Few homeowners are even aware of the concept of having additional time after their house has been foreclosed that they can still remain in the property and attempt to refinance or sell. After all, the sheriff sale is just before the eviction, right? Well, not always, as some states allow foreclosure victims a set period of time, known as a redemption period, where the bank is not able to evict them or take over the property. But even when homeowners are granted a period of several months to keep their home, time is not on their side.

The homeowners will have to begin immediately planning their solution to the foreclosure if they mean to take advantage of the redemption period. As soon as possible after the county sheriff sale, it would be best to come up with some options, especially if the redemption is less than six months long. It can take at least a month for most methods to stop foreclosure to be completed from beginning to end, so foreclosure victims will not have much time left if they wait until much of their redemption has already expired.

Although the options that may be used during the redemption are somewhat limited, those who wish to keep their homes can try numerous options. The lender will not be willing to establish a repayment plan at this date, nor will they be able to modify the terms of the loan, as the property has already been sold at auction. But the mortgage company is also more interested in getting their money paid back to them, so many of them are willing to consider any other option that would avoid having to pursue the eventual eviction process.

Thus, it is in the best interests of both homeowners and banks to try a few different things to get the defaulted loan paid back, or at least avoid the worst of the consequences of foreclosure. Refinancing may be an option, but the owners may have to pay down the amount of the loan so that it is possible to qualify for a mortgage just after foreclosure. With longer redemption periods, these foreclosure victims may have been able to recover from the financial hardship and have saved up some money that can be used for a new down payment. Mortgage companies who specialize in poor credit loans but consider the equity position in the property may be willing to give them a new loan despite the foreclosure, if the homeowners can put down enough to create some equity.

Otherwise, it may be the best solution to try selling the home, even if it is at a short sale, where the foreclosure victims would pay less on the loan than the total amount owed. The bank may just be willing to take less at this late date, rather than have to evict their former clients and then sell the property through a Realtor on the open market. If the homeowners have a friend or family member who can buy the house for cheap and then set up a leaseback or rental agreement to let them keep living there, then a perfect solution may be reached. There are also private investors that specialize in these types of arrangements, and can give foreclosure victims the second chance that they need to reestablish an on-time housing payment history, which would allow them to refinance within a year or two.

But even if no solution works to keep the foreclosure victims in the home for the long term, the redemption period can be extremely useful to create more financial stability. If there is no way to save the home, then the previous owners should just try and save up as much money as possible, or use the money that would have been used to make the mortgage payment to eliminate other debt. That will help keep their credit looking as clean as possible just after the foreclosure, even though there may be no other option than to end up losing the home for good. However, if these previous homeowners can get out of debt and establish a savings plan, then it will be much easier to buy a new house down the road, as well as avoid going back into foreclosure ever again.

Knowing when to give up on a house in foreclosure can be a tough decision for homeowners to make. Although many would rather keep their home and are quite willing to make affordable payments to the mortgage company, this is not always an option. Selling to avoid foreclosure may not even be an available method if property values have declined and the homeowners owe far more than their homes are worth. This leaves them with only two options, both of which will end up in their losing the home. These two methods are offering the bank a deed in lieu of foreclosure or giving up and abandoning the property.

Despite the widespread fear of calling the lender to inform them of a financial hardship or ask for help, homeowners should just call the bank and ask them what the lender can do to start the process of reviewing an offer for a deed in lieu of foreclosure. Mortgage companies are not allowed to request their clients give them a deed in lieu, because it must be offered voluntarily. In fact, many mortgage companies will not even suggest this option to homeowners in default, because they do not want to be viewed as persuading the clients to give up their home, and because they would rather have the money to pay off the mortgage or get it back on track.

Thus, it will be up to the homeowners themselves to begin the process of speaking to the bank about deed in lieu of foreclosure. Furthermore, this should be done as soon as they know they will be unable to stop foreclosure any other way. It does not matter one bit what horror stories they may read about their mortgage company from other clients in similar situations -- some deeds in lieu they will accept, others they will not. But the foreclosure victims will not know what they bank will decide about their specific property until they try this option.

The deed in lieu will look bad on the homeowners' credit after foreclosure, but not as bad as having a large number of late mortgage payments leading up to a foreclosure where the property is sold at a county auction. Avoiding a full foreclosure will do a little to help preserve the former owners' credit after losing the home and will allow them to start the process of financial recovery sooner than if they just gave up on the house. This may seem like only a minuscule benefit to using a deed in lieu, but even a few months to begin recovery and a few extra points higher of a credit score may mean all the difference if another home is to be purchased in a few years.

One of the benefits of giving a deed in lieu is not having to worry about a deficiency judgment after foreclosure. If the bank accepts the deed in lieu of foreclosure, they can not stick the homeowners with any more debt after accepting. The bank accepts the deed to the house (DEED) instead of (IN LIEU OF) taking the bank through the legal process of foreclosure (FORECLOSURE). This method is considered payment in full of the mortgage obligation. The owners will not owe anything else after giving their mortgage company the deed in lieu and there will be no danger of ending up with a judgment or the bank trying garnish wages.

The real danger in using a deed in lieu, though, is when the homeowners wait too long. The bank will not accept this if they are days away from selling the house at a sheriff sale; it will take less time and effort just to have the property auctioned off. Furthermore, if the homeowners wait and wait and the house goes into foreclosure and they do not do anything to save it and the property sells for much less than what is owed, then the bank will have an opportunity to sue them again after foreclosure for a deficiency judgment. Thankfully, the vast majority of banks hardly ever do this in practice because they know that foreclosure victims do not have the money to pay tens of thousands of dollars in judgments, and it will cost the bank more in legal fees than they will ever collect.

Homeowners who are unable to afford their home any longer, or would just like to unload their current house and have the best opportunity for quick financial recovery, would do well to consider offering their bank a deed in lieu of foreclosure. Remember, banks will not present this a solution to foreclosure victims, because it must be given voluntarily. But for those who know they will not be able to afford a payment plan or find a lender to refinance with, using a deed in lieu to stop foreclosure is several steps better than giving up on a house, and will not result in the possibility of longer-term negative credit effects, such as a deficiency judgment.

Unfortunately, one of the more common consequences of homeowners facing a financial hardship is a lawsuit in one form or another. This may be from the mortgage company foreclosing on the house, or another creditor or collection agency trying to leach off the crisis of a productive member of society who is facing a temporary setback. Lawyers, despite the fact that a majority of them are unhappy with their jobs, spread around their own despair by targeting homeowners and courting creditors in order to try and collect judgments from people who need help, not lawsuits. The two lawsuits that foreclosure victims seem to be most worried about are ones that result in deficiency judgments or liens against their home from a creditor that can be turned into a foreclosure.

Deficiency Judgments

Being sued for a deficiency judgment after foreclosure seems to be one of the greatest worries of homeowners in danger of losing their homes. Not only are they behind by thousands of dollars on their mortgage payment and facing a public auction of their house, the ordeal may continue even longer. If they are sued for a deficiency judgment for the amount that the bank does not recover from the sale, then they may have to pay tens of thousands of dollars years into the future for their one financial hardship that led to foreclosure. Thankfully, this is often not a danger to the vast majority of homeowners, as mortgage companies usually will not go after a deficiency judgment.

Not all states, though, even allow mortgage companies to sue homeowners after the foreclosure process has ended, so homeowners should consult their foreclosure state laws before worrying about the possibility at all. If the state in which the first property is located allows for deficiency judgments, then the bank could theoretically sue after the sheriff sale of the house. However, they can not just automatically put a lien on any other home or property, or garnish wages; the lender would have to take the homeowners back to court, hire local attorneys to file the lawsuit paperwork, get the judgment from the court, and try to have it enforced in the county to where the homeowners have relocated after moving out of the foreclosed home.

So, after the bank has already lost a lot of money on the sheriff sale of the property in foreclosure, they are going to spend even more money and resources chasing after another judgment against the homeowners who were unable to pay the mortgage or first judgment. The first judgment, for the foreclosure, was a waste of their time, since they just got stuck with a property that may be worth far less than what they had loaned on it, and many homeowners face foreclosure because of a financial hardship that seriously alters their income. This is, of course, why they fell behind on the mortgage payments in the first place.

In fact, since the foreclosure victims are no longer the owners of that house, the court may not even know where to serve them the paperwork for the lawsuit. If they do not have an address, they can not be served very well, which means the judgment will be shaky, at best. Homeowners may find out that they were served incorrectly and have the deficiency judgment overturned, which would cost the lender even more money in legal fees to try and prove that services was made. The mortgage company will have to keep expending resources to pursue a judgment that they may never be able to collect on.

Furthermore, there is little reason to expect that people, just after foreclosure, have tens of thousands of dollars to pay a judgment. The former owners know they do not have the money. The bank knows they do not have it. It will cost them more money to begin the lawsuit and try to collect than the banks will ever be able to get out of the homeowners. This is why the banks do not even bother with suing for deficiency judgments after foreclosure, in nearly all cases.

Unsecured Creditors' Liens

Other creditors, however, may try and sue homeowners in order to get a lien on a property. In this case, they may try to obtain payment of the debt by a sheriff sale of the house, thus pushing it into foreclosure. Even in this case, though, many homeowners can use other options in order to avoid losing the home or having to keep paying the judgment even if the house does not sell for enough at auction to pay it off completely.

In this case of being sued for some other debt besides a defaulted mortgage note, the same principles apply as in the deficiency judgment. The creditor can try to take the homeowners to court to get a judgment, then have the judgment enforced as a lien on their home. Will they try to force the foreclosure, though, even if they obtain the judgment and a lien is placed on the house?

They probably will not go this route, because they would most likely not get anything from the sheriff sale if there is a mortgage (in default or not) on the house. The mortgage would be paid off first, and there is usually nothing left over afterwards to pay the other liens. Many properties at sheriff sale do not even sell for enough to pay off the first mortgage in full, and liens of unsecured debt may be in line to be paid after back property taxes, a first mortgage, second mortgage, and home equity line of credit, most of which will not be paid off completely or at all.

This is not to say that homeowners should not try and get the debt taken care of before it becomes a lien on the home. They can try to work with the creditor to avoid the lawsuit, and establish a forbearance for a few months while they are recovering from their financial hardship, or put together a payment plan for the debt once they have enough income. If all else fails, many homeowners in foreclosure or facing financial collapse are clearly insolvent right now (owing more than their assets are worth), so a Chapter 7 bankruptcy might be used to eliminate unsecured debt (such as what they owe the creditor discussed in this section) and allow them to keep their home.

It seems that the very rich of society, like the Googles and Microsofts of the world, and those facing financial hardship are the most widely targeted for lawsuits to collect money. The rich are targeted because they can pay millions of dollars just to get rid of the lawsuit and bad press and will not be affected. The poor or financially unstable are targeted because the stresses of their current situation combine with their own ignorance of the court system to make them extremely easy targets for miserable lawyers looking for company and bottom-feeding collection agencies. Knowing the dangers of being sued before or after foreclosure, as well as what options can be used to fight back, are essential for homeowners to avoid being taken advantage of by creditors for decades after recovering from their financial hardship.

Despite all of the outcries from homeowners about the foreclosure crisis, the only ones who have been bailed out so far are the banks that made these poor loans. People suffering from rising interest rates and financial hardships have been offered nothing but more of the same dressed up in fancy new government program names. Even these are only voluntary for a small number of banks to participate in, though, leaving the majority of homeowners to fend for themselves.

But will these numerous federal bailouts of the hedge funds and large banks "trickle down" to help the average American facing the loss of a home? Unfortunately, the answer is that bailouts of the banks will not help homeowners, and will even contribute to even more hardships. The government has nothing and produces nothing, so any bailout money it hands out to the nation's banks must be taken from some other source; namely, the taxpayers and homeowners themselves.

So, by stealing money (through borrowing or inflation) to pay off the banks and keep them in business, the government will just be rewarding the poor lending decisions these banks made for so long. Of course, this creates moral hazard for the lenders to keep making bad loans, trusting in the government to bail them out next time. This has happened over and over again, the Asian Crisis to the collapse of the Argentine economy being just two more recent examples. Furthermore, it was the easy credit and federal bailouts that created the housing bubble and led it to become as massive as it did. Just pouring more inflation and credit into the system to bail out the banks will not solve the problems. A trickle down? More like a mass concentration of wealth upwards.

Also, inflating the money supply will just drive up prices for other goods in the economy that are vital to the average person. Homeowners already struggling to feed their children, heat their homes, and keep their cars full of gas will not be able to keep up if food and energy prices keep increasing, as they certainly will if the money supply keeps increasing to keep the economy going. Stealing money from these people through federal government bailouts of the banking system will only push them closer to their own foreclosures, which will necessitate more government intervention, which will lead to more financial collapse.

A bailout of the banks might, in the best case scenario, keep them in business for a little longer, but the bailout will create the conditions that lead to the next waves of foreclosures. Even with a bailout, many of the large banks most exposed to the subprime lending mess are nearly insolvent. Pumping liquidity into the system can solve short-term problems, but the banks simply have no reserves left. In fact, they have already lost much more than they ever held, making many of them essentially bankrupt. But the only solution offered by government is just to keep stealing the purchasing power away from average people and expect them to be able to keep their heads above water and continue consuming.

The only other solution presented, the voluntary government programs, offers nothing new that homeowners and banks could not work out on their own. Essentially, with all of the voluntary programs that the government has already come up with to "solve" the foreclosure crisis, they have told homeowners "tough luck." Banks get direct injections of billions of dollars taken out of the pockets of average Americans, and the Fed offers to take the lenders' defaulted subprime mortgage securities as collateral for new loans, the money of which was stolen from the very homeowners struggling to keep their payments current. Homeowners get voluntary programs that are offered by only a handful lenders who are not required to do anything to help.

The bailouts that have been and are being provided to the insolvent banks and hedge funds are doing exactly what they were meant to do: allow the banks and financial centers of power to keep up appearances while they cash out of the system, leaving the average American out in the cold but (hopefully) unaware of it all. The government programs are a part of the ruse, of course, to show how much politicians care about homeowners in foreclosure, while quietly pushing them even further toward the brink of losing their homes.

Recently, some of the largest banks in the country, along with mid-size and smaller ones, have begun cutting off homeowners' access to home equity lines of credit. The stated reason for this is that, since home values have dropped so dramatically in certain areas, the bank is unwilling to risk the possibility of the house going into foreclosure with more owed on it than the property is worth. Although this may seem like it would make sense in some twisted way, this action will just contribute to even more foreclosure, further decreases in home values, and less credit being readily available.

Just a few of the mortgage companies who have restricted access to established home equity lines of credit include Countrywide, Bank of America, and USAA Federal Savings Bank. Countrywide has cut off 122,000 of its customers, while USAA has begun with 15,000. Bank of America has recently also begun contacting homeowners to inform them that they will not be able to use the credit lines.

These types of loans usually do allow for the lender to cut them off for period of time or suspend access if the home value drops, but few of the debtors ever read these complicated mortgage contracts. Few enough of them read the documents for their first mortgages, and most believed that the home equity line of credit could act like a credit card. Cutting off the owners' access to the accounts will contribute to more foreclosures, though.

Most importantly, some homeowners are currently using these credit lines to get them through a temporary financial hardship. With recession looming in the economy, jobs and wealth may begin to disappear at increasing rates. Homeowners who lose a job or face a similar financial crisis will not be able to borrow from their home equity in order to get them through the rough patch. This, in turn, will make it that much more likely that they will end up in foreclosure sooner rather than later.

But the lenders are also in a losing situation. If they keep the credit lines open, homeowners may be able to get through a temporary setback and keep on top of their housing and other bill payments. But if the situation involves a permanent decrease in income, the homeowners may just use the credit line to prolong the inevitable, borrowing as much as possible before they eventually lose the home anyway. In this case, the mortgage company holding the home equity line of credit will most likely not be able to recoup any of their losses from the sheriff sale.

So banks are stuck with the choice of leaving the lines open in the hopes that homeowners will use them to overcome a financial hardship, or closing them in order to prevent even greater losses through foreclosure. By keeping the lines open, they risk even greater losses as homeowners use the money to get ahead of the foreclosure and never intend to pay it back. By closing them, the banks are almost guaranteeing that some owners will quickly fall into foreclosure. Neither of these choices are easy, and it seems that the lenders have decided to reduce their exposure as much as possible by restricting access.

This indicates that the banks believe that there is worse to come in the economy and that home values may not recover for some time. These borrowers may never be able to get access to their equity lines, and ones who have used up much of the credit will not be able to sell their homes because they owe more than the home is worth. Thus, in order to limit their own exposure, banks are locking homeowners out of their credit lines while locking them into mortgage payments that they will never be able to make for the long term on houses that will not be worth nearly as much as they were during the bubble.

With all of the talk of new government programs to help homeowners in foreclosure, such as Hope Now and Project Lifeline, slightly more people in danger of losing their homes may have an extra option. At the very least, coverage of these programs may inform more owners that it would be best to contact their mortgage companies in order to attempt to work out a solution. But for those who have already lost their homes to foreclosure, in some cases months ago, there will be no consolation prize to be found in these programs to help them regain their previous properties.

Unfortunately, the people who have lost their homes, either due to poor lending guidelines, financial hardships, or otherwise, are simply out of luck with all of these government programs to help in the foreclosure crisis. However, they did contribute to the rise of these programs in at least one significant manner: it took all those people losing their homes to persuade Congress that foreclosures were becoming such a large issue that they needed to be addressed in some manner. Of course, it took legislators an additional six months to get around to doing anything and creating these plans, which helped push even more homeowners into foreclosure.

But it would not be a good idea for any homeowner currently or previously facing foreclosure to put too much faith in these government-sponsored plans. They involve only the largest banks in the country voluntarily helping out homeowners behind on their payments to create mortgage modifications or establish repayment plans to stop foreclosure. Not all mortgage companies are involved, which makes these programs much less effective, and the lenders that are participating can already voluntarily help put together payment plans or modify loan terms, hold off on a sheriff sale, or freeze the foreclosure process for a month or more.

Being a part of one government plan or another will not dramatically alter the ways that they do business, and only the press coverage of these programs will help inform homeowners of their existence. For instance, most mortgage companies have a foreclosure or loss mitigation department already; the problem is that homeowners are simply not aware of their existence and do not utilize the resources the bank offers. Many end up selling, refinancing, or giving up on their homes, rather than attempting to qualify for a solution through the loss mitigation department at the bank.

Thus, the government programs are not adding anything really new or devising creative solutions to any part of the foreclosure crisis, which makes the plans more a public relations stunt than anything. Homeowners who are unable to work with their banks now or do not qualify for a workout program will not find any additional help from the government programs than they could have found in their absence.

The best bet is that, if homeowners lost their property before the government programs were created, nothing in the programs will help them get their houses back after they have been foreclosed. Of course, there are numerous ways to regain a house after foreclosure, but they have nothing to do with the current plans put forth. In fact, homeowners who have already gone through foreclosure without the benefits of these government-sponsored solutions most likely would have lost the home even with the programs. They are voluntary for the lenders and not all lenders are involved in the programs and lenders can already do everything in the programs without government intervention.

This post is a follow-up to a previously written article on how homeowners can walk away from a home in foreclosure, and what they should expect if this is their choice. Just leaving a home to its ultimate fate in the foreclosure is obviously the least-desired option, and can result in the most damage to the homeowners' credit and the house itself, if it become a target for squatters or vandals. With property values declining and foreclosure victims owing more on the mortgage than their homes are worth, though, many more will consider whether or not to abandon their home.

When examining this option, though, numerous questions should be raised by the owners. It is not an easy decision to leave a house in foreclosure, and many consequences may be forthcoming, from renting a new apartment while the previous house is being foreclosed, to informing the mortgage company of their decision to give up. Many of these aspects will be left up to the homeowners for the final decision, but they should keep them in mind when searching out options to stop foreclosure, or considering leaving the house to move on with their own lives.

Informing the Bank

Once the owners have made the decision to move out and give up their fight to keep the home, the lender will continue foreclosing on the house. This process will not stop. However, the foreclosure victims will have to decide whether or not to inform the bank that the house will be empty from now on, which may make it a target for break-ins and theft. The ethical decision may be to inform the bank, either through a phone call or in writing to the lender or its attorneys, and let them deal with the security of the property. Homeowners may even be able to write the county and inform them that the house will be abandoned due to the foreclosure status.

Reasons that the owners may with to avoid this, though, include the fact that they are still responsible for the house as long as they own it, and the possibility of informing government or bank representatives who will use their knowledge of the empty house to take advantage. If either party knows that the homeowners will be moving out, they may wish to keep track of them in order to hold them accountable for any damage that occurs to the property once it is abandoned. Homeowners who want to make a clean break and leave the entire experience behind them may just wish to move on.

Forwarding Address

This leads to the issue of leaving a forwarding address with the local post office. Unless homeowners wish to continue receiving mail from the lender, its attorneys, and the local government and court system, as well as assorted junk mail, they may wish to avoid this. If the post office informs the lender of the new address, then the lender can still have official papers served on the owners to have them appear in court for the eviction hearing or sue them again after foreclosure.

Of course, one alternative to this would be transferring all of the relevant bills and personal accounts to a mailing address at a PO Box or commercial mail receiver, such as the UPS Store. Homeowners moving into an apartment can keep their mail as private as possible and avoid the bank or local government knowing exactly where they live and being able to keep harassing them long after the foreclosure process has ended.

Explaining an Abandoned Home to a Landlord

Many homeowners who decide to leave their home will be able to move into a second home or live with friends or family until they have recovered financially and are able to purchase or rent a new home. Many others, though, will have to find some way to explain right away to a landlord why they have not made a mortgage payment in some months and are now trying to rent a new apartment. This is an awkward situation, at best, but it can be approached two ways.

First of all, the homeowners can be completely up front with the potential landlord and explain why they have fallen behind on the mortgage, and why they decided to leave the house. They may wish to explain that the bank was unwilling to work with them, despite their now-stable income and temporary financial setback, and that they would rather move on with their lives than fight for a house that is not worth it. Reasonable landlords are aware of the fact that some renters may be renting exactly because they are looking for a fresh start. Offering the owner an extra security deposit or offering to pay rent in advance for a few months will help persuade them to give the homeowners the benefit of the doubt.

Alternatively, if the homeowners have been able to save up a significant amount of money while facing foreclosure, they may be able to avoid a credit check for an apartment altogether. By explaining their concern for privacy and not having their credit scarred even further with another inquiry, and by offering to pay 6-12 months rent in advance, many landlords can set up an agreement where credit will not be checked. Paying half a year or a year's worth of payments in advance is like having money in the bank, as well, and will ensure that the owners have a stable place to live for at least the short term.

There are a number of aspects that must be examined when considering the possibility of abandoning a house to foreclosure. Renting, informing the bank, and setting up a new mailing address are just a few of these that homeowners may overlook, but which should not be left to chance. Leaving behind an unaffordable house to be dealt with by the banks and courts is never an easy decision and should not be made lightly, but homeowners need to consider all of the consequences of this action before making their move.

One of the methods that homeowners use to save their homes from foreclosure that is quickly gaining in popularity among foreclosure victims and lenders is selling the property at a short sale. Although the option has been around for decades, the current environment in the real estate market has made the method particularly attractive, because it allows owners to sell for less than the total amount they owe on the loan. This is especially helpful now, as home values have been in decline and many loans were taken out at 90-100% loan-to-value.

Nearly five million households may be facing foreclosure in the next two years, which will contribute greatly to an overall decline in property values. These distressed properties must be sold for an amount to encourage a quick sale to stop foreclosure, but this may be impossible if what is owed on the mortgage exceeds any reasonable estimate of what the home could sell for. With the distinct possibility of a recession in the economy this year, even more layoffs and corporate bankruptcies will be announced, which will only contribute to the number of properties being sold.

For most homeowners, selling for less than what they owe may not be the most preferable solution to the foreclosure. It is, however, much better than going through the entire foreclosure process through the courts and sheriff sale, and can have positive impacts on the former owners' credit once the sale is completed. Instead of a full foreclosure showing on the credit history, the mortgage will be reflected as having been paid off and closed, but with a settlement accepted for less than the total amount. Obviously, this is not as good as paying off the mortgage in full, but it is far and away better than losing the home to a foreclosure auction.

Lenders are more willing to consider short sales when they are sure that the property will not sell for very much at auction, and the amount they are being offered for the short sale is more than they can expect from the sheriff sale. Foreclosure is an expensive process, usually costing in the range of $50,000 per case, but a short sale cuts the foreclosure off before the process has gone all the way through, thereby saving the lender some of its costs. It also has the luxury of working with the homeowners directly, rather than paying their local attorneys to file more paperwork in court or request the county government to enforce judgments.

Allowing the homeowners to sell at a short sale also saves the bank from having to take back control of the property if there is no other buyer at the auction. Banks are often the high bidder at county sheriff sales, even though they offer only the minimum required opening bid. Their goal is to get the property ready to be sold through a local real estate agent on the open market and regain some of their lost profits through the sale. If they can avoid that through the use of a reasonably-priced short sale, many of them will take that opportunity.

The main group of homeowners that should consider a short sale are ones that have little or no equity in their homes, and can not find a better way to stop foreclosure before they run out of time. Refinancing is often not a possibility when there is negative equity, and bankruptcy may come with a prohibitively expensive payment plan. If the bank is not willing to work out a repayment plan or mortgage modification because there is not enough income to qualify, then selling the home may be one of the only options left to the owners to escape the worst consequences of a foreclosure.

Despite all of the trite messages of hope and change, the current state of the American economy points to a short term slowdown, at the very least. With the fraud perpetrated on the people through the subprime mortgage market, and the fallout from its inevitable meltdown, solutions have been offered that have done little to bring confidence back to the markets. Even the central bank of the country, despite repeated injections of inflated money and drastic interest rate manipulations, has failed to stimulate the economy to any lasting degree.

But the contagion in the mortgage and housing markets has not even been contained. Both mortgage lenders and homeowners are facing financial failure in record numbers, and bankruptcies are expected to increase. Over 220 lenders have now gone out of business, reduced their lending, or severely tightened up loan guidelines.

Homeowners, as well, are facing the consequences of a nearly decade-long bubble in the housing market, as property values have already fallen by 30-40% in some areas of the country. With increasing foreclosure rates, property values will have to fall even further to entice purchase offers and loan qualifications. But homeowners in trouble will be unable to sell their properties, as they received mortgages during higher points in the bubble.

Thus, even more homeowners are having to file bankruptcy to get out from under these crushing debt burdens on properties worth far less than the loans on them. Disturbing, although not surprising, is the fact that few homeowners seem to care much about these overpriced homes any longer. It is a good question why they should care about them, as they represent an era of excess spending and living beyond one's means that has now ended.

The local governments that benefited so much from the run-up in home values are also the facing financial consequences of trusting in a financially unsustainable system. Cities and counties, unable to collect as much through property taxes as they were used to during the boom, are facing possible bankruptcy. Contributing to the problem is the fact that some public servants are taking retirement early so that they can be assured of a pension paycheck as the local governments are coming closer to the point of insolvency and being unable to fund their payrolls.

Reducing spending and shrinking government is not an action that most governments could conceive of, so that option will not be considered. More likely, taxes will be raised, or the governments will beg for a federal bailout in the form of low-interest rate loans of new money from the Federal Reserve. Again, government will rely on its tool to steal money from the people through inflation in order to keep itself out of bankruptcy, while their theft directly contributes to the problem of people not having enough money.

Inflation caused the problem, and more inflation is, logically enough, causing more problems. Oil is over $3.00 per gallon and a barrel is now just over $100.00. Not even counting resource depletion and a shrinking supply of oil, these numbers reflect a dollar that is quickly falling in value. Homeowners, rather than pointing to Arab countries, should look to their own excesses and their government when seeking to place the blame for the faltering economy.

But the issue remains to be resolved if this is just another recession, or if it is the begin of the end stages of the decline of the American empire. Built on a dollar as the reserve currency of the world and oil being priced in dollars, a movement away from either of these conditions could cause a much quicker collapse. Many OPEC countries have publicly considered pricing oil in Euros and Iran has already begun this. As well, other countries have quietly begun dumping their dollars and diversifying their currency holdings.

These two trends leave the country with only its military superiority to encourage a strong economy, a military bogged down in its own unwinnable wars in foreign nations, stretched thin across nearly 140 countries in over 700 bases. Faced with a loss of confidence in the dollar and a loss of confidence of the general benevolence of the country throughout the world, there may be little reason to expect that this current recession does not signal the final days of an empire of debt.

One of the more common methods that homeowners use to get out from under a crushing debt burden is by filing bankruptcy. If they are unable to find some alternative, then this may be the only option available, due to a large amount of debt and an inability to pay it back in any reasonable manner. Consumers who are finding it more and more difficult even to make the minimum payments on credit cards or personal loans, and may fall behind on their mortgage if they face a serious financial hardship, may with to consider filing bankruptcy to get some relief.

Getting to this point where the debt is such a large problem that it will be almost impossible ever to pay it off is very often beyond a person's control. The lure of easy credit creates temptations, which then lead to a dependency on credit just to make bill payments or pay the interest on other credit lines. Financial mismanagement and hardships may then combine to push the consumer over the edge. The list of potential hardships is nearly endless, from job loss to illness or disability to divorce and even home or car repairs.

Filing bankruptcy, although an option, should only be considered very carefully and it is not a magic bullet solution. Due to recent changes in the bankruptcy laws, it may be more difficult to meet the requirements to file Chapter 7 bankruptcy and discharge all of the unsecured loans, like credit cards and personal loans. The paperwork that will need to be filed is just as extensive as applying for a repayment plan from the original creditors. Bankruptcy also involves an entirely separate court system that will be involved. Consumers who do not meet all of the requirements under these new laws will simply not be able to have their debts discharged.

Consulting with a competent legal source should be the first step for most people in order to understand these laws. Because of the useless nature of legal language, it is specifically designed to keep out everyone who has not spent tens of thousands of dollars in an approved law school and taken a state-administered exam.

Bankruptcy is usually the last resort for most consumers with credit problems, as well it should be. The credit ramifications of filing bankruptcy can be quite severe, and it will appear on a credit report for seven years. This will make it more difficult to qualify for loans at any rate soon after filing, and will ensure that any creditors will request higher up-front fees or higher interest rates for years to come. Employees seeking a new job or moving up in a company can also be hampered because of bankruptcy, as more employers are now using credit checks to ensure that their workers are trustworthy.

Usually, a better solution is to research other options that will avoid bankruptcy, such as debt validation, consolidation, or simply working with the creditors for a more reasonable payment plan. Lenders can lower interest rates or accept less than the total amount they are owed, but consumers will have to request these solutions and be willing to work with their creditors. The long-term effects of filing bankruptcy often outweigh the relative benefits in all but the most serious cases, such as stopping a sheriff sale or saving a home from foreclosure.

The government and the banks have come up with a new propaganda program designed to provide artificial hope to the declining real estate markets. Purported to help homeowners in foreclosure work with their mortgage companies, Project Lifeline, as it has been named, is another poor effort by the bureaucrats and their paymasters to solve problems they created with the same tools that created the problems in the first place.

One of the drawbacks of the plan is that the proposed foreclosure freeze is only temporary, lasting a mere thirty days. Most homeowners and people who work in the foreclosure industry know that it can take a mortgage company thirty days just to acknowledge it has received a fax, let alone that they will begin working on a solution.

But, in order to qualify for the program at all, homeowners need to be at least 90 days late on the mortgage, by which time the lender may have begun repeatedly calling, seeking to collect on the loan. Destroying their credit rating and allowing 90 days worth of interest and late fees to accrue, just for the chance to qualify for a mortgage loan modification of some sort is very little to look forward to, for most homeowners.

The program itself is being offered through a joint effort by six of the largest lenders in the country, Bank of America, JPMorgan Chase, Citigroup, Countrywide, Washington Mutual, and Wells Fargo. This leaves out nearly 50% of the rest of the population that holds a mortgage, and the Project Lifeline program is voluntary even to the companies that have chosen to participate.

While all of this may seem quite benign, and even somewhat positive, the banks and government have allowed themselves an excuse to explain the eventual failure of the program. The banks have stated that they will be proactively calling homeowners to offer the modification or forbearance programs, and government officials have stated that it is up to the homeowners to meet the banks halfway and work together on a solution to stop foreclosure.

This is probably the most ironic statement made regarding Project Lifeline, and the effectiveness of banks proactively calling homeowners after they are behind by 90 days to offer them solutions to foreclosure is simply absurd. The question is, will the lenders be calling their defaulted clients to offer Project Lifeline before or after the collections department scares off any potential participants with dozens of threatening phone calls every day?

If the lenders simply keep on making the same threatening phone calls for the first 90 days, like they do now with all of their clients behind on the mortgage, then all of the Project Lifeline propaganda is just a ploy and will be used as an excuse later on to steal the homes from the foreclosure victims and reap monetary benefits while doing so. Ninety days of voicemails and threats from the collections department often has the effect on homeowners of no longer responding to any call from the lender, and deleting voicemails without even listening to them.

One call from the loss mitigation department will surely be lost in all of the collection calls, and then homeowners will lose another chance to save the home, and the banks and government will be able to blame the foreclosure victims for this. "We called the homeowners -- they never responded. We are the good guys who wanted to help and these people refused to take a step and call us back to request our assistance."

More than likely, after this failure of Project Lifeline, the blame will be put squarely on the homeowners themselves, rather than the ironic and self-defeating actions of the mortgage company. But this failure will also be used as another excuse to give the banks a bailout courtesy of the inflation machine at the Federal Reserve.

The banks will be perceived as the real victims, when it was their own policies and business practices that helped create the real estate bubble, profit mightily from bad loans, eat up vast swaths of the country as Real Estate Owned properties, and then earn their unjust reward in the form of billions of dollars of free money. Homeowners, the only victims to suffer actual losses of their homes, will be propagandized as greedy and lazy, denying the wonderful help the government offered.

Most homeowners are acutely aware of the fact that the final step in the process of foreclosure will be the eviction. Although most are not exactly sure when the sheriff will remove them from their house and change the locks, it is probably the single greatest fear among foreclosure victims that they will be evicted with little or no warning at a randomly-determined time. But the actual legal process that banks must follow when repossessing a house has a number of steps that must be followed exactly. Homeowners should not be overly concerned with being thrown out of the house, but they must understand how the eviction process will proceed against them in the courts, and how they may be able to postpone or delay it.

A little-known fact is that these steps, which the bank must follow to evict a homeowner, are very often broken or violated. This can provide the foreclosure victims with reasons for the eviction to be delayed or stopped completely until the lender and its attorneys are able to follow the correct procedures. Because these are government rules and procedures, many of them contradict each other, as well, and their language is incomprehensible and boring, so many attorneys simply never read the actual rules. Every time they file a lawsuit, and every motion they file in regards to that lawsuit, may have violated numerous rules.

But the bank, after the sheriff sale, will have to request that the court order the former owners and current unlawful occupants to be removed from the house. Usually all they would do is show that the title was transferred on the day of the sheriff sale, which establishes the new owner as having a legal right to determine who lives in the property. After the foreclosure victims have used all of their options to stop foreclosure with no success, and the sheriff sale has been conducted, the eviction process will usually begin very soon.

This request that the bank makes to the court for an eviction order, though, is another opportunity that the foreclosure victims can use for their own purposes. The owners will always get a chance to respond to any motion the bank makes in court, and the bank's attorneys almost always violate some rule of procedure. There are simply too many of them to keep up with, with state-wide rules, county rules, and specific court rules, many of which claim to be in agreement with each other but are contradictory. Obviously, it is up to the foreclosure victims themselves whether they want to answer every motion the bank brings and drag out the process and increase the legal fees that will eventually be added to the total payoff, but most lenders and attorneys have little idea of what they are doing in court.

The main adversary the homeowners will usually have to face when arguing that the lender has violated the rules of procedure is the court judge himself. Judges are frequently aware of the fact that no one can enter court without violating numerous rules, and they will do their very best to protect their lawyer friends from having to play by rules that lawyers have established. When dealing with homeowners in foreclosure, they would rather have the parties work out a solution outside of court, or simply order the house to be sold at sheriff sale, thereby earning their part of lawsuit fees. Making sure that everyone follows written rules and guaranteeing that homeowners receive a fair and meaningful hearing are the last things they care about.

Thus, homeowners have two main options when faced with a possible eviction. First, they can try to work out some deal with the bank, either for more time to stay in the property until they move out, or to purchase the property back somehow but continue living there until they have accomplished this. Or, the former owners may want to argue against the bank in court and point out the numerous rule violations that have occurred. This usually results in the judge allowing the bank and its attorneys to violate these rules, but may be grounds for an appeal and a stay of the eviction order until the appeals court process is over. Either way may buy the homeowners more time to save their homes or move out with the best chance of a quick financial recovery.

There have been a growing number of stories in the news about homeowners suing their former mortgage brokers over the loan that they were given. Lawyers, as usual, are seeking out victims in order to drag more people into the court system and attempt to wring money out of them, rather than actually providing any useful service to society. Many of these attorneys will be able to extract some sort of legal judgment payments out of the mortgage brokers, of course, but it is doubtful how much actual responsibility mortgage brokers have in the current foreclosure crisis. In fact, the lawyers as a profession may have more to do with it all.

The average broker may be just as victimized as the homeowners, and many more former brokers and loan originators are feeling the pain of tighter credit and declining property values. Their potential customer base is quickly shrinking. The easy business is just not there any longer, and banks are not approving loans without better credit and actual down payments. For brokers who specialized in or got a significant amount of the income from providing loans to borrowers with poor credit, they may not be able to stay in the business at all.

This environment of easy credit and loose lending policies was created by the government, the official home of the lawyers. The Federal Reserve lowered interest rates drastically in order to stimulate the economy, but only managed to create a huge financial bubble in the housing market. Local governments and large banks turned a blind eye to the fact that many of the home values were being inflated beyond any assumption of reality. Property taxes rose and lenders were able to provide huge loans on properties worth far less than stated, package them into incomprehensible financial products, and sell them to uncaring hedge funds.

The mortgage brokers played the most direct role with the homeowners, but they were only offering the mortgage companies' products to a market of homeowners and buyers who wanted them. If the adjustable rate or interest-only mortgages were not useful or desirable, then they would not have been so popular. Brokers would have had to offer more reasonable, less flashy products to their customers, like loans on affordable homes or higher, fixed rate mortgages. But many homeowners either did not want this type of loan, or they did not qualify for a more standard mortgage but wanted to buy a house anyway.

In all cases, besides that of fraud on the part of the broker, mortgage lender, or servicing company, the responsibility lies more with homeowners than any other party. It is up to the consumers of mortgages to understand how their loans will work, not just now but years down the road, and be able to analyze at least the largest risks, such as declining property values and rising interest rates. Few people buy cars without researching their options and evaluating the features of their prospective choices, such as cost, security, mileage-per-gallon, and so on. And cars have far more technical, moving pieces, and are less expensive, and are shorter commitments than buying a house with a mortgage.

Although greedy mortgage brokers may become the scapegoat of the foreclosure crisis, they were not the only ones taken in by the era of easy credit. The banks and hedge funds encouraged the use of these loan products in every case, and the government created a huge bubble instead of recognizing that economic bubbles do not solve previous economic bubbles. The lawyers, if they really wanted to hold the right party accountable for the foreclosure mess, would go after the government's poor monetary policies. But that would be like expecting a dog to bite the hand that feeds it. Lawyers in government create the laws and policies that allow the financial bubbles to occur, and then use other laws to deflect accountability away from themselves, encouraging the lawyers out of government to do their best to steal money from the productive of society and drag them in front of another lawyer in government wearing a black robe.

Foreclosure is quickly becoming a nationwide epidemic that will affect each and every one of us before it is cured. The only solution to this problem is for everyone to pitch in and fix the problem before it is out of control. Many of the lenders and servicing companies have taken measures to ease their own suffering, but it seems most would rather delay things, than actually fix them. Maybe they are under the assumption that the homeowner will come up with their own solution if they give them enough time. This just is not the case; it is the American way to procrastinate, so do not expect foreclosure victims to act any different.

I personally help 100’s of people save their home each year and I know for a fact that 90% wait until the absolute last minute before they seriously try to stop the foreclosure. Most just do research on the internet and talk to companies who might be able to help, but they don’t take action until they are weeks, or days away from losing their home. Of course, the servicing companies do not help much, because they do not even offer support until someone is 3 payments behind. They were not prepared for this either; they are so overwhelmed with people in foreclosure, that they do not have time for those who are still months away. It is too bad, too, because for many of these people, a simple refinance into a fixed rate loan would solve the problem.

Lenders and servicing companies need to be more proactive and offer solutions before it is too late. If a homeowner can not make payments at 10%, but they can at 8%, then why would the lender not want to offer a fixed rate refinance or modification into a more affordable rate? Instead, they are opting to lose 20-30% on a mortgage that could have easily been profitable. Lenders can make a simple change in their system and eliminate many of these foreclosures before they happen. Homeowners need to make changes as well. Obviously it is easy to blame lenders for these problems, but most homeowners knew what they were getting into and just made poor spending decisions. Consumers need to be educated on the mortgages and they need to be made aware of how easily a hardship or depreciation can cause a foreclosure. Spending habits need to be adjusted and homeowners need to be more aware of what is happening with their credit.

By continuing to foreclose on properties, rather than offering solutions, lenders are forcing lower credit scores and taking more and more borrowers out of the market for new homes and mortgages. This not only affects our real estate market, it affects our overall economy by removing millions of consumers from the retail market. Many mortgage brokers or real estate agents need new jobs and others are just barely scraping by. Not to mention all the foreclosure victims who are no longer creditworthy. Certainly this does open up new revenue streams for other business that profit from these hardships, but overall, I think we can all agree that society is much better off without foreclosure.

I have seen many clients who use their life savings trying to pay the mortgage on a home they can no longer afford, because of an adjustable rate mortgage. In the past these homes could just be sold and the owners could walk away, but now they are upside down from a 100% mortgage and a market that seems to be getting worse every day. Our company is generally successful helping victims refinance or sell, but we also work with lenders to help them establish a loan modification or workout program to keep them in the existing loan. Once we get involved, lenders are very cooperative, but only a small portion of foreclosure victims actually find us before it is too late. Lenders and servicing companies need to work with their clients without the need for professionals to get involved. Unfortunately, these lenders are suffering, too, so they are forced to hire low cost customer service reps that are overworked and underpaid.

This creates a whole new problem; the customer service rep does not care if the loan is profitable or not. They only want to make it through the day and eliminate as many cases as possible, with the least amount of work. They seem to love it when we contact them on behalf of a client, because they know we are going to do most of their work for them. Maybe this is why we are so successful, but still, homeowners should not be forced to hire someone to speak with their lender on their behalf.

If you are a homeowner facing foreclosure, then I recommend contacting your lender first and finding out what options they have available. If they are not helpful, or do not offer any viable solutions, then you need to immediately contact a professional who can help you either find a new lender or make arrangements with your existing lender to begin a loan modification. Companies like mine, who offer all of these services from one source are your best options, because you will not be “sold” on one solution, you will be evaluated and provided with all possible options to stop foreclosure. Ultimately, you need to find a company or person that has experience and is someone you can trust, so feel free to interview companies until you find someone who fits your exact needs. Just be careful, because many of the companies offering foreclosure help do not have experience and should not be trusted.

Eventually, lenders and servicers will figure out that it is more profitable to offer viable solutions, but for now, if you are a homeowner, you better plan on helping yourself out of foreclosure or finding someone to do it for you.

In most cases of foreclosure, it is the first mortgage company that initiates the process. The second mortgage may file its own foreclosure in order to protect its interest in the property, but even this is somewhat uncommon. The second lender would much rather work with the homeowners to find a solution to avoid foreclosure entirely, if possible. However, if the homeowners are simply too far behind on the second mortgage but up to date on the first, there is a good chance that the second lender will declare foreclosure on the house.

Any lienholder can try to force a sale of the property through foreclosure, but usually only the first mortgage will get paid off through the proceeds of the sale. This is because there usually just are not enough proceeds at all for even the first lien to be paid in full, let alone extra ones after that. It just makes more sense for the second mortgage to try to work with the debtors to find a solution, since they would most likely not get anything from a sheriff sale. Especially with the declining real estate market right now, second mortgages may have loaned tens of thousands of dollars more than the home is currently worth, which guarantees they will not receive anything from a sheriff sale. County foreclosure auctions usually consist of very low bid amounts and few bidders, resulting in properties selling for far less than their current market values.

If a participant at the foreclosure auction placed a bid and won, the proceeds of the sale would be distributed like any other foreclosure, regardless of which mortgage company actually began the foreclosure process in the courts. The property taxes would be paid first, since the bureaucrats need to get their hands on the money as quickly as possible. Then the first mortgage would be paid off with as much of the proceeds as are left. Unfortunately for second mortgage companies and other junior lienholders, the winning bid at auction is usually not even enough to cover the entire first mortgage. In fact, most of the time it is one of the banks that bids on the property to ensure that they will be able to sell it after the foreclosure if there are no other bidders.

After the first mortgage is paid off in full, though, then any other liens, including the second mortgage, would be paid in order of when the lien was filed with the county recorder. If there is enough money to pay all of the second mortgage, then they get all of the rest of the money until their lien is paid in full. Then anything remaining goes to other liens or to the homeowners as their gain from the sheriff sale. If there is not enough to pay off the second mortgage (or even all of the first mortgage), then the second will not be paid off at all or in full. It will be up to the mortgage company to sue afterwards for a deficiency judgment after the foreclosure has ended (an unlikely occurrence).

Thus, just because it is a second mortgage who begins the process of foreclosure, it will not really change the order of how the liens are paid off through the foreclosure auction. Any bidder at sheriff sale, whether the bank or a third party, will still end up with a title that has had the liens on it discharged through the county foreclosure auction. And the homeowners will have to move out of the property at the appropriate time or be faced with the possibility of a forced eviction. No matter which mortgage company initiates the foreclosure, the process will move through the court system in exactly the same way.

Having to face the inevitability of moving out after facing foreclosure can be one of the most disappointing and nerve-wracking experiences for homeowners. Especially in states where the time to leave the property is very short, there is a real possibility that foreclosure victims may feel as though they will not have enough time to leave their house before the sheriff shows up to evict them. But the eviction process is entirely set by state law and the courts, and homeowners can receive more time to move out, if necessary.

The actual time frame to eviction will depend on the state foreclosure laws to determine how soon the new owner can start the eviction process. If the laws allow for a redemption period after the sheriff sale, then the homeowners are guaranteed some extra time (from a few days to a year) to stay in the house under state law and not worry about eviction. They can use this time to save money for a security deposit on a new rental, pay down other debt, or find a way to save the current home by paying the redemption amount.

But if the state has no redemption period after the auction, then the eviction process will usually take about 2-4 weeks from the date of the sheriff sale. The high bidder at auction will have to have the sale confirmed with the court, which can take a few days to more than a week. Then, the owner requests that the court order the sheriff to conduct the eviction, which can take another week or two. Finally, the sheriff will schedule the eviction, give the foreclosure victims notice of the coming date, and then remove all of the people and personal items a few days later. This entire process can take as little as two weeks or as long as a couple of months, depending on the speed with which the new owner and government act in concert.

After the eviction is conducted by the county sheriff, the personal property is usually just put in the front lawn, or moved to a county warehouse and put in storage never to be seen again. Good luck getting it back, either way, as it will be almost impossible to regain the personal items. The most likely possibilities that will happen is that neighbors or members of the community will take whatever they want from the pile of items sitting in the front lawn, or the items will go into storage, never to be seen again and no bureaucrat will be able to track them down, despite numerous requests from the former homeowners. Even suing the county to get the property back will usually not work, as the former owners will have to sue the county in county court, where a hearing will be conducted before a county judge.

The best way to avoid either of these scenarios is for the homeowners to move out before the eviction, or request more time to stay in the property. They should call the sheriff's office or the new owner before the eviction is scheduled and ask for a extra few days to move everything out. The government and new owner can usually hold off on the eviction if the foreclosure victims are in the process of moving, as long as they are not asking for an extra month or longer to live there rent-free. It is easier to give the former owners a few extra days to move out all of their personal items and give up possession of the property peacefully. Otherwise, homes have been known to be severely damaged by foreclosure victims, with stoves and furnaces removed, copper piping sold, or windows broken and doors removed.

In any case, though, the new owner would not be able to charge homeowners a fine directly for moving their old stuff out of the house. We have occasionally witnessed new third-party owners attempting to charge rent or moving expenses to the former homeowners, despite redemption periods or the legal eviction process. But removing all of the people and property from a foreclosed house is the responsibility of the county sheriffs department, which is the one actually evicting the homeowners. They already get paid through property taxes to deal with evictions. Likewise, they would not be able to charge a driver more just because it was a lot of work pulling him over to give him a speeding ticket -- they need some justification for charging more, and "too much heavy lifting" isn't good enough to add more fees on top of the eviction process.

For many former homeowners, finally moving out of a house may feel like admitting a humiliating defeat to the world. Especially if they are forced to move into a smaller house, apartment, or in with family and friends for a while. But getting out of a bad situation with a mortgage company and leaving an expensive house can actually be much more liberating than staying. The lender may not have wanted to work with the owners, and the mortgage may have been tens of thousands of dollars more than the property was worth with an astronomical interest rate. Getting a fresh start and moving on from such a situation can often help homeowners learn some of the most important lessons about credit and living within their means from now on.

When most people think of bankruptcy, they think of a Chapter 7 Bankruptcy. A Chapter 7 is when the court seizes assets and eliminates the associated debt. This type of bankruptcy can stop foreclosure, but most people want to keep their home. This is where a Chapter 13 bankruptcy can help. A Chapter 13 bankruptcy allows the homeowner to keep their home and establishes a repayment plan with the lender. During the Chapter 13, the homeowner will not have a lot of extra money, but the court will make sure they are left with enough to live on and pay their bills. A Chapter 13 bankruptcy gives the homeowner a chance to get their affairs back in order and the time needed to recover from the hardship.

Bankruptcy has been a somewhat negative topic with homeowners, but bankruptcy was designed to help people through a hardship when they have nowhere else to turn. In my experience, this is exactly the situation foreclosure victims have found themselves in. We have been brought up to believe that we should always pay our debts and to not pay for our debts is shameful. This is one reason people have such a low opinion of bankruptcy and the people who file it. But bankruptcy is a legal option that was established to help those in need. It is not shameful to file a Chapter 13 bankruptcy. It shows that you are responsible for your debts and you will do whatever it takes to pay them.

Another negative aspect of bankruptcy is that it causes a drop in credit score, but when someone is facing foreclosure, their credit score is already very low. In reality, a bankruptcy could improve a foreclosure victim’s credit, or at least speed up the recovery process. The bottom line is: when a man is faced with losing his home and moving his family into the streets, he should embrace the legal system and take full advantage of any assistance it can offer.

A Chapter 13 bankruptcy is not the only option to stop foreclosure, but it is considered one of the top ways to stop foreclosure and it can be considerably less expensive than other alternatives. When compared to other options, such as loan modification, refinance, or forbearance agreements, bankruptcy is easily the fastest and most reliable option when it comes to saving your home from foreclosure.

If you are facing foreclosure then you owe it to yourself and your family to speak with an attorney and discuss the option of bankruptcy. Your initial consultation should always be free and you should never work with an attorney you do not trust, so feel free to meet with several attorneys before you make any decisions. Bankruptcy is not for everyone, but it has helped many families save their homes from foreclosure and gives them the second chance they are desperately looking for.

For most homeowners, bankruptcy is certainly not their first choice to save their home from foreclosure. This is for a very good reason, as the credit effects can be quite serious and its results are generally poor, at best. Many of those who file bankruptcy to get out of foreclosure find themselves right back in the foreclosure process within in months of entering bankruptcy. Putting off losing the home is obviously not the reason most homeowners file, as they will then be stuck with both a bankruptcy and a foreclosure on their credit.

Chapter 7 Bankruptcy

In any event, homeowners facing foreclosure can not include the house in a Chapter 7 bankruptcy. Chapter 7 is only for unsecured debt, such as credit cards, store cards, personal loans, and the like. The mortgage is secured by the property, so it would not be dischargeable under Chapter 7. The clause in the mortgage paperwork that keeps it from being included in a Chapter 7 case is that it states the mortgage loan is secured by the underlying collateral, the property itself. Chapter 7 does not discharge secured debt, so this combination excludes the mortgage and this type of bankruptcy from having anything to do with each other.

Chapter 7 bankruptcy may, however, serve a purpose in freeing up income that the homeowners could use to keep on top of their mortgage payment. Keeping a roof on top of their heads is much more important than financing a new television or furniture, and credit card companies who are unwilling to work with homeowners in financial trouble will have to bear the costs of their poor lending decisions. Discharging most of these types of debts can significantly free up income, which can immediately be used to pay down the arrears on the mortgage or establish a repayment plan or other workout program. Homeowners with a debt-to-income ratio too high will not qualify for these bank workout programs, so discharging some of this high-interest, unsecured debt through Chapter 7 may be a reasonable path to getting the mortgage back on track.

Chapter 13 Bankruptcy

Homeowners who want to file bankruptcy to stop foreclosure can include the house in a Chapter 13 filing, which is a reorganization of the debt with a payment plan mandated by the courts. But if the house is already too expensive, then agreeing to an expensive payment plan would not make a whole lot of sense. In Chapter 13, the mortgage payments might very well go up, because the homeowners have to pay the regular monthly mortgage, as well as a portion of the amount that they are in default. Falling behind on this type of bankruptcy almost always results in the house going back into foreclosure and sold at a county sheriff sale.

Especially if the homeowners fall behind on the Chapter 13 plan, they will be in serious danger of losing the home very quickly. Bankruptcy does not actually stop foreclosure -- it only puts the process on hold and gives the owners protection under the courts to pay back what they have fallen behind. Thus, if the payments are not made as agreed, the bank will request that the courts lift the stay and allow them to proceed with the foreclosure process. And the lender will be able to proceed as if the bankruptcy never occurred, starting up right from where they left off. This can often result in a sheriff sale being scheduled very quickly, within a matter of weeks.

Filing bankruptcy to stop foreclosure is a decision that homeowners need to consider very carefully, and even potentially consult with a lawyer for approved legal advice. The only real way to get rid of the mortgage and no longer worry about the property is find some way to sell the house, give a deed in lieu of foreclosure, or have it be foreclosed on by the bank. The county sheriff sale will eliminate the mortgage liens and transfer ownership of the property. The homeowners will have to deal with a foreclosure on their credit for 7-10 years, though. There are no easy decisions during the foreclosure process, of course, but the possibility of facing foreclosure and bankruptcy on the same house should be avoided.

A partial claim is an option available to homeowners with FHA loans who meet the Department of Housing and Urban Development (HUD) guidelines for a partial claim (see below). With this option, homeowners are given an interest free loan, guaranteed by HUD, to pay off the arrears and reinstate a delinquent loan. This loan is must be repaid when the first mortgage is paid off, or when the property is sold. After a partial claim is completed, the homeowner does not need to worry about foreclosure or losing their home.

Homeowner must have the following partial claim qualifications:

• Long term ability to repay the loan and make normal payments.
• Inability to qualify for a forbearance agreement or workout plan.
• Ability to prove that the financial hardship is over.
• Homeowner must continue to live in the property and keep it in good livable condition.
• Existing loan must be at least 4 months, but not more than 12 months, delinquent.

Many people think a partial claim can not be combined with other options to stop foreclosure, such as a forbearance agreement, or a Chapter 13 bankruptcy; however, if done correctly, these options can be combined to allow an even more affordable payment. In general, a partial claim is a one time occurrence, but in rare cases, when a second, unrelated hardship has taken place, a second partial claim could be approved.

If you have fallen behind and you think you may qualify for a partial claim, you should contact your lender immediately and discuss this option. If you lender is not cooperative, or if they say you are not qualified, then you may want to seek the help of a professional to help you secure your right to a partial claim. In many cases, your lender may automatically turn you down, because they are not familiar with this process, or they are simply too lazy to begin this process. Either way, do not give up; just find a professional who can help see you through this process until it is complete.

Unfortunately, many people lose their home to foreclosure because they simply do not make enough money to afford their home. Sometimes there is a hardship that forces a loss of income, or requires money to be spent on something other than a mortgage payment, but ultimately, lack of sufficient income is the main problem.

Sometimes it takes a wake up call (like foreclosure) to make someone realize that they are not making enough money to survive. If you are barely scraping by each month and you don’t put money away for savings, retirement, or emergencies, then it is time to start looking for a new job.

Many people think that just because they have been at the same job for most of their life, that leaving would be too much of a risk. But in reality, finding a new job can be the best decision you have ever made. If done correctly, you can earn more money, have a more fulfilling work day, and get better benefits.

Here are a few simple tips to make finding a job easier:

• Update your resume and have several people review and critique it. Your resume is meant to provide enough information to the perspective employer to contact you and schedule an interview. It should include a cover letter and your resume should only be one page long. If you have a long list of previous employers, then only include the most recent, so you don’t exceed one page.
• Once you have an interview, make sure you are dressed appropriately for the appointment. I always recommend wearing a suit to an interview, regardless of the company attire. However, dress slacks and a white button up shirt should be fine if the company attire is jeans and t-shirts. Always press your shirt and slacks before going on an interview; a wrinkled shirt is the first sign of someone who does not care about the quality of work they do.
• Be prepared to answer questions about your previous jobs. Most interviewers will want to ask questions that can reveal how well you will perform in their work environment. Answer questions without rambling, or getting too far off the subject of the initial question. Try to be as honest as possible, without revealing your negative traits and without speaking negatively about previous jobs, co-workers, or bosses.
• At the end of an interview, they will most likely ask if you have any questions for them. This is where you will have a chance to ask a few questions of your own, but make sure you are asking intelligent questions. Don’t ask something like “What happens when I am late to work” or “How long is the lunch break.” Ask questions that will show your work ethic and ability, like “Do you allow us to work overtime” or “What opportunities do you have for advancement.” It is important that you ask questions, because if you are serious about taking a new job, you should know as much as possible about your new perspective employer.

When you are facing foreclosure, there are many ways to save your home, such as refinancing, loan modification, or a repayment plan. But finding a better job will not only help with your immediate problem, but it can improve every aspect of your life.

Now that the banks and local governments are finding themselves in serious danger due to the housing crisis, they have been working together even more visibly than they always do. Mortgage companies experiencing defaults in record numbers are having a difficult time remaining solvent and have required injections of inflated capital from the central bank; politicians elected to cut spending and waste from government will not be able to finance their own overspending and waste if property tax revenue declines. Both government and banks, therefore, have an extremely vested interest in keeping as many people in their homes as possible.

This explains the recent trend of government partnering with selected banks to teach homeowners about financial management and the foreclosure process. Numerous city or state governments have sponsored websites or local seminars featuring local mortgage brokers and representatives of large banks to educate homeowners on what they can do to stay out of foreclosure. But it is deeply ironic that government, after ignoring its "duty" to protect "citizens" from being taken advantage of by fraudulent loans or their own ignorance, are now taking up the cause when their own livelihood is threatened. It is impossible for government to provide the third-party, independent assistance that foreclosure victims require.

To begin with, the State (or city or county) is not there to protect anyone right now. For example, try suing the police department if they “fail” in their “duty” to “protect” your life, liberty and property, such as if your car is stolen or you are mugged. The lawsuit will be promptly thrown out of court because there is no "cause of action" against the government, because the bureaucrats have no duty to protect anyone or anything. So these same politicians are not going to suddenly, magically, start “protecting” homeowners from bad loans unless it serves the bureaucrats’ self-interest of keeping property taxes high enough to fleece homeowners enough to maintain their corruption.

Judges, although they may be able to help homeowners in some instances, are often just as corrupt and paid-for as any other bureaucrat. Most of the judges work with the same attorneys day in and day out to pursue foreclosure hearings, becoming friends and acquaintances with the lender's attorneys. The lender, though its lawyers, pays all of the filing fees and court costs related to the foreclosure out of its pocket, which keeps these judges in business. The judges, then, have little other option than to keep the lenders happy by rubber-stamping the foreclosure judgments one after another, despite gross rule violations or outright criminality.

The banks are no different and benefit the same way. The managers of the local offices of these subprime loan sharks are sitting on election boards and donating to state and local campaigns to keep their preferred candidates in as much power as possible. The state and local governments are able to appoint judges to the trial courts which hear the foreclosure complaints and are more open to the arguments of the lenders, instead of "protecting" the life, liberty, and property of the average taxpaying homeowner.

Even at the federal level, the large banks and investment institutions are some of the top donors to many presidential campaigns, because they know that their preferred candidate will pursue legislation that will allow banks to keep making poor loans and receiving bailouts to avoid facing the consequences. And the banks in the past half-year have received hundreds of billions of dollars from central banks around the world in misguided efforts to steal money from productive people to hand to bankers who made poor lending and investing decisions. Of course, homeowners who make poor financial decisions are simply left out to dry.

Interest rates are also controlled at the federal level by the Federal Reserve System, which is owned primarily by the largest banks which are now suffering the most and need the Fed to bail them out repeatedly. The Fed lowered rates as far as possible for years to assist banks in seducing more buyers to get into adjustable rate mortgages that they could not afford. Then, when rates rose and defaults occurred in record numbers, the banks made out by taking over large sections of the country’s real estate, and getting tens of billions of dollars of free bailout money care of the private printing press that they own.

This is not to say that there should not be an option of using a third party independent of both government and banks to provide some help to stop foreclosure, if homeowners want it. But it would be a mistake to trust the mortgage companies or the government to provide any “independence” to the people. Lenders, unfortunately, must participate in the process of working out solutions with owners because they are one party to the contract. Involving a bought-and-paid-for government bureaucrat, who owes his job to the foreclosing banks, though, is only a sure-fire way to guarantee that foreclosure victims end up either homeless or in bad solutions that will serve as only temporary band-aids as politicians pressure them into stop-gap measures to keep property taxes high for another few months.

It is really no secret that homeowners are often cajoled into agreeing to expensive payment plans or selling homes that they have worked their whole lives to purchase, simply to keep themselves out of foreclosure and pay the lender several thousand more dollars to keep their homes for a few more months. They are threatened with the impossibility of getting a loan after foreclosure or even being able to rent an apartment in many cases. But is it really a drawback for former homeowners not to be able to enslave themselves to a corrupt banking industry propped up by theft through government inflation?

Obviously, having a low credit score is entirely irrelevant to the person who relies only on himself to pay his way through life. Maintaining a great score in order to be able to increase limits on credit cards, buy homes with subprime adjustable-rate mortgages, and get a shiny new car every two years purchased with the money of others should not create a strong desire on the part of homeowners who have previously found themselves in the credit trap.

So, on the one hand, many homeowners will simply want to unplug from the system entirely, and live a voluntary life of sustaining themselves through their own efforts and productive work, while living within their means. Living independently without a credit score and credit history to worry about can be extremely fulfilling.

But on the other hand, there is also a privacy concern for many people, who do not want just anyone to be able to pull their credit, see that they have had a foreclosure, and send them unsolicited mail for more low-end credit. Thus, removing the foreclosure and as much negative information as possible may be a worthy goal for homeowners, to sanitize their credit report and move on without its use and without worrying about the past.

There are really only two ways to get a foreclosure off of a credit record. The first is relatively easy but takes a long time, whereas the second is quite difficult but can be result in the immediate removal of foreclosure from a credit report.

The first option every foreclosure victim has is to wait the 7-10 years (depending on all the circumstances, state, etc.) for the foreclosure to drop off of the credit report automatically. The credit agencies may keep reporting it after this period of time, but a few letters can have it removed after the time for its reporting has expired. In the meantime, the homeowner who does not wish to use credit any longer will simply have to wait it out. For those who do wish to keep themselves chained to the debt machine, even after foreclosure, the best thing to do may be to focus on building new, better credit records and put some time between themselves and the foreclosure. New lenders will give an old foreclosure less weight than 5 subsequent years of on-time payments, for instance.

The second way is to have the original lender remove the record from the credit report. Obviously, this is much more difficult than waiting nearly a decade, and lenders are not too willing to do this. However, it can be done the same way that consumers clean up their credit reports every day in other circumstances. Just dispute the debt, threaten the bank, sue the bank, sue the credit agencies, file complaints with regulatory agencies, and so on, until they realize that it is just easier to get rid of a crazy person by removing the foreclosure, rather than spend more time and money explaining its existence and accumulating complaints. Playing this role can often be very entertaining and enlightening for those cleaning up their credit reports, because they will experience first-hand how the bureaucrats and banks work together hand-in-hand against the average person.

Another tactic that homeowners may want to consider is emailing every single employee/officer of the bank whose email address they can locate and informing them that the complaints, letters, and negative press will continue until they remove the listing. Some lenders even publish company directories with email addresses of presidents, VPs, and directors. Again, there are no guarantees and this process is not easy, but the lender may eventually give in and remove the foreclosure or account altogether.

But it is completely up to the mortgage company as to what information is reported to the credit agencies. Especially if they have made some mistakes/violations, there is a good reason to start complaining and disputing. And all banks violate rules and laws all day, every day, because there are simply too many laws that contradict each other. It takes literally months for any of the disputes to be resolved, but this is significantly less time to worry about a foreclosure than waiting nearly a decade for it to drop off of the credit history automatically.

In many cases, it is possible to negotiate with your lender on your own. Even though we now believe that using an experienced professional can drastically increase your chances of approval and save you tens of thousands of dollars over the life of the loan, home owners are still encouraged to make an honest attempt on their own, before hiring a professional.

Here are the steps you will need to take before you begin:

1. Gather all your income and expense documents for the last two years. You should have paystubs, income tax returns, bank statements, property tax statements, and proof of any other income you receive.
   
2. Prepare a hardship letter that includes exact dates when your hardship started and ended, as well as documentation to collaborate your hardship claim. This should be as detailed as possible and should be typed, so the agent can clearly read and understand the letter.
   
3. Contact your lender once you are two months behind. Most lenders will not negotiate with you until you have missed a few payments, so even if you have contacted them previously, with no results, you will need to do it again.
   
4. Once you have contacted the lender, tell them that you would like to apply for a loan modification or workout plan. Both of these options may be available, depending on your financial situation.
   
5. Your lender should send you a financial worksheet to fill out and return to them with the financial documents you have already gathered. You should try to fax this back to them the same day. In some cases, you can complete the entire process in a single day.
   
6. Once you and your lender have verbally agreed to a workout plan, you will need to get everything in writing and send them a payment as soon as possible. In many cases, if you qualify for a loan modification, they will require you to begin a “stop gap” repayment plan, while you wait for the modification to go through, which can take up to 60 days.

You should be prepared for long hold times (sometimes up to an hour and a half) and don’t expect the agent to always be friendly, but they will help you if you are persistent. Your lender will be looking for several things to see if you qualify, but the main qualification will be to determine if you can afford to keep the home. You will need to show that you can afford the monthly payment, after all your other monthly expenses. If you are attempting to get a repayment plan, then you will need to be able to afford your normal monthly payment, plus the added amount to pay off the arrears. In general, the arrears must be paid off in 18 months or less and you will need a minimum of one and a half payments to begin a repayment plan.

If you are not successful working with your lender on your own, of if the payment plane they set up for you is unaffordable, then you may want to consider another option, or you could hire a professional loss mitigation company to negotiate a better plan for you. Regardless of what option you choose, if you can afford your home, and you have recovered from your hardship, then you should be successful at saving your home from foreclosure.

One of the most common complaints of foreclosure victims is the enormous amount of mail that they seem to get from individuals and companies all over the country. Many of them offer to buy the house for bottom dollar, while others provide various mortgage help services to homeowners in danger. But the sheer volume of this type of mail is often very disconcerting to homeowners, who begin to believe that everyone in the country knows they are in foreclosure, and soon everyone on their block will know, as well. Getting the flood of postcards to stop, though, is much easier said than done.

As a small consolation, though, most of the general public is not going to read any one particular foreclosure victims' mail. Most people, even neighbors down the block, could care less if a particular homeowner in foreclosure or not. Furthermore, in the worst housing markets of the country, many homeowners in the community will be receiving the same types of mail, since many of the residents will be facing their own foreclosures. But even in the most insulated housing markets, where few foreclosures are being pursued, the average person has no interest in reading another's mail; there is simply too much junk mail of their own to keep up on, let alone making a habit of reading others' junk mail.

Also, even people who are not in foreclosure or own a home get postcards about various methods they may have available to stop foreclosure, applying for credit cards, getting out of debt, getting a new car loan, going to college for free, and any number of financial offers. Any particular homeowner will not be the only person in the city getting this kind of bulk mail, but they may just happen to be in foreclosure at the time of getting the mail. This is unfortunate, but does not change the fact that foreclosure mail spammers will send out their propaganda to everyone that they can, in order to have the highest response rate to their mailings.

Anyone who wants to know about a particular property being in foreclosure can find out in numerous other, more effective, less time-consuming, less illegal ways than reading every homeowners' mail. The filing of the foreclosure lawsuit is in the public records kept by the county, and anyone in the world can call the sheriff's department or the county clerk and ask about the status of a piece of real estate. These callers will be told that the property is currently in the foreclosure process, and they can also be told by the courts who is the defendant in the case (the homeowners) and who is the plaintiff (the bank), as well as the attorneys representing each party. So the information relating to the foreclosure status is not at all secure to begin with.

The only realistic chance of stopping the flood of postcards and offers of help is for the homeowners to try sending these places back their mail unopened or with a big "Return to Sender" mark on it. That may cut down on the mail they are receiving, although new mailers will be sent out even long after the foreclosure victims have left the house. Alternatively, they can call the numbers on the mail and tell these investors and companies to stop sending out the information. But it is not wrong for them to point out a condition of the property that is public knowledge, nor are these types of mailings illegal in any sense. They may be irritating and embarrassing, but they are just a minor part of the foreclosure process that must be dealt with.

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 9 – Spending, Taxes, and Regulations” is discussed here.

In the final section of the book, Ron Paul has collected a number of miscellaneous writings on various topics relating to the free market and government intervention. The main themes which have also been examined throughout the book are prominent in these discussions, including government overspending, intervention in the economy in an effort to help the poor, and the discriminatory practices of Congress in handing out benefits.

The government’s willingness to spend every penny and more that it can tax and borrow has been a frequent issue Paul has raised throughout his speeches. When the politicians can not tax or borrow further, they go to the Federal Reserve, which prints up the money to cover the shortfall. But this new money causes inflation, and the banking system contributes to the problem. Paul states that, due to the fractional reserve system, money is multiplied six times. A $1.5 billion creation of new money will eventually result in a $9 billion increase in the total supply of dollars.

Paul argues that the issue of the federal debt limit is essentially a joke. Designed to keep a lid on Congress’ spending, the politicians have frequently voted to increase the limit, rather than reign in the size of government. This is like a compulsive shopper giving himself a higher credit limit care of his lenders, which is exactly like not having a limit at all. Paul also likens the practice to “making minimum payments on a credit card. Notice that the principal never goes down. In fact, it is rising steadily.” Nothing can stop the government from ever increased spending, as it reaches one self-imposed limit after another with only higher limits and more spending.

The growth of government, though, is not just a problem with either side of the aisle. Paul has long argued that the Republican Party has lost its way, giving up positions that got them elected in the first place, such as cutting spending, no deficit spending, and eliminating waste in government. The GOP, though, has instead sold out to the entitlements crowd. But this has not even helped them gain more power or respect from the special interest groups, as the Democrats offer to spend even more than the Republicans on every issue.

A good example of this trend toward growing government is the issue of nondiscretionary funding. If the money must be spent and control is out of the hands of Congress, then these programs are out of the control of the people. Nondiscretionary entitlement spending, according to Paul, is a statist’s dream, encouraging the welfare state at home and the American Empire spread across the world.

This government intervention and willingness to spend more money than it has is the true cause of the growing gap between rich and poor. Congress, though, only proposes more welfare and intervention, rather than examining the source of the problems. But increasing federal welfare funds also increases federal control and fosters dependency. The recipients are dependent on government for their money, and the bureaucrats are dependent on more people being on welfare to provide job security.

Paul’s solution to the welfare problem is for government to end the huge tax burden on individuals so that they have more money to donate to charities to help the poor. Whereas government destroys culture and creates dependency, charity encourages self-reliance. Paul writes that, “The history of the failed experiments with welfarism and socialism shows that government can only destroy a culture; when a government tries to build a culture, it only further erodes the people’s liberty.” People who are able to keep only small amounts of their paychecks can not afford to contribute to solving some of these social problems.

Another problem that could be solved with fewer regulations and lower taxes is that of minimum wage. Imposing wage controls on the economy drives a wedge between the supply of labor and demand for labor. This actually increases unemployment, the one problem that the minimum wage was designed to fix. Paul proposes lower taxes and deregulation which he argues would promote job growth.

But the spending, inflating, and government intervention is not just a problem itself, according to Paul. Another more serious issue is the discriminatory means by which Congress hands out its benefits. While it has passed laws to make it more difficult on the average person to discharge their debts through bankruptcy, Congress has bailed out several high-profile institutions using taxpayer money. Lockheed Corporation, the City of New York, Chrysler Corporation, and the Long Term Capital Management hedge fund are just a few of the companies or governments that Congress has considered taking money away from poor and middle class individuals and giving it to the fiscally-incompetent wealthy.

Even before these private corporations or governments get into enough trouble to consider bankruptcy, they can receive billions of dollars of the people’s money in corporate welfare benefits. For example, the two largest beneficiaries of aid from the Export-Import Bank are Boeing Corporation and the nation of China. It is inconceivable that the poor and middle class of America should be subsidizing corporations and competitors in foreign nations.

Before Enron collapsed in late 2001, it was also the recipient of billions of dollars in welfare. The company was one of the largest beneficiaries of the Eximbank, receiving nearly $600 million courtesy of the average American. The Overseas Private Investment Corporation also provided the company with nearly $1 billion to pursue twelve projects in foreign countries, many of which turned out to be complete wastes (the power plant Enron financed and built in India remains unused to this day). The funding provided to the company in the form of loans will not be repaid, and the bill will end up being paid by the average American.

Companies like Enron also benefit from indirect government intervention in the market. The fact that the company met all of the regulations and rules required by the Securities and Exchange Commission gave investors, trusting in government institutions, a false sense of security because their financial statements were not in question by the SEC. The easy credit provided by the Federal Reserve also allowed Enron to receive uncollateralized loans from large banks. These loans also will most likely never be repaid now.

Of course, no government intervention would be complete without a contradictory intervention to complete the cycle of irony. On one hand, Congress passed the Sarbanes-Oxley regulations (which Paul would get ride of) in the wake of Enron’s and Worldcom’s collapse, which were designed to provide more openness in financial reporting. On the other hand, they continued waging a war against the financial privacy of individuals with more attacks on personal liberties after 9/11 under the banner of the open-ended War on Terror. Concealing their own intentions to attack financial privacy rights of the people, these previously rejected proposals were resurrected, colored with the broad brush of “fighting terrorism,” and thrust on a fearful public.

Throughout this book, Ron Paul’s consistent message has been that of limiting the power and size of government and increasing the liberties and power of the people. The enormous tax burden on the people, along with thousands of regulations interfering in the free market, and the unaccountability of an overspending, inflation-creating government have significantly eroded the people’s awareness of their own power to control the government that has supposedly been created to protect their life, liberty, and property. Paul has always stated that it was his intention to leave a record of his beliefs on the proper role of government and practice the principles he holds regarding government intervention into welfare spending and the free market. This book, Pillars of Prosperity: Free Markets, Honest Money, Private Property, is a valuable part of that record and shows that the Congressman is one of the few politicians who believes that the principles of liberty are what make this country great, rather than the politics of special interests.

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

The possibilities of homeowners finding some way to get out of the foreclosure process before losing the houses are nearly endless. One of the most common methods, of course, is when they recover from a financial hardship fairly quickly and are able to save or borrow the money necessary to reinstate the loan. No payment arrangements are made, and refinancing is not considered; the homeowners simply take whatever savings and income that they have available and send it to the mortgage company, paying off the total amount behind.

But can the lender continue with the foreclosure process, even if the homeowners pay back the total amount behind? The short answer is no, absolutely not. If the former foreclosure victims can make up the payments that they had fallen behind, along with the extra interest, late fees, and other costs, then they will not go into foreclosure. The bank no longer has any reason to pursue the foreclosure process, and the courts would recognize that if the lender's case is challenged.

The bank sues for foreclosure because its clients are in default of their agreement to make the mortgage payments on time for the life of the loan. Once the homeowners have missed several months of payments and the mortgage is in default, the bank can use the courts to enforce the foreclosure laws designed to help them recover the property as payment for the loan. The bank will sue to have the government sell the house out from under the current owners to make good on the owners' commitment to pay the loan or give them the underlying collateral, which is the house itself.

But if the homeowners are not in default any longer, then the bank has no reason to sue them to take over the property. The lender is not suffering any damages, and the owners are not in breach of the contract if they have managed to pay back the missed payments to being current. The payments will have to be accepted by the mortgage company, but there is no legitimate basis for them to send back payment in full of the amount behind. (Of course, that does not stop fraudulent mortgage companies from doing exactly that on a regular basis, but that is not the majority of cases.) It is not only a bad idea from a legal perspective, it is simply bad business not to accept a large amount of money that will bring the loan back to a current status.

Without the homeowners being behind on the mortgage, the bank can not sue them to force the sheriff sale of the house to pay the defaulted mortgage. Saving or borrowing enough money to reinstate the loan is a perfectly acceptable method that homeowners use every day to stop foreclosure on their homes. In fact, this is possibly the most used option, although it is not often reported, because the owners do not seek third party assistance, and the bank may hold off on beginning the foreclosure process if the homeowners have promised that they will be able to come up with the money shortly.

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 8 – How Government Distorts the Housing Market” is discussed here.

This is another shorter section of the book presenting some of Ron Paul’s statements on government involvement in public housing and the real estate market in general. His statements are especially relevant now, as many of his predictions have come to pass and have led to the housing market meltdown now being experienced. Subprime lenders have gone out of business even as more homeowners than ever are facing foreclosure and fewer homes are being built or sold.

Government intervention in the housing market creates the bubbles that attract capital from other sectors of the economy. Money that could have been invested in other productive capacity, or education or transportation is instead put into real estate. As Paul has argued in other sections, this diversion of capital that creates bubbles is a symptom of Federal Reserve monetary manipulation through the lowering of interest rates. Low interest rates indicate to home builders that they should be investing in long-term capital and building more homes. When the rates rise, and buyers can not afford the homes, the builders find out that they have put up more homes than were necessary, and prices must come down from artificial highs.

As with most problems in the economy, Paul sees the housing market bubble as being caused by the Federal Reserve. Especially when interest rates were lowered to near zero percent in the early part of this century, consumption was promoted over saving. The bubble began to accelerate in real estate as long term capital projects became easier to finance with loose credit. Banks were also taken in by the low rates and loaned money to buyers and builders who did not qualify for the payments, but the banks counted on the value of the properties continuing to increase.

The Government Sponsored Enterprises also contribute to the problem of malinvestment, because the government guarantees that these investments will be taken care of in the event of serious problems. Institutions like Fannie Mae, Freddie Mac, and the National Home Loan Bank Board have a credit line through the US Treasury, and the Federal Reserve is allowed to take their debt and monetize it. The GSEs are essentially underwritten by the government, which allows them to attract capital in the absence of sound management and accounting. Paul argues that, “After all, if Fannie and Freddie were not underwritten by the federal government, investors would demand Fannie and Freddie provide assurances that they follow accepted management and accounting practices.” They also receive billions of dollars in subsidies from the federal government each year, increasing the distortion of the housing market.

Public housing is a sector of the housing market that is in even worse condition, according to Paul. The government first got involved in providing homes to poor people in 1937, and the Department of Housing and Urban Development (HUD) was created in 1965. The results of intervention so far have been far from promising, with endemic corruption, drug-ridden housing, projects that only last for a short period of time, and cost too much. As Paul states, “There are more homeless now, after spending nearly $600 billion over these last 20 years, than we had before.” It is clear that public housing programs courtesy of the federal government has been a near-complete failure and has actually driven away prudent investment in this sector of the housing market.

Another problem with public housing is that there are so many regulations and taxes that it is difficult for builders to provide affordable housing for the poor. Paul’s solution is to repeal these taxes and regulations and let the market take more care of those people in need of housing: “A better way of guaranteeing an efficient housing market where everyone could met their own needs for housing would be for Congress to repeal taxes and programs that burden the housing industry and allow housing needs to be met by the free market.” Government, again, is the problem, and proposing more government intervention will not solve the problems that government creates.

In this short chapter of the book, Paul argues his case that the bursting of the housing bubble had its roots in the special nature of the Government Sponsored Enterprises and the interest rate manipulations of the Federal Reserve. Both attracted capital in the housing market that would not otherwise have been diverted there in the absence of the easy credit and government guarantees. But no matter how much government intervention occurs in a market, there always comes a time when the bubble bursts, usually because of the Fed reversing policy and raising interest rates to cool down a market. This intervention results in the inevitable collapse that was caused in the first place by intervention, but the public, politicians, and Wall Street only call for more intervention to solve the problem, just as we are witnessing now with lower interest rates.

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

Many foreclosure specialists and mortgage brokers often find it very difficult to work with the mortgage company, especially when a loan is with the foreclosure or loss mitigation department. Getting a call back in a timely manner is near-impossible, regardless of the fact that these same lenders spend money hiring collection agents to call the homeowners all day at home, work, and on their cell phones. But even when a representative from the lender speaks with a human voice instead of throwing clients and third parties into a maze of automated systems, the results are usually just as frustrating.

Unfortunately, the foreclosure case managers from lenders are frequently childish and aggressive, not willing to lift a finger to help their clients save their homes. This is often extremely bewildering to the average homeowner or foreclosure specialist, since the conventional wisdom is that mortgage companies do not want to foreclose on these homes and would rather work with the homeowners to find a solution to stop foreclosure while there is still time. Sometimes their unwillingness to come to a resolution with the homeowners stems from incompetence, sometimes fraud, but many times it is partly the homeowners' fault.

The most likely scenario is if the homeowners are very far behind and have been working on one plan after another to save the home for months, none of which have gone through. The foreclosure or sheriff sale may have been postponed numerous times, as the lender gave the foreclosure victims the benefit of the doubt that they would be able to work their way out of the problem and save the home.

But by the time the newest foreclosure help company starts working on the file with the owners, the bank is just no longer willing to do anything, after dealing with so many broken promises. They may feel that they have given the foreclosure victims as many chances as possible, and now they are so far behind that the possibility of saving the home is too remote; it will be easier to pursue the foreclosure and get the house ready to sell on the market, rather than wait for another attempt to stop foreclosure to fall through. Their attitude is, "They have to pay every single penny that they're behind or we are going ahead ahead with the foreclosure auction." So neither the owners nor the foreclosure specialists can get anything done with the mortgage company.

If this is not the case, though, the problem more than likely lies with the lender itself. The best bet for the homeowners or help company would be to try and talk to someone else from the bank and find out if there is anything anyone else can do. Talking to a higher-up manager or the bank's attorneys may help to get the plan off the ground. With many of these mortgage lenders, thousands of employees are available to speak with, many with self-important titles like "VP" and "Case Management Officer." The fact that many of those with these titles will have done nothing to deserve them does not forbid homeowners from looking for others with different titles who are willing to work out a solution.

Especially if there is some kind of firm offer in writing, they should be willing to negotiate. The foreclosure process costs banks more in time, resources, and money than they usually receive from selling the property, and the fact that the real estate market has taken such a turn for the worse only increases the possibility of huge losses on the loan. But in the all-too-common event that the bank is simply not willing to do anything to help their clients, it is just not a very good mortgage company and probably deserve the losses that will occur on the foreclosure.

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 7 – International Affairs” is discussed here.

This section is really a continuation of the previous discussions on free trade and managed trade by the international bureaucrats. Instead of a more general overview of what free trade consists of, Ron Paul spends more time looking at specific institutions and policies that undermine trade, such as the International Monetary Fund, World Bank, World Trade Organization the American practice of giving direct foreign aid to other countries, deservedly or not. He has consistently argued that US foreign policy is often a choice between countries obeying the US government and receiving generous aid packages, or becoming the target of economic sanctions and war.

The practice of giving out American taxpayer money to foreign nations has been a complete failure, according to Paul. Although it is meant to prop up socialist governments or to be used in the support of their economies, the aid only promotes the status quo, while taking money from poor Americans to give to the rich elite in poor, Third World Nations. This helps neither Americans nor people living in foreign countries.

Not surprisingly, though, the entire concept of foreign aid is sold to Americans as helping them, as well as helping poor people in poor countries. For example, Plan Colombia and its successors have been sold throughout the years to the American people as fighting the “War on Drugs” and the “War on Terror.” In fact, though, the real purpose is to provide a subsidy to the Colombian government and US oil companies to protect their pipelines from damage in the civil war that has been going on in the country for decades.

Foreign aid also helps these poor countries cover up the weaknesses in their economies and weakens the American economy. Paul writes that “foreign government welfare, and there is no better name for it, takes money out of the productive sectors of the economy – the paychecks of middle-class Americans – to reward economic mismanagement and political corruption.” The foreign governments are able to put the aid money in sectors that would not be able to compete in a free market, and this fosters corporatism. Businesses can ally themselves with the government and receive the international welfare from the US politicians. This obviously leads to the political corruption that is endemic in Third World nations that receive foreign aid, with families and cronies of the leaders setting up shell businesses and absconding with the aid money.

Even though most countries do not benefit from US foreign aid, refusing to do as the government instructs results in even more serious consequences, usually in the form of economic sanctions, such as are on Cuba and Iran and were on Iraq during the 1990’s. As he states, “Congress passes legislation calling for regime change, sanctions are imposed, and eventually we are told that only an attack will solve the problem.” According to Paul, this act is just one half-step short of war and will usually lead to war, with Iraq being the most obvious example of sanctions that failed to depose the dictator, caused tremendous damage to the people of the nation, and led to an undeclared, no-win war in the Middle East.

Paul argues against both foreign aid and sanctions for their propensity to lead to war, which has far more negative consequences to the American people and economy. To finance the wars, the government must inflate the money supply, taxes increase during wartime, and deficits skyrocket. But even in the waging of the war, all of these extra funds get sent overseas, which creates the desire for certain segments of the US economy for protectionist policies and tariffs. The government also grows during war, with a corresponding loss of civil liberties for the people.

But sanctions, even when they do not lead directly to war, have extremely negative effects on the economies of both countries who are parties to the sanctions. In addition to costing jobs and hurting the people of the nations, sanctions also cause the people to back dictatorial leaders who would not have popular support if sanctions were not imposed. As well, they hurt American businesses that have markets closed to them by government fiat, not by the working of the free market.

Besides the US government’s involvement in this whole charade, there are a host of extra-government agencies who also participate. The World Trade Organization, despite its stated benefits, does not promote free trade and it attacks American sovereignty. According to Paul, membership in the organization is illegal, as the government is bound by WTO decisions and obligated to change laws that the WTO panels deem necessary. Likewise, the Export-Import Bank subsidizes the main competitors of American business, with China receiving more aid than any other country. The World Bank, as well, promotes state-run corporate capitalism by lending money to Third World dictators who steal the money, run off, and leave the people to pay the bills, which they are frequently unable to do.

However, it is the International Monetary Fund that draws most of Paul’s ire in this part of the book. Just a few of the ills of the system he mentions include the IMF’s promotion of worldwide inflation, foreign aid to insolvent nations, and the fact that membership in the Fund specifically forbids countries from linking their currency to gold. Although its stated purpose was to provide reserves to solve international payment problems, the IMF instead creates liquidity throughout the world, facilitating a transfer of wealth in the form of subsidies to Third World socialists and First World banks. As Paul states, “By creating added liquidity, the IMF can indeed redistribute wealth, but it cannot create new wealth.”

Thus, billions of dollars from the IMF goes to large international banks and when the loans to the poor nations go bad, the American taxpayer is left with the bill. According to Paul, “the IMF forces American taxpayers to subsidize large, multinational corporations and underwrite economic destruction around the globe.” This is despite the fact that the institution has over 100 million ounces of gold on reserve and no reason to burden taxpayers; when their programs go under water, the bureaucrats appeal to the US government for more money to bail out the banks that made the bad loans.

But this possibility of receiving a bailout courtesy of the American people goes a long way to creating the moral hazards that make the collapses a certainty. Banks know there will be no consequences for their poor lending decisions, so they keep investing in bad sectors of poor economies, and the recipient countries of IMF funds end up with huge amounts of unserviceable debt. These very conditions were seen in the failure in Argentina and the 1997 Asia crisis, when numerous countries’ currencies’ values dropped dramatically in the space of weeks or months.

The cost and problems associated with these international policies, according to Paul, far outweigh any supposed benefits received by the American government or taxpayers. In fact, many of the policies only create more problems that the bureaucrats will then feel the need to step in and “solve” with more of the same solutions that caused the original problem.

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

Although receiving the paperwork for a foreclosure lawsuit in the mail can be one of the most unnerving aspects of the entire experience of losing a home, homeowners should keep this event in perspective. The bank has simply filed a complaint against the owners of the property for nonpayment of the mortgage loan, and the court is requesting that the owners come and make an answer or appearance at a hearing. The court is simply the third party that is involved and has been petitioned by the bank to resolve the differences between the lender and their clients. Simply filing a complaint does nothing to prove that the mortgage company is correct or the homeowners are guilty.

But when they avoid the hearing altogether, foreclosure victims do themselves no favors. Without being shown a single fact, they simply accept the premise that the bank's claims are correct and that the court can order their home to be sold out from under them. The court is too happy to oblige the lender, since the homeowners did not show up to defend against the lawsuit, and the sheriff sale will be set and the bank will proceed through to the eviction.

Of course, homeowners do not necessarily have to go to court, but they most definitely should, just to tell their side of the story to the judge at the hearing, and to have their questions answered. Especially because they will not understand every aspect of the bank's complaint against them, they can question the lender or their attorneys. They can also also ask the court for some kind of workout solution or repayment plan, and the judge in the case can order the lender to work with them to stop foreclosure outside of the legal process.

Any solution that is worked on to get the mortgage payments back on track, though, will depend on the foreclosure victims having enough money to pay back over time the amounts they have fall behind. Thus, they will most likely have to show the bank that their income is stable and that they would be able to make payments again, if given a fresh chance on the loan. If there is simply no way to pay back the amount behind, the homeowners may want to consider asking for more time to sell or offer the bank a deed in lieu of foreclosure. Using the courts to file bankruptcy to stop foreclosure may also be considered as a last resort.

But avoiding the foreclosure court hearing will just mean that the mortgage company gets its judgment against the homeowners automatically (default judgment), and then they will take the property to sheriff sale. This is the most common path taken by homeowners in foreclosure, but it completely lets the lender off the hook in terms of proving their case and following all of the correct court procedures. Most banks and attorneys, even if they are aware of all the state-wide and local rules of procedure, will cut corners, fall behind on schedules, or file paperwork incorrectly. Unless someone is there to challenge these violations, the judge will simply accept them.

Even though the homeowners are well aware of the fact that they have fallen behind on paying the mortgage, the lender still has the burden of proof in front of the judge. Foreclosure victims should not make it easy on them to take the home away and sell it by force. The bank is appealing to the government to steal their home, so the homeowners might as well use the government in self defense to keep it for an extra few months or make sure that the lender's attorneys have followed all of the rules. Homeowners who truly wish to save their homes owe it to themselves to find out if the bank or their lenders are acting correctly in this process.

Going to court will also give the homeowners an extra opportunity to ask for options to stop foreclosure, such as a workout program, or more time to sell the house, even if they can not prove that the lender violated any rules. The judge can order the bank to consider other options before going ahead with the foreclosure. The worst idea, though, is for homeowners just to avoid the hearing and give up on saving the home.

The lender hires a local law office to take the home, but these attorneys earn the $1,000s of dollars in fees from the owners' equity. Thus, the bank hires the attorneys, but the homeowners will end up paying for them to take the hard-earned equity and down payment. It would seem prudent for these foreclosure victims to make sure that the lawyers earn the astronomically high fees that will come out of sale proceeds that would otherwise benefit the former homeowners.

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 6 – Free Trade: Real versus Phony” is discussed here.

One of the more common charges that Ron Paul has been labeled with throughout his presidential campaign, when he has not been ignored entirely, is that of being an “isolationist.” This has mainly come from those who believe that printing money, manipulating gold prices, micromanaging international trade, providing foreign aid and welfare to come corporations an nations over others, invading countries, dropping bombs, and putting economic sanctions on countries for ten or forty years are to be considered wise, free trading policy. Paul has routinely defended against the absurd charge by labeling the above acts as economically isolationist, while stating his own beliefs about free trade between nations, low tariffs, no economic sanctions, and peace.

Paul’s case for his vision of free trade comes from, of course, the Constitution of the United States. He cites the interstate commerce clause as being motivated by a desire of the framers to make sure that the states of the Union could not put trade barriers on each other. He also argues that tariffs are a tax on the consumer who has to pay more for foreign goods, and an indirect subsidy to the industry that benefits by the tariff and can then compete despite weaknesses. “Make no mistake about it, these tariffs represent naked protectionism at its worst, a blatant disregard of any remaining free-market principles to gain the short-term favor of certain special interests.” In a real free market, there would be no protectionist tariffs.

Even in the case of tariffs to protect American industry, though, no government intervention would be complete without an accompanying irony that contradicts the first action. Paul also states that foreign aid and military subsidies (like defending Japan and Korea more than half a century after World War II and the Korean War) actually subsidize business competitors in foreign nations. Taxpayers send their money to the government in the form of taxes, and the government promptly ships the money overseas as a subsidy to countries like China. This encourages the exportation of jobs due to lower production costs overseas, and then American industry, which can not compete, requests protectionist tariffs. Either way, the government gets more money at the expense of the consumer: first in the form of taxes, then in the form of tariffs, both paid for by individuals.

Paul also argues against what he sees as managed trade agreements, such as NAFTA, GATT, and the World Trade Organization (WTO). All of these benefit special interests instead of promoting free trade, and represent a loss of US sovereignty to international organizations. Free markets do not require constant intervention by extra-governmental agencies, which can impose on the United States and force the government to change its laws to protect businesses in other parts of the world.

The WTO commits especially egregious errors in this regard, according to Paul. Based on the decisions of its panel, it can dictate trade policy and even tax law to America, and Congress is then obligated by the terms of membership to change the laws. Not surprisingly, this constant back and forth between nations and special corporate interests results in a low-level, continuous trade war. Combined with the fact that constant government intervention in markets causes prices to rise, the WTO seems to be more interested in maintaining the status quo in higher prices, rather than going along with the free market phenomena of generally falling prices.

Thus, organizations like the WTO and agreements like NAFTA, instead of strengthening free trade, have instead fostered economic isolationism. This comes in the form of increased hostility from our trading partners, as well as threats of economic sanctions against the United States if it does not change its laws to conform to the demands of the WTO. One world central planning of trade does not fit into a free market system, as Paul argues.

Furthermore, these types of agreements most often benefit powerful, politically-connected corporations, rather than the people that Congress so often invokes to rationalize away its counterproductive policies. While quoting the general welfare clause of the Constitution, these politicians take money from the general public and hand out very specific welfare to big business. As Paul states, “Most little people never get benefits from this. It is the large corporations that lobby us so heavily to endorse these programs.” This is at the expense of the general welfare of taxpayers and a direct subsidy, courtesy of these taxpayers, to special interests.

One of these corporate welfare institutions is the Export-Import Bank, which provides government subsidies for American companies. But the government does not have any resources and produces nothing, so it must steal money from taxpayers to benefit these large, politically powerful corporations. The end result is a redistribution of wealth from the poor and middle class to the wealthy. According to Paul, “The case for the Eximbank is further weakened considering that small businesses receive only 12-15 percent of Eximbank funds the vast majority of Eximbank funds benefit large corporations.” As a case in point, he cites the fact that Enron had received $1.9 billion in government subsidies from the Export-Import Bank, Overseas Private Investment Corporation and other government institutions.

The artificially strong dollar, backed by military might, oil being priced in dollars, and its status as the reserve currency of the world, has allowed the US to continue running its worldwide welfare-warfare state. Foreigners who still accept the dollar allow America to finance this extravagance, and the government obliges by handing out welfare to poor and rich individuals, foreign nations, and corporations. But none of this constitutes free trade even if it was meant to benefit the average person (which it most certainly was not), according to Paul, who argues against these blatant government and extra-government interventions. He states the case better than anyone else: “What most Washington politicians really believe in is government-managed trade, not free trade. True free trade, by definition, takes place only in the absence of government interference of any kind.”

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 foreclosure rates at record highs, more homeowners than ever are seeking out what options they may have in order to save their homes before they run out of time. Time is of the utmost essence during any foreclosure situation, and homeowners need to figure out what they can do to stop the process and minimize the negative effects after foreclosure. Acting quickly and keeping as many solutions on the table as possible are two of the most important keys to success.

In only a very small number of cases will it be advisable for the homeowners simply to walk away from the house. Giving up will only compound the problems, as the former owners may find it very difficult to qualify for a new home loan or even find a landlord willing to rent to them. Instead, it is usually a much better idea to consider various options that can be used to stop foreclosure, such as working out a plan with the mortgage company, filing bankruptcy, selling the house, or giving the bank a deed in lieu of foreclosure, among others.

Negotiating a plan with the lender should be the first option that homeowners turn to when attempting to avoid foreclosure. By working with the bank first, they will prove that they are serious about avoiding the foreclosure lawsuit, if at all possible. Lenders may have various workout plans that their clients can qualify for, including accepting partial payments until the owners are able to pay back the difference, accepting a late payment, or modifying the terms of the original mortgage. Other plans may include a forbearance agreement or direct reinstatement of the loan by paying back the total amount behind. If homeowners are able to qualify for any of these plans, it may be worth taking the bank up on their offer and seeking a longer-term solution when they have paid back the amounts they fell behind.

Filing for bankruptcy to stop foreclosure is another option, although it may only get the homeowners some extra time in which to find a more permanent solution. The automatic stay of the foreclosure process can put off the danger of losing the home to a pending sheriff sale, but bankruptcy often results in a higher payment during the plan than the homeowners were paying before filing. If they are unable to make these payments, the bank will attempt to have the stay removed and proceed with the foreclosure. Homeowners who choose to file bankruptcy can make sure that they do not face this danger by maintaining a stable income, focusing on paying the reorganization plan on time, and working on finding a better resolution as soon as possible.

Selling the home is also a reasonable solution to foreclosure, especially if the homeowners are unable to make their payments on the mortgage ever again. This may be due to a loss of second income, dramatic decrease in income, or permanent disability or death of a family member. It may even be a result of having to find a job in another location far from the current home, and the two payments can not be maintained. But in the down real estate market right now, many homeowners may need to pursue a short sale to unload the house. This occurs when the mortgage company agrees to take less than the total amount owed on the mortgage as a payoff, and is a useful tool when selling a home with a high balance and little equity.

As a last resort, many homeowners may wish to consider giving the bank a deed in lieu of foreclosure. This is when the bank accepts the property back as payment for the mortgage, and the foreclosure process is ended right then. The lawsuit is avoided, the sheriff sale is called off, and ownership of the house is simply transferred to the lender. In many cases, this will help the homeowners' credit after foreclosure, by avoiding some late payments and keeping the full foreclosure off of their history; but former owners can also negotiate with the bank to keep even the deed in lieu off their report. The bank may not be willing to go this far all of the time, but it is worth asking for.

Homeowners, when facing foreclosure, should keep in mind as many options as possible. The few described here are certainly not all of the ways to stop foreclosure that may be considered. Fighting a legal battle with the lender is another option that represents a whole different topic, although it is one that many homeowners may need legal advice to pursue correctly. But the most important point is that all foreclosure victims should consider various methods to save their homes, and make sure that they have backup solutions ready to go at all times. The worst feeling during the foreclosure process is finding out that one solution will not go through, but having no other plan that can be implemented before a sheriff sale. Homeowners should avoid the chance of this happening whenever possible.

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 5 – Money and Banking: Gold versus Fiat” is discussed here.

This part of the book is by far the longest, taking up nearly half of the total content in almost 200 pages. As such, it would be improbable to do a completely thorough review of such a long section, so only a brief overview of some of the topics discussed will be presented. From the title it is clear that Ron Paul discusses his views on monetary policy, the banking system, and his preference of stable money backed by gold.

Many of the ills of big government are a direct result of our flawed monetary policy, according to Paul, which encourages government and people to spend more than they take in and live beyond their means. Since the politicians in Washington are not able to fund through tax revenue all of the welfare benefits and keep the American Empire spread throughout the world, and they can not borrow enough from overseas to make up the shortfall, inflating the money supply through the Federal Reserve’s printing press is relied upon. Thus, one of the main ways that Paul recommends reducing inflation, decreasing the size of the government, and preventing unnecessary wars is to decouple money and politics by deregulating the value and supply of money, and end the system of the Fed manipulating interest rates and inflating the currency.

Inflation is not a problem of the free market. Only the government can cause prices to rise by diluting the supply of money and printing more of it. When the government blames rich Arabs for rising fuel costs, or labor unions, or greedy businessmen, it is shifting the focus to symptoms. The real cause of the inflation, however, is with the government, as prices would generally fall in a free market economy. This problem, though, is not even recognized by the politicians. When weaknesses appear in the economy, both the right and left sides of the aisle, instead of addressing the problem of government intervention, request that the Federal Reserve keep inflating the money supply, at ever increasing rates. Combined with the fractional reserve banking system, which allows a bank to loan out far more money than it has on deposit, this system greatly debases the value of the dollar.

Paul cautions that this system can not last forever, although the United States has done a remarkable job so far of keeping the system of paper money going. This is more a result of collusion between central banks of the world and the military might of America, though, rather than a vote of confidence in fiat currencies themselves. For decades, the government has been able to export its inflation by selling Treasury bills to foreign governments. Through this method, the banking system creates even more dollars that keep up the perception of wealth, even though Americans are producing less and living far beyond their means.

But even in the event that foreign central banks slow down their purchases of US debt, the Federal Reserve is there to step in. The Fed will increase its own purchase of government debt in order to prop up the dollar. The central banks also devise agreements whereby they can prop up or drive down the value of certain currencies of foreign nations, or try to drive down the price of gold. Propping up the dollar by helping out the Federal Reserve and buying Treasury bills is high on their list of priorities, due to the dollar’s status as reserve currency of the world. Keeping the price of gold down, though, is even more important.

Concern for the price of gold and the manipulation of that price through the sale and leasing of gold concerns Paul. He states that the Fed and other central banks have dumped gold on the market in order to keep its market price artificially low. The banks do this because a high gold price is a vote of “no confidence” in the paper system, which would lead to more people recognizing the real weaknesses in fiat money. This is a realization that the central banks would rather people do not have, as they would lose their ability to control the wealth of countries.

It is this manipulation of the currency that seems to concern Paul most. Besides the fact that the Constitution gave Congress no authority to create a central bank to print paper money, Congress goes even further. It ignores its responsibility, stated in the Constitution, to maintain a sound money system. First of all, the Federal Reserve is not audited, and only provides information to Congress on its own terms, even discontinuing the publishing of important economic figures. The Government Accountability Office is forbidden to audit the Fed, due to its independence from politics. However, Paul states that this independence is nothing more than a legal fiction, and Congress should not be ignoring its responsibility to provide constitutional money and a free market. The Fed promotes the opposite of both of these.

Another extra-governmental agency that Paul criticizes is the International Monetary Fund, for its gold sales and the fact that it is an international welfare agency funded by American taxpayers. Because of its nature as a foreign aid vehicle providing money to Third World nations whose dictators steal the money and whose people will never be able to pay back the loans, Paul believes it should be under the control of Congress. Especially since the IMF has stores of gold that it could sell but instead requests money from the American government, its independence and usefulness are very questionable.

How did the dollar become the reserve currency of the world, giving the American government a license to print money, inflate the currency, provide welfare to individuals, foreign governments, and corporations, and maintain a worldwide empire? Paul sees the beginnings of the system appearing in the first part of the 20th century with dollar diplomacy. After World War II, when the dollar became the basis of the international gold exchange standard, it became the world’s preferred reserve currency. When the US defaulted on its gold payments in 1971, it managed to persuade Saudi Arabia and OPEC to price oil solely in dollars. This contributed to the furtherance of dollar hegemony, as there was a worldwide demand for dollars with which to purchase oil. Also, foreign producing countries, who wished to sell their products in rich American markets, received dollars for their goods, spreading the currency even further.

The overwhelming military might of the United States must also not be overlooked, according to the book. The system created an artificial demand for the dollar, which had been “as good as gold” until 1971, and then was backed with oil sales. But the real backing of the dollar is the military, which allows America to rule its empire without saving money or producing goods.

As mentioned above, this is only a very short overview of some of the issues that Paul discusses in this section of the book. Just a few other ones worthy of mention include a lengthy defense of the gold standard which presents his arguments against the most common positions of opponents of the system, the impossibility of monopolies in a free market, the uselessness of the CPI and PPI indicators in gauging the strength of the market, and how much money has been spent on welfare but which has resulted in more homeless than ever. Some of his interactions with Federal Reserve chairman Alan Greenspan are also transcribed, which clearly indicate the futility of asking government bureaucrats a question, as they will only be met with unresponsive answers on technical points of difference, rather than addressing the substance of the argument. The overall concern with stable money and free markets, and arguments against the fiat currency, fractional reserve banking system, though, permeates throughout all of Dr. Paul’s selections in this part of the book, and sets up the reader for the final sections.

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

Reviewing some of the latest statistics put out by the largest foreclosure trackers and banks, a quite disturbing overall picture of the real estate market begins to form. There is no doubt that the buying binge of the past seven years is causing serious consequences, which not even the manipulations of the Federal Reserve are able to overcome. It is amazing that, with the numbers listed below, many of the large banks are solvent enough to enjoy any of the benefits of the liquidity injections of central banks.

In 2007, more than 1% of all homes were in some stage of foreclosure. In 2006, only 0.58% faced foreclosure. This is an enormous increase in the foreclosure rate, and areas hit hardest by the crisis must seem to be turning into ghost towns. If not, at least the values of many properties have completely disappeared, if the residents have not yet moved out. Even worse than the nationwide number, Florida had more than 2% of households entering some stage of the foreclosure process in 2007, with 165,291 total properties entering foreclosure.

Some of the states with the highest foreclosure rates in the nation include California, Florida, Michigan, Colorado, Ohio, Georgia, Arizona, Illinois, and Indiana. This reflects much of our experience working with homeowners in danger of losing their homes, with nearly 25% of the visitors to this site coming from California and Florida, with the other states listed here contributing a significant portion of the total traffic. Ohio is also a notable state, in that one in every 56 households in Ohio entered some stage of foreclosure in 2007, an unbelievable rate.

Since late 2006, over 220 mortgage lenders have gone out of business, filed bankruptcy, or significantly reduced their lending policies due to fallout from the subprime mortgage crisis. Every day, new lenders are also shutting down lending divisions or significantly scaling back their exposure to the mortgage mess. A number of the largest banks in the country are doing whatever they can to minimize the risk, while other large banks are simply trying to keep afloat, after experiencing huge losses in the past year.

In December of 2007, foreclosure filings had jumped 97% from one year ago, indicating that the troubles for many of these banks may be just beginning. Not to mention the fact that many more homeowners are losing their homes now than even a year ago when there were serious worries about the foreclosure rates, homeowners are still experiencing their own personal financial collapse at an astonishing rate.

Clearly, unfortunately, this trend of homeowners in serious financial trouble to the point of losing their homes to foreclosure will continue unabated this year. An $800 check in six months courtesy of government borrowing from China will do little to affect the weakening economy due to the weakening of the average person's ability to buy products or services. The housing market boom was a result of the inflation pumped into the economy by the Federal Reserve in an attempt to avoid a recession in 2000-2001 after the tech bubble burst and the aftermath of the 9/11 terrorist attacks. But postponing a recession and transferring the bubble to the average homeowner has only made the situation much, much worse. How much worse will remain to be seen.