a result of the recession of 2000 and the attacks of 9/11/2001, banks had a decision to make. And they actively, voluntarily, with no compulsion, decided to pull the trigger. What was that decision?

They decided that they would offer mortgages to nearly anyone who wanted one, whether they could qualify for it or not. In fact, they offered mortgages even to people who could not or simply did not want to prove to the bank that they made any income, let alone enough income. And the banks made billions of dollars from this quite illogical decision.

Once they originated the subprime, ticking time bomb loans, the banks would simply package them together and sell them as securities in the market. Hedge funds, who invest in the riskiest markets possible, ate up these mortgage-backed securities and could not get enough. Because of the rising real estate market, they believed there was no chance of loss.

In the first place, the loan payments were guaranteed to rise, with adjustable rate mortgages. Hedge funds could buy loans with low interest rates and sit on them for a few years until the rates automatically adjusted. And, if the homeowners could not afford the payment, there were no worries at all. They could simply sell the foreclosure properties for even larger returns, after eating up as much of the equity as possible. It was a no-lose situation for banks and investors.

The large banks, of course, knew that real estate prices would keep rising, since they control the money supply through their control of the Federal Reserve System. Lower the rates, give everyone a loan, and let the market spread the newly-created inflationary wealth around.

Then, raise the rates, watch as homeowners were unable to stop foreclosure because their home values dropped, and simply take back all the of the real estate. In this way, banks now own vast amounts of real estate throughout the country that was purchased at severe discounts through county foreclosure auctions.

The hedge funds who were willingly complicit in the scheme? Well, they got a free bailout of their toxic collateralized debt obligations. A few people lost jobs, homeowners and consumers lost wealth in their pensions and retirement accounts, but the offending companies were able to use that inflated money to keep operating with no real consequences. A free market would have punished such awful lending and investing decisions, but the semi-government intervention saved the funds from having to make good decisions in the future.

So, maybe I was wrong: the banks learned the lessons of these other market collapses all too well. Instead of wiping away the wealth of investors in the internet industry, or certain energy companies, or foreign bond markets, the lenders decided that the newest target would be more massive than any before. The homeowners of America who purchased or refinanced within the last seven years are now all caught in the trap of getting a loan on an extremely over-valued property, and many owe more than the house is worth.

The real estate value is gone. For many foreclosure victims, the house is gone. And even rents are increasing in many parts of the country, at a time when job quality is deteriorating and food and transportation costs are rising.

So now, we should ask ourselves, what will be the next bubble to burst? And who will be the unfortunate victims?

One of the legal terms that homeowners in foreclosure often come across is lis pendens. They may initially find out about the term when attempting to refinance their house and the mortgage broker turns them down because of this type of document filed against the property. If a lis pendens has been filed, it will show up with the county recorder as a document affecting the title.

A lis pendens does not stop or prevent foreclosure at all, as it is merely a document serving notice upon any other party that is researching the particular property affected by the document. In most cases of a homeowner behind on the mortgage payments, the lender's attorneys will file the initial foreclosure lawsuit with the court and a lis pendens will be sent to the county clerk or recorder's office to indicate that a particular property is in the process of a pending litigation.

The term lis pendens is Latin for "lawsuit pending," and the lawsuit that it is referring to is the legal process of foreclosure. If the lender was not suing for the property to be sold for payment of the defaulted mortgage loan, this document would never be filed in the first place, as no lawsuit would be pending.

In fact, a lis pendens specifically indicates that the property is facing foreclosure, and the document will show anyone, such as a title company or prospective foreclosure refinance lender, researching the real estate that it is involved in a lawsuit. So the lis pendens is meant to signify the foreclosure; it does nothing to prevent the foreclosure, but it does not itself affect the homeowners' ability to save their home.

The most commonly used legal mechanism that would stop foreclosure is filing bankruptcy with the court, and even this only puts the process on hold while the creditor and debtor are coming to an agreement to negotiate a settlement of the debt.

Homeowners may also wish to consider getting rid of the lis pendens affecting their home by mounting a defense against the lawsuit that has led to the foreclosure process. This is a direct defense of the litigation, though, not an extra legal process like bankruptcy that may be used to put the suit on hold.

If a lis pendens is filed with the county recorder against a piece of property, this indicates that the house is already in some stage of the foreclosure process. The homeowners are no longer in the preforeclosure stage, or merely behind in payments. At this point, foreclosure can not prevented, as it is already being pursued by the lender and its attorneys -- it must be stopped, and homeowners need to begin putting together a realistic plan and researching various ways to stop foreclosure, such as a mortgage modification, repayment plan, selling the house, or a foreclosure bailout loan.

For homeowners facing the loss of their homes to foreclosure, the anxiety never seems to end. After months of being threatened by the lender's "customer service" department with being evicted, sued, and having their wages garnished, even the final foreclosure and sheriff sale does not end the problems. The time between the county auction and the eviction by the sheriff can be one of the most stressful times of the foreclosure process.

This is because, even after finding out they are unable to put together a realistic plan to save their homes and stop foreclosure, homeowners must then begin planning to leave the house. But they do not know, in most cases, even how much time they have to move out, when the sheriff will show up to throw them out, or if there is anything they can do to get more time.

In almost all foreclosure situations where the sheriff sale has already passed and the eviction process has begun, the homeowners should receive a notice from the county sheriff's department at least a few days before the scheduled eviction. This is a rule in almost every state and county, and is just a sign of good faith by the government that they will inform the former homeowners of how much time they have left to stay in the house and plan their future. However, it is also never a good idea to trust government bureaucrats, whether the county sheriff or the court system, to be efficient and follow their own rules, as this is one thing they rarely do if it is more expedient to ignore the laws.

There are numerous other ways for homeowners to find out how much time they have to get their lives in order before the eviction, other than trusting in someone from the sheriff's office to come and post a notice on the door. Also, notices can be blown off by the wind, taken off by nosy neighbors, or dropped in some place where the foreclosure victims are not likely to search for a notice.

To avoid being blindsided by the possibility of being evicted with no warning, homeowners should know the exact date when the county foreclosure auction took place. Knowing that will give them a good idea of when their ownership interest in the property was transferred to the high bidder at the auction.

Then, they should look up the state foreclosure laws to determine how much time they will have to stay in the home after the sheriff sale. Some states allow under the law for a redemption period where the foreclosure victims are given more time even after the sale in order to pay back the amount they owed on the house. Without searching the law, though, the homeowners may move out prematurely, eliminating a vital protection and opportunity to begin getting their finances back on track.

Redemption periods differ widely by state, with some having just a few weeks to others having up to a year after the foreclosure auction. Of course, other states do not have a redemption period at all, or they have it before the sheriff sale. Again, this is why it is essential to look up the state laws, so foreclosure victims do not move out the property too soon or too late.

But regardless of any other proceedings, the court, after the sheriff sale is over, should send the homeowners an order to appear before the judge for the eviction hearing. At this hearing, the bank will be given possession of the house and an order will be sent to the county sheriff to evict the former homeowners. Although this seems pretty bleak, the homeowners can take an important opportunity to take back some control over the foreclosure process. The most important reason to go to this hearing is simply to get more time to save the home or move out of the property.

The judge can grant the foreclosure victims a few extra days or weeks to obtain a new apartment and begin moving out of their former house. Just a few days can mean the difference between settling any last aspects of a new lease and moving out, or having to put items in storage and move in with a friend of family member for a few days. This opportunity to get extra time can not be taken, though, if no one shows up for the hearing in the first place. The lender will just be given possession and the order will go out to the sheriff to evict as soon as possible.

In a perfect world, homeowners will be given several notices of an impending eviction hearing and the eviction itself. However, this is trusting that county governments are efficient enough to communicate these important events to the foreclosure victims, and the homeowners receive the notices in a timely manner.

Obviously, it is rare enough that government bureaucrats are efficient, and even rarer that the average family will know enough of how the foreclosure process works to take some control over it. That is why homeowners need to get important foreclosure advice in order to understand how the foreclosure will proceed, both before and after a sheriff sale, and how they can negotiate with a lender or the court system for a more beneficial resolution to foreclosure.

There seems to be some confusion about the income tax implications of foreclosure. Because a gain on the sale of a property can trigger income tax liabilities, unless the gains are invested in another piece of real estate within certain time limits, homeowners assume that any sale of their home, in foreclosure or otherwise, will cause them to owe the IRS money. However, only in certain instances will there be any liability; and there will most likely be no income tax to be paid if the house is sold at a sheriff sale for a loss.

For purposes of illustration, we will provide an example of possible numbers of a foreclosure case.

-Balance of mortgage is $400,000.
-Property sold at sheriff sale for $366,000.
-No short sale was accepted by the bank.
-Fair market value of house at time of sale was $381,000.

The first question that homeowners have is if they will have to claim the difference between what the house sold for at auction and how much the balance owed on the mortgage was at the time of sale. The answer is that no, they will not have to claim that as income. The forced sale of the property at county auction and the fact that it sold for less than what was owed at the time of sale indicates that homeowners received no proceeds from this sale. They owed $400k and the house was purchased by the winning bidder for $366k. In fact, the homeowners probably did not see a single penny of proceeds from the sale, because it is a loss. Therefore, no tax is due in this scenario.

However, if the homeowners and the lender had worked out a short sale before the foreclosure, and the bank had accepted $366k when they were owed $400k, then the foreclosure victims would have income to show. The difference between what they owed and what the bank accepts is counted by the IRS as "forgiven debt" and is taxable income. It is as if the lender gave the homeowners the $34,000, which was then used to pay down the mortgage. But this is only if there is an agreement between the homeowners and the lender to proceed with a short sale. If this does not exist, the homeowners do not receive the "forgiven debt."

In the case of a foreclosure, where the house is ordered to be sold to satisfy the mortgage debt, the bank probably had a judgment against the homeowners for the full $400k owed on the mortgage (or more, with fees and court costs). Just because the house sold for a loss at the sheriff sale does not mean they forgave any of that debt. The house simply sold for less than what was owed, no portion of the amount owed was forgiven. Thus, with no forgiven debt, there is no taxable income.

There is just a loss on the forced sale of the property. The homeowners will not be responsible for paying the difference between the $400k that was owed and the $366k that the property was sold for at sheriff sale. And, unless the bank tries to sue the homeowners for a deficiency judgment after foreclosure (quite rare), all parties are simply done with the property. It is usually best for the homeowners to take the loss, start repairing their credit, and move on with their lives. It is a good opportunity to do so now that the foreclosure has ended.