When facing foreclosure every penny really does count. Take a look at my article from yesterday: Tips for saving money at the grocery store. There you will find ways to possibly save up to 18,000 dollars a year. Today I’m going to share with you another money pit fall clothes and how to save money on them. If you are thinking that foreclosure is even a possibility for you in the future, I suggest learning all the saving tips you can.

Did you know that most clothes you buy, are marked up at least 75 percent. That means even when you see sale signs, your not going to really be getting a good deal. If you have a big family, you know a lot of money can be spent on clothes, which isn’t the best idea for avoiding foreclosure. You can save thousands of dollars on clothes if you know some of the trade secrets that I share with you today.

AVOID SALES
First of all, like mentioned earlier, sales don’t mean a thing. Most stores over mark and up sell everything. Even if there is a sale on an item, your probably paying retail price for it. For instance the other day I was in a store that was going out of business and it said 45% off everything. Well when I went in and shopped around, I realized everything had been marked up before being marked down so basically there was no sale at all. Remember sale means nothing, usually if there is sale sign in a window, it probably has dust on it, from being left up all year, trying to lure you in.

SHOP OUT OF SEASON
Another tip is to shop out season, yah its not exciting getting winter coat in the summer, but you really can save yourself some money here. There is nothing worse then going to the mall buying something new and a month later seeing on the sale rack.

COMPARE DEALS
If you see something you like, compare deals. Take down the name and model of a pair of jeans you like and look online to see if you can find it for a better deal. If it is the same deal as the store you may consider buying at the store, just to support local businesses or bring in the sale price you found online and see if they will match it.

BUY SECOND HAND
Most towns have a place where you can buy and sell used clothing. If you buy nice clothes to start with, most of these stores will purchase them from you and you can get cash for them. They don’t give you much money, probably only 10 percent of what it is you paid. But this is still a good place to shop around; usually you can find name brand and nice conditioned items. A bit more expensive then thrift stores, but usually nicer things, since the sales clerks are very particular about what used clothes they buy from people.

AVOID TRENDS
Watch how much you spend on “trendy” clothes. Most trendy things go out of season quickly. Try to spend your money on nice pieces that won’t go out of date or you can update the rest of your wardrobe around. This will save you money in the long run and give you some quality outfits to wear.

SHOP DISCOUNT
It is worth going to discount stores to see what they have, such as T.J Maxx, Nordstrom’s rack. Here you can find name brand items such as jeans or slacks for 100 dollars cheaper sometimes. Both places are good places to pick up, shoes, bangs and accessories as well, they will definitely be cheaper then if you went to a department store.

When trying to avoid foreclosure, do everything you can, cut back on those expenses. If you do it soon enough, you might just find that extra money in pocket is enough to pay your mortgage.

On Wednesday, February 25, 2009, the US Treasury Department announced a new tax credit for first time home buyers. This is part of the Obama administration's American Recovery and Reinvestment Act of 2009 and is designed to give those purchasing a home in 2009 for the first time a tax break of up to $8,000.

The most important aspect of this new tax credit for buyers to be aware of is that it can be used to offset either 2008 or 2009 taxes. The house must be purchased before December 1, 2009, and is a legitimate tax credit. The previous tax credit for first time home purchases was designed to be paid back over time.

Tax credits can be helpful to the economy for a number of reasons, and so this aspect of the Obama mortgage relief plan is welcome. Giving home buyers a credit against their income taxes may encourage more people to purchase homes while still being able to keep more of their hard-earned money at tax time.

However, the government is also trying to accomplish too many contradictory goals. This latest tax credit is supposed to stimulate the housing market and make purchasing a home cheaper for new buyers. But the government is also attempting to "stabilize the housing market" and keep real estate prices from continuing to fall -- thereby making it more expensive to buy a home.

Also, the Obama administration has put forward vast new spending programs, including the nearly $800 billion stimulus package and the $275 mortgage bailout plan. A new tax credit will decrease revenue to the federal government, which will have to rely on borrowing or printing money to fund the programs -- both of which will have to be paid for.

At the same time, in his speech to a joint session of Congress and the nation on Tuesday night, Obama also pledged to cut the deficit in half by the end of his first term in office. This will require even more tax revenue to accomplish, if the government does not default on its debt. But how we can have spending and deficit reduction along with taxes is unclear.

Consumer credit also presents an issue on which the government has issued contradictory statements. Congress realizes that making loans to people that could never pay them back had caused the bubble in real estate prices and the lack of lending guidelines by banks led to massive defaults and record foreclosure rates.

Yes, the government has shoveled out hundreds of billions and even trillions of dollars to these same banks to attempt to get consumer credit flowing again. But credit can only flow to the same people who were given loans who could not pay them back. Giving these people more mortgages and car loans will only increase defaults and further bankruptcy the banks.

So what is it that the government is encouraging? Better lending standards or more loans to consumers? Vast new spending or a reduction in current government debt? Tax credits or the need to sacrifice to preserve the government's credit rating? Keeping home prices artificially high or making housing more affordable to those least creditworthy?

Because all of these actions involve government intervention in the economy, markets do not know how to react except by selling out. It is impossible to predict which companies will be bailed out, which will be nationalized, and which will be allowed to fail. Government is introducing more uncertainty into the markets than ever.

We expect too much of our politicians. We listen to their campaign speeches and hear nothing but promises of what they intend to "do about" all of the problems we face. If we want real change, though, it is time to stop trusting the politicians and bureaucrats to run our lives for us, and to start taking responsibility for our own lives and communities.

Politicians, on the other hand, promise us entirely too much, but even as nearly every one has broken every promise they have ever made during the campaign upon coming into office, we still believe them. In fact, we judge other and competing candidates on what they are promising us, even though we have no reason to expect the promises to be kept.

Far too often, these promises are vague and vacuous -- creating jobs, putting people back to work, restoring the economy -- or they are cloaked in irrelevant metaphors -- kickstarting the flow of credit, backstops against failure. Just as often, though, we fall for this rhetoric and put our own meanings into the language, rather than accepting it at its empty face value.

Bureaucrats promise us things, and then, when they fail to deliver, they state that they had no real obligation to do what they promised, or the promises are scaled back almost immediately after the election. We are all disappointed, but at least we did not really expect the promises to be kept in the first place.

One promise we hear frequently is getting the economy going again, as if politicians created any wealth in the marketplace. Unfortunately, all government can do is send the wrong signals to the economy through interest rate manipulations or take money from all the people to give to a small number of special interests. Neither action helps in the long run.

Even a vague promise such as stimulating the economy is impossible for government to keep. All it can do is take wealth away from everyone to reward a small number of people or groups. If you are one of the small number, you may feel as if you won the lottery -- but the rest of the people will be poorer, and this will affect you anyway.

We see this now with the Wall Street and auto bailouts. These industries asked government to take money from all of us to give to them. As a result, we all got poorer and the corporations got richer for a little while. But the illusion did not last long, wealth was not created, and now the industries are looking for more handouts.

Government promises to keep us safe, but when we are in danger or hurt, the politicians claim they have no duty to protect any individual. Their only duty is to the public -- a complete abstraction if there is no duty to any one person or another. Every state in the country has determined that police have no duty to protect you or me -- just to protect the public.

This leads, of course, to the promise of government courts to provide justice, which has been another failure. The lawyers in and out of government have created a system so unnecessarily confusing that the average person is locked out of it. Cookie-cutter legal concepts are applied to complex cases through confusing language and termed "justice."

Thus, it is no surprise that both lawyers and bureaucrats are in high salary positions but both hate their jobs enormously. Both exist in a make-believe world with its own language (legalese) specifically designed to ostracize everyone else in their lives. Yet these people get nothing but our respect and awe, and some are even termed "our leaders."

We expect too much of the government. Although much of the blame rests with the politicians themselves, just as much rests with all of us who expect anything of substance from them. The failures keep coming, but so do the promises, and we accept both and declare them successes. Will we ever learn?

It is almost automatic. The second you are late paying your mortgage, the lender begins to call, looking for its money. At first, the collector may be nice and gently remind you of the due date and that you missed your payment for that month. But soon enough, the calls start coming almost every hour, both at home and at work. When you are facing a financial hardship, how do you tell the mortgage company that you can not pay them?

Many homeowners are quite put off by the collection department of a mortgage lender. The callers seem rude and uncaring, only demanding money, asking when the borrowers can pay, and intimidating them with threats of foreclosure or eviction.

The collectors for many lenders, however, are nothing to be afraid of. In fact, they are more like trained monkeys or programmed machines than real human beings. Collection department representatives are typically paid a percentage of any past due money that they intimidate homeowners into sending in. Their success at this job is posted throughout the department, turning the collection of mortgage payments into a game.

It is no wonder, then, that in such an anxiety-creating job environment, collectors are usually unable to react like normal, compassionate people attempting to help homeowners solve a problem. Instead, they take their own anxiety and force it onto the borrowers in their attempts to collect just one more payment before the inevitable foreclosure starts.

But it is this negativity and intimidation factor that causes many homeowners to avoid the calls from the mortgage company. Instead, they turn to other companies to contact the lender for them, which may be an even worse experience if they fall for a foreclosure scam.

Thus, borrowers the loss of a home must somehow get over their fears of contacting the mortgage company, if they wish to begin the process of working out any solution to foreclosure. The following tips for dealing with collection departments may help homeowners put together an outline of how they want the conversation to do, as well as controlling the tone of their interactions with the bank.

First, homeowners should understand that feeling an enormous amount of anxiety before calling the lender is completely understandable and natural. It is a combination of fear of the unknown, fear of failure, fear of being humiliated, and many other feelings that will coalesce around that one phone call. But it is usually only the first call that is the hardest.

Second, once borrowers actually get through to someone (after potentially more than an hour on hold and several disconnects), it can be important to take a moment to gather their thoughts and relax. In his book, Fight Foreclosure, David M. Petrovich suggests the following when beginning a conversation with the lender: "Take time to recovery. Tell the collector you need a moment, and ask if it would be okay to put the phone down for a minute to get your file." After relaxing for a second, get back on the phone.

A third tip is for homeowners to introduce themselves first as they expect the lender to address them for the duration of the interaction. For example, saying, "Hello, this is Mr. Smith, and I am having a problem with my mortgage. What is your name? Would you be able to help me?" will let the collector know that the borrowers wish to be addressed as "Mr. Smith," rather than just by their first name. This keeps the interaction on a more business-like level.

While this introduction begins to set the tone of the interaction, homeowners should also focus on keeping the conversation polite, focused on solutions and how to achieve them, and a basic understanding of the facts of the matter. Crying on the phone or shouting at the collector will not persuade the collection department to turn the file over to loss mitigation or otherwise work out a solution.

Another good idea is for homeowners to be prepared to give information to the lender, but also have a list of questions for the bank when they call. The bank will ask about the financial hardship and basic financial data, and then request a package of documents. Homeowners, on the other hand, can ask who owns the loan, who services the mortgage, what type of loan they have (ARM, Option-ARM, fixed rate, and so on), the current interest rate, and if the loan has private mortgage insurance (PMI).

Asking these questions will give the borrowers their own agenda for calling, as opposed to calling just to fall into line with the lender's agenda. Even if some of the questions the owners ask are somewhat irrelevant, or they already know the answers, just asking puts the borrowers in control of the interaction, even for a short while. This can markedly decreases their anxiety.

Furthermore, asking questions will allow the homeowners to get a feel for how difficult it may be to get answers from the bank later on. If the bank can not state who owns the loan, a big red flag should go up in the borrowers' minds. This may indicate that the bank would be unable to produce the original mortgage note, if requested -- important information if the loan goes to a foreclosure lawsuit.

Finally, homeowners should either tape record or document every conversation they have with the lender. Both parties already know (usually from an automatic voice telling them so) that the conversation with the bank will be recorded -- homeowners might as well keep their own copies. These can be extremely important if the case goes to court and the owners need to request a judge's help in negotiating a loan modification or other repayment plan.

Homeowners trying to stop foreclosure on a property should understand that their anxiety about speaking with the lender is an irrational fear. Although the fear will only go away once they call the bank, the benefits they get from avoiding calling are far outweighed by the risks of not talking to the mortgage company. Having an agenda, controlling the interaction from the beginning, and keeping the conversation business-like should give borrowers an advantage, though, in working out some agreement to avoid the foreclosure.

On Wednesday, February 18, President Obama unveiled his administration's latest attempt to stabilize prices in the housing market and help stop the rising tide of foreclosures. Will this plan be any better than the half-dozen that the Bush administration passed? With a $275 billion price tag, we should expect the foreclosure problem to be resolved, but this latest bailout act seems to be just another way to avoid helping homeowners.

As with the FHA Hope for Homeowners Act, Obama's newest plan is simply out of the financial reach of many homeowners. The requirements are quite strict, which should have been no surprise when the president announced a longer list of people who would not be helped by the plan than who would receive assistance. But taking hundreds of billions of dollars away from homeowners, employers, and everyone else to avoid helping people will not promote economic recovery.

As the government spreads pain and misery around the economy, redistributing poverty from the banks to the rest of us, homeowners may not want to put too much hope in this latest plan. But for those interested in having another government-sponsored program to stop foreclosure, the following is a list some of the requirements to qualify for the plan.

To qualify for a foreclosure refinance loan from the government at a fixed rate of around 4-5% for 15-30 years fixed, all of the following requirements must be met:

• The loan must be a conforming loan under Fannie Mae and Freddie mac guidelines.
• The mortgage must be owned by either of the Government Sponsored Enterprises, Fannie Mae or Freddie Mac.
• Alternatively, the loan may have been sold by Fannie Mae or Freddie Mac in a mortgage security.
• The homeowners are not currently behind on payments or have a history of on-time payments.
• The homeowners must continue to pay any second mortgage on the property even after the refinance.
• The first mortgage on the house must not be more than 5% of the fair market value of the property, or it must be written down to that amount. For example, if the house is worth $100,000, the first mortgage may not be more than $105,000.

Looking at this list of requirements, it will become apparent that many, many homeowners will not qualify for this program with current housing market declines. Borrowers with 80/20 loans whose home values have fallen under the amount due on the first mortgage will have to keep paying on the second mortgage, as well as either pay down the first or have the bank agree to reduce the balance due.

And this program is voluntary for banks who have not received federal bailout money from the Troubled Assets Relief Program (TARP). While most of the big banks have received funds, many smaller regional banks have not -- and these banks may not be willing to write down the value of their loans by 10-20%. Writing down the value of bad mortgage securities is what has caused so many paper losses on bank balance sheets already; it is inconceivable that many struggling banks will want to admit to even more.

There is also a second part of the bailout plan that may allow homeowners to qualify for a government-guaranteed mortgage modification program. This involves the bank modifying the loan to be within 38% of the borrowers' gross income and the government stepping in with money to help reduce the payment to 31%. The requirements for this part of the plan are the following:

• The mortgage must be conforming under Fannie and Freddie guidelines -- jumbo loans are not permitted.
• This program must be done on a principal residence -- investment homes, second homes, or vacation properties do not qualify.
• The homeowners must be in danger of default on the loan or have already defaulted. In danger of default can be a mortgage where the payment is more than 31% of the borrowers' gross (before tax) income.
• The lender must be willing to modify the mortgage to reduce the homeowners' monthly payment to 38% of their gross income or less.

While the new bailout program gives banks more incentives to negotiate with borrowers, it may not give enough to convince banks to change their normal business practices and dedicate more resources to helping homeowners. As mentioned above, participation is voluntary, except for banks that have received TARP money and Fannie Mae and Freddie Mac, which are under government conservatorship.

Does the plan go too far? Some critics point out that using taxpayer money to bail out failing banks or failing individual borrowers will only create more moral hazard in the future. Once debts are paid back or discharged and banks loosen up lending, there will be a strong incentive to reinflate a housing bubble, especially in the presence of low interest rate targets set by the government. A new bubble and collapse will send all of the same players back for more government bailouts.

Or does the plan not go far enough? Other critics point out that this is not nearly enough money that the government is taking away from taxpayers to bail out the housing market. Property values fall for everyone in areas hard hit by foreclosure, so it is in everyone's best interest to do whatever it takes to prevent more foreclosures, or so the argument goes.

In either case, the full details of the plan will be released on March 4th, which gives all of us a week to contemplate how the government's latest bailout plan will save the housing market. Unfortunately, previous plans have failed to assist many borrowers, and this plan seems to offer little in the way of really novel proposals. For most homeowners facing foreclosure, it will probably be best to keep looking at other options, in addition to considering receiving mortgage assistance from the federal government.

Related articles:
The Obama Plan-Who really understands it?
Everything They Don’t Want You To Know About the Obama Bailout Part 1

If there is one bad idea for homeowners in foreclosure, it has to be what the community organization group ACORN has termed "homesteading." This is when the former owners, along with members of ACORN, break into the house so that the former owners can take back possession of the property. The video below is a newscast from WJZ.com on the story of one woman in Baltimore, Maryland losing and reclaiming her home.

The number of things wrong with this video are almost too many to count. First of all, the property is no longer the former owner's, but the home is also no longer owned by the bank that foreclosed. Breaking into a taxpayer-subsidized bank's foreclosed house to protest is much different than invading the private property of another person. It is doubtful that the woman profiled in the video would have been happy with another person breaking into her house when she owned it just because that other person thought he deserved a home.

Breaking into the home is illegal, as the ACORN representative freely admits, but that is of little concern here. The government and banks worked together to set up the housing market to fail by encouraging people to believe that homes rose in value by 20-40% a year. Banks are given the benefit of the doubt in 99.9% of foreclosure cases, while homeowners are railroaded through the legal system and forced out of their homes by judges and sheriff's departments for the benefit of the banks.

Despite this, however, homeowners should not, as a general rule, be breaking into their former properties. The risks of being arrested by a government/bank minion are too great, and the rewards too small. Protesting against the fact that the house was unjustly foreclosed (if this is what the former owners believe) can be done in more productive ways. Maybe dozens of former homeowners moving into the foreclosing judge's chambers at the courthouse, for instance.

Homesteading is a tactic that has been used to transfer title in some states, but it is quite rare. Typically, the people who move into a property must live there for nearly twenty years without the real owners making a claim to the house or attempting to have the squatters removed. It is unlikely that government-subsidized banks owning foreclosed homes will let them sit for that long. Invading the house of another private citizen is also wrong and will only engender more negative feelings towards former homeowners who lost properties to foreclosure.

In any event, there are far better ways to get a house back after foreclosure. If the woman was that interested in keeping her home, she could easily have kept up with who owned the property -- records of ownership and liens for this house are available online. She could have stayed for as long as possible when the bank owned the house, and she could have contacted the new private owner once it was sold and attempted to work out a lease. There are better options than trespassing.

Unfortunately, now the road to financial recovery will be even more difficult for this woman. Not only has her credit rating been destroyed by this foreclosure, she may end up with a criminal record for breaking and entering and trespassing on private property. These two items will show up in credit and background checks that landlords do on prospective renters, and she may find herself turned down for higher quality leasing options.

Use the district courts in self-defense against foreclosure for as long as possible. Then use the federal bankruptcy courts to discharge any other bank debt and prolong the legal process further. Negotiate with the bank or the new owner to get more time to move out and avoid eviction. Or negotiate with the new owner to buy the house back or rent it, if possible. But don't infringe on someone's private property rights just to make a stand against the banks -- this only hurts homeowners more than the lenders.

Most homeowners facing foreclosure would rather avoid both losing the home and having to file bankruptcy. They are concerned about the social stigma of filing, the damage to their credit record for the next seven years, and the difficulty of borrowing money for a home or auto loan in the future. However, there are a number of benefits, under the right circumstances, to filing for protection under the federal bankruptcy laws to reduce mortgage debt.

One of the greatest of these benefits is that, with a Chapter 13 (reorganization) bankruptcy, the courts are able to take secured junior mortgage loans and have them unsecured. Any second or third mortgage or Home Equity Line of Credit (HELOC) can be reclassified as an unsecured debt for the purposes of bankruptcy. Of course, this can not be done in every instance, and there are requirements that must be met by the loan and the value of the property.

To take a mortgage off of a property, the loan must no longer be secured by the home's value. For example, take the following case of a property that has declined in value after several loans were taken out on it:

Home Value: $250,000
First Mortgage: $265,000
Second Mortgage: $40,000
HELOC: $15,000

The second mortgage and HELOC in the above example are no longer secured by the value of the property; in fact, even the first mortgage is only partially secured. This is not a rare example, either, as many homeowners have taken out more than one loan on a house, lenders relied on inflated appraisals, and now property values have crashed back down to reality.

If the owners of the property declared bankruptcy, these two junior liens could be reclassified as unsecured. Even if the house could be sold for its fair market value at the present time ($250,000), the second mortgage company and HELOC provider would receive nothing from the proceeds – therefore, they are, for all practical purposes, unsecured by the property right now.

But what does this really mean for homeowners? Who cares if a debt is classified as secured or unsecured? After all, the bankruptcy filers have to pay back the money they borrowed and pledged their home as collateral, right?

Wrong. When bankruptcy judges take a secured lien on a home and reclassify it as unsecured debt, the balance can be reduced on it. Homeowners would not have to pay back nearly as much as they owed on the debt and the mortgage would be treated just like any other unsecured loan like a credit card or personal loan. This can represent a significant savings to the homeowners and a large loss to lenders that made ill-advised loans on properties whose values have now fallen.

Even better, the amount that homeowners are required to pay back to a lender is determined by their income – not the original amount of the debt. In a Chapter 13 bankruptcy case, petitioners are put on either a three or five year payment plan, and their disposable income is used to calculate how much money the lenders will paid back on their loans. For families whose income has dramatically fallen due to job loss, this may be a way of bringing their debt load back in line with their ability to pay.

Chapter 13 bankruptcy, just like any other solution to foreclosure, is not right for everyone. But for homeowners who qualify, can afford the payment plan, and have consulted with a good personal bankruptcy lawyer, the ability to reduce their debt burden on second mortgages or equity lines of credit represents a large benefit for filing.

When homeowners first lose a job, suffer a medical emergency, or otherwise have their finances turned upside down, the first reaction always seems to be hoping that problems go away and things turn out for the best. Unfortunately, too many people have found out the hard way that this rarely happens, and a financial hardship can last far longer than expected.

But homeowners seem to have an infinite amount of optimism (or anxiety ) that they will be able to turn their situation around and get back on top of all the bills that are piling up on their kitchen tables. A payment is missed but it is within the grace period; a call to the auto insurance company allows the borrowers to pay a few days late with no penalty; student loans can be deferred.

Soon, however, the situation spirals out of control, with more payments being sent in late and some not being sent in at all. The mortgage, of course, is the first priority but also the most expensive of the bills, and falling behind on that one will result in the most severe negative consequences to the homeowners. Inevitably, though, the mortgage also falls behind.

It is usually around this point that the collection letters and phone calls begin to arrive, with bankers and collectors telling borrowers what they already know. Their account is behind, bad things will happen if they do not pay, they would wish to avoid that, right? All they have to do is send in a payment and everything will get better.

The homeowners usually promise to make a payment even when they know that it will be late or nonexistent. After all, it is easier to make the promise and get the phone calls to stop for a day or two than it is to admit their financial failures. But when the payment is never sent it, the phone calls start again, combined with the letters and then certified mail and foreclosure lawsuit paperwork served by a sheriff.

This is an all too common story for many homeowners who end up being unable to save their homes after they have missed too many payments. The main problem is that they wait so long for a solution to fall out of the sky that they miss every opportunity to work out other arrangements with their lenders.

If you are facing the loss of a job, cutbacks in hours, a temporary layoff, or have suffered another type of financial hardship, the time to act is now -- not after you have already begun to fall behind in your payments. The sooner you can inform the bank that you are going to be late paying the mortgage (or credit cards, car loans, and everything else), the more options they can offer you to stay out of collections.

Regardless of any new foreclosure bill the government comes up with to help modify loans or bail out homeowners, there are already a large number of solutions to foreclosure. But the most effective, like foreclosure refinancing or mortgage modification, for instance, almost require that the borrowers address the problem before it gets out of hand.

The consequences of waiting too long to save the house do not just include a more expensive plan. They include losing the home completely, witnessing foreclosure costs, attorney fees, and interest eat away the equity of the home, and having to move out before you are ready just to avoid being evicted. Most or all of these can be avoided simply by acting sooner.

So take action today if you are facing a significant change in your monthly finances. The banks will waste no time in beginning to pursue your debts. Find out your rights, research foreclosure advice, and put together a plan to stop the collection processes before they begin. Dealing with a small problem now will mean that you do not have do deal with a much larger, possibly insolvable, one later on.

Although many articles on this blog encourage homeowners to defend a foreclosure case on their own, the most that can probably be hoped is that they can delay the sheriff sale or eviction for a period of months. Getting actual justice in the case is probably not to be expected, however, as government judges are more likely to give preference to the banks that are paying the filing fees in the lawsuit.

Take the following story from Fort Myers, Florida, where courts are so far behind on foreclosure lawsuits that judges are now going through nearly one thousand of these cases every day. The point is not to judge the merits of the bank's complaint against the homeowners or the borrowers' circumstances or the legitimacy of the original loan or any potential servicing abuse. No, the goal of judges is, according to Lee County, Florida clerk of the circuit courts Charlie Green, to "get these cases off our books."

To get the cases off the books, judges have taken to conducting a twenty second hearing for foreclosure victims, asking two simple questions, and giving the owners a deadline to work out an agreement with the lender or face sheriff sale and removal from their home. The following experience quoted in the article is simply astounding in how little regard is shown to the homeowners and how much credit implicitly given to the bank's positions.

Hoping to save her house, Saundra Hill Scott arrived at the county courthouse clutching dog-eared mortgage bills and letters from her lender.

She need not have bothered. The foreclosure hearing lasted less than 20 seconds, with Judge John Carlin asking her two questions: Are you current on your mortgage and are you living in the home? She answered no and yes and then offered to show him her paperwork.

"I don't need to see that. That's between you and the bank," he said as he gave Ms. Hill Scott, her husband and three grandchildren 60 days to work out a deal with their lender or vacate their three-bedroom house.

Two questions! The judge asked the defendants two questions and then gave the responsibility of working out the mortgage with the homeowners to the original bank that is suing them to kick them out of their home. And the next eight hundred or a thousand people will be treated in exactly the same disrespectful manner, regardless of any predatory lending, fraudulent inducement of debt, or mortgage servicing fraud issues.

Can anyone seriously imagine this same judge asking the lender two questions and, based upon those answers, dismissing the case completely? It could certainly be done.

First question: were your borrowers able to afford this loan for the long term at the time it was originated?
Second question: do you own the original note and would you be able to produce it for the court's and defendants' inspection?

For a significant number of foreclosure cases, the lender's truthful answer to both questions would be "No." Many homeowners facing foreclosure were given adjustable rate mortgages (ARMs), Option ARMs, and other creative financing packages to get them into a house that they would never be able to afford for longer than a few years.

But these types of loans were designed from the beginning to spread the risk of default around. The originator sold the loan to a Wall Street firm, which packaged the loan with others and sliced up various rights to it. The mortgage servicer got to collect payments and take a fee, while the thousands of end investors around the world got a small percentage of the monthly income the loan generated. The original loan paperwork, however, may have been destroyed or lost somewhere along the line.

Maybe the judge could ask another question and immediately dismiss a thousand foreclosure cases a day. "Did the originating bank provide any real consideration for this loan or was the money created out of nothing; i.e., bank reserves?" All loans that banks create are from nothing, with the borrowers' promise to pay the only factor that creates a debt at all.

After all, who has the burden of proof in a foreclosure case? Certainly not the homeowners, who are the defendants -- so why should they be given the two-question treatment and then have their home scheduled for an auction? At the rate these judges are going, massive fraud and corruption will be missed in any number of mortgages. Who could possibly keep up with the subtleties of hundreds of foreclosures every day?

The smugness and superiority complexes the judges in this article exhibit should give most homeowners and foreclosure victims a good sense of how difficult it will be to argue and win a case against a mortgage lender. Some choice quotes are below:

"A guy hasn't paid his mortgage in over a year,'' says Judge Cary. "What's there to talk about?"

...

"The problem is that the lenders have spent all this money on attorneys and filing fees," says Judge Cary. "You are so far into it, would you really stop it at that point? It's an expensive proposition."

...

Many judges, including Judge Carlin, are giving homeowners much more time to stay in their houses than the law requires.

"That's pretty humane considering that many homeowners have been living rent-free for more than a year,'' says Robert Hill Jr., a Fort Myers lawyer who represents lenders.

The most important point for homeowners currently trying to stop foreclosure to remember is that they absolutely need to file an answer to the bank's complaint in the time allowed. When they do not do this, the banks and courts make it very, very easy to lose a foreclosure lawsuit. While researching the various issues that can be used as a defense or consulting with an attorney is best, any kind of written response can be considered an answer to a complaint.

The judges say they sympathize with the homeowners' hardships, but often the cases can be decided after a brief hearing because there are no legal issues in dispute which would warrant a lengthy trial. Some homeowners don't understand they are required to file paperwork before the hearing to challenge the lender's case. Many of them never file the documents or hire lawyers, the judges say.

The simple act of filing a couple of motions can mean the difference between extra months to defend the case, save up money, and move out comfortably -- or a 15 second foreclosure hearing. If nothing else, homeowners serious about defending their homes should at least consult with someone familiar with the law and file an answer. They should not expect justice, but they can hope to force the courts to respect their rights to a trial and due process.

The lack of creativity in foreclosure scam companies is stunning. Over and over again, homeowners are taken advantage of by the same tricks designed to fool them into sending money to a company that never provides any services. Once the company is shut down by state or federal regulators, the horror stories begin to come out, but the stories are the same in almost every case of a foreclosure scam.

The latest scam was shut down by the Federal Trade Commission (FTC) last week. Not surprisingly, the story was the same. National Foreclosure Relief, Inc. was a mortgage help company that send out deceptive marketing postcards to families facing foreclosure. Its “Fresh Start Program,” however, was little more than a way for the company to trick people into sending money, not helping them, ignoring their calls, and starting fresh with new victims.

The FTC recreates the language from a few of these marketing postcards, and homeowners are well advised to read them to be aware of the type of advertisement such companies will use to deceive the unwitting:

We are happy to inform you that you have been pre-approved to have your current mortgage, including your past due payments, wrapped into a new loan . . . Following final approval, our program may allow any foreclosure proceedings to be stopped.

It is required that you are notified of these options. We have attempted to contact you without success. Please contact us soon. Your time to enter a repayment plan is running out. Rights may include: 1. a repayment plan 2. putting your past due payments into the balance of the loan 3. paying your past due payments at the end of your loan. 100% GUARANTEE.

It is quite clear that the company was sending out these postcards hoping that any homeowner would read it and believe that it was the mortgage company itself, not the foreclosure rescue scam, that was offering the repayment plans, mortgage modifications, and other pre-approved programs. This is a common tactic scams use – attempting to trick borrowers into believing that they are affiliated with the original lender. People who have had their loans sold dozens of times often can not tell the difference.

But what happened to the people who were unfortunate enough to send money to National Foreclosure Relief, Inc.? The FTC states that, “Consumers who call the company are told that negotiations with lenders will begin once consumers pay a fee ranging from $300 to more than $1,000, which typically is paid before the consumer receives a contract. After the fee is paid, the company often doesn’t return consumers’ phone calls, and in many instances when consumers manage to reach a company representative they’re told, falsely, that negotiations are proceeding.”

This is one of the most common tactics that scam companies use to trick homeowners – taking money up front and then failing to return calls or complete any kind of work on the case. It is an almost too-easy practice that illegitimate foreclosure rescue firms engage in – easy to set up, easy to begin marketing, easy to trick unsuspecting homeowners, and easy to shut down the business, change the name, and move to the next town and begin all over again.

Just as the Savings & Loan industry in the 1980s was full of incestuous relationships between banks and the same players showing up again and again in failed institutions, the foreclosure scam industry seems like some coordinated underworld network. Companies seem to pop up for a few months, steal tens of thousands of dollars from homeowners, drop off the face of the planet, and then reset up shop somewhere else.

With the small amounts of money stolen from each homeowner and the ease of setting up such a business, expensive government regulatory resources simply can not keep up with the number of companies scamming borrowers. This is why it is vitally important for homeowners themselves to be aware of the dangers of such scams and to demand accountability and guarantees from any company they work with to stop foreclosure on a property in distress.

For more information on this case, see the FTC's press release about it here. A complaint has been filed against the company, but this does not indicate guilt or innocence. Homeowners, however, should always be on their guard when choosing a foreclosure help company to work with. While the vast majority provide useful assistance, a small number of scams have succeeded in giving the entire industry a bad name.

The spectacle last week of Wall Street bankers being summoned to Washington, DC to be publicly humiliated in front of members of Congress and the media after running their companies into the ground and squandering hundreds of billions of taxpayer dollars begs one question. How do I get one of those jobs? I think I could handle the cost of being paid hundreds of millions of dollars in salaries, bonuses, and stock options being a little public humiliation every few months.

Up until now, it was only the most destitute and desperate individuals who felt forced to carry signs by the side of the road indicating “will work for food” or similar depressing slogans. But in the era of the housing collapse and trillions of dollars of new money being printed by the Federal Reserve, maybe a new type of message is called for. “Will take Congressional verbal abuse for $17 billion” seems to be a fitting one.

In all seriousness, though, it is deplorable that banks used government money and market interventions in order to enrich themselves at the expense of impoverishing the future, and when the future arrived, they were able to cry “Wolf!” and receive taxpayer money for bailouts. And not only have they received bailouts (which 90% of the country disagreed with), but they have been able to spend the money with zero accountability.

But in a severe recession with a frighteningly fast collapse, the storyline needs to be played out according to the script. Like a child, the bankers are sorry, they never saw it coming, they learned their lessons, and they will never do it again. Like a stern but forgiving parent, the politicians are outraged, anyone could do a better job than these clueless bankers, but will bail them out of their mistake; after all, they meant well.

All this feigned outrage and remorse is little more than a cover for the transfer of more money to the bankers through bailouts and Federal Reserve programs. It is designed to placate the public and focus the depression and rage Americans are feeling at the bankers onto the television screen instead of real life. But the banks have gotten away with very little in the way of real penalties for their actions – what if the fake outrage fails to deflect the public's real outrage?

Show trials of banking CEOs may be next, or a new huge crisis may be allowed to happen and inflated beyond all reasonable proportions. General Motors in considering filing for bankruptcy, for instance. While this may not have the apocalyptic effect on the economy pundits predict, the media may be able to inflate the failure into an epic catastrophe. A show trial where a couple bankers end up in jail may also be in the works.

Unfortunately, though, all of the strong negative feelings directed at the banking institutions (and there are a lot of such feelings) fails to address why people and the nation itself has become poorer. While the banks certainly took advantage of cheap and free money, so did vast numbers of people during the housing boom. Interest rates were artificially lowered and saving was replaced by borrowing and spending.

What we can expect from the government, banks, and media may be only show trials or more contrived economic disasters, followed by more crises and bailouts to address them. Unfortunately, these bureaucratic and corporate wranglings will only make the job of economic recovery more difficult, but what is needed now is for Americans to begin saving again, paying down their previous debts, and investing in productive capacity instead of borrowing ever more money.

So far in the recession, corporations from Wall Street investment banks to the auto industry have received bailouts from the federal government in efforts to ward off bankruptcy. But state governments oversee economies the size of small (or large) countries, and their cash flows are decreasing as tax revenue dries up. With the federal government imposing new regulations with every stimulus, as well as taking money from the residents of the states to fight the recession, some states have begun to wage a quiet war against federal authority.

State governments are not allowed to operate with deficits as the federal government can. The feds have a monopoly on money creation through the US Treasury and the Federal Reserve, so states must make do with what they can collect from the people living and working within the boundaries and not rely on the printing press. This requirement to balance budgets is putting a strain on local and state governments as tax revenues decrease.

The most prominent state in the government battle so far has been California, which has been in the news constantly since the housing market collapsed. With such a large government and such high foreclosure rates, it is becoming increasingly desperate for the Golden State. The squeeze is already on counties, which have not been reimbursed by the state for required programs. In response, some counties have threatened to put a hold tax revenue payments to the state. The government of the state has requested bailout funds from Congress while threatening to lower state workers' wages down to the minimum wage, even as counties are expected to forward taxes to the state but go without funds for promised services.

Another state that one would not think was hit hard by the recession and foreclosure crisis, Kansas of all places, is also hurting for money. A recent news article by the AP reports that the state has stopped processing tax refunds for constituents. Now it is the homeowners and workers themselves living in Kansas that are being squeezed directly as the state refuses to send out the money that they overpaid in taxes throughout the year. In fact, some people deliberately overpay each year, counting on a sizable refund check. This theft of tax return money will only hurt these families who may have used the funds to pay down debt or even stop foreclosure if they are really in need of it.

All the talk of supporting local businesses and punishing giant Wall Street firms and multinational banks may also be translating into action at the state government level. Former Illinois Governor Rod Blagojevich, before being arrested on suspicion of attempting to sell a vacant Senate seat, had announced plans to remove state funds from Bank of America after the lender would not continue to support a local Chicago business. Other states may begin to follow suit by moving taxpayer funds from the largest banks (with headquarters in New York, California, or Dubai) to smaller, local and regional banks.

Such an action of removing state funds from the multinational banks would have the consequence of strengthening lending in local markets to local businesses which employ local workers. But such a measure would also be combated by the large banks, even though these banks are the ones that set up the housing market for collapse and have taken the profits from the bubble offshore already. It will take strong state and local governments to begin denying funds to multinational banks and instead supporting local businesses.

The spending of the stimulus bill recently passed by Congress is one way that the federal government is attempting to address the growing discontent among bureaucrats down the line. Vast infrastructure spending is one way to transfer money from people to the federal government to state governments to local governments to preferred contractors who will spend the money and increase tax revenue to the layers of government. This measure may kick the government bankruptcy can down the road a little way, but meaningful changes will have to be made to address the crisis in the long term.

Each new bailout and spending package has been designed to prevent corporations from having to declare bankruptcy, but has not addressed why these failing institutions did not plan for any but the rosiest futures. And each new spending program that is released to great fanfare but fails to stop the recession erodes more of the peoples' trust in the government. Over $8.5 trillion has been injected into the system by the Federal Reserve or appropriated for programs by Congress, but nearly 500,000 jobs are being lost every month.

Any erosion in the level of trust people have towards the government will be met with an equal or greater erosion of trust that government officials have in the people. But what happens when one level of government loses trust in another level of government? With the vast, vast number of regulations, from federal to state to local, government has infiltrated nearly every aspect of peoples' lives. With money becoming tighter and a recession lingering for over a year now, and with preferred corporations being given new bailouts every week, state governments may have to become leaner and more independent of the federal government if they wish to survive.

When homeowners lose a house to foreclosure, the last thing they want to focus on is being forcibly removed from the property by a group of county sheriff's deputies. The fact that the entire process of foreclosure seems to become much less clear after a sheriff sale can only add to the anxiety experienced by owners. However, there are four steps that the lender or new owner will typically follow in order to evict owners after an auction.

First, the original owners of the house will be given notice that they are no longer the owners and a deadline by which to move out or eviction proceedings will be initiated. If the borrowers do not leave, the new owners will go to court and file an eviction lawsuit (also known as an unlawful detainer or forcible entry and detainer action). The former owners of the house will need to be served with this paperwork, just as with any other type of lawsuit.

Next, the foreclosure victims will be given a certain length of time to respond to the complaint and summons by filing an answer with the courts. This involves filing a written response to the complaint in the eviction lawsuit stating the reasons why the new owners should not be given possession of the property. These reasons may involve failure to provide adequate notice, deficiencies in the foreclosure auction itself, or any other reason that is applicable. The former owners may also file a response simply asking for more time in which to move out of the house.

The third step will be a hearing before a judge in the case. The new owners and former owners will each be able to explain their side of the story and the judge will make a ruling. Typically, judgment for eviction will be given to the new owners, but it is also easy enough for the courts to grant the foreclosure victims a little extra time to move out of the home. But once the judge issues an eviction order, it can be given to the county sheriff to execute.

This is the last step in the process when the eviction order is given to the sheriff and an eviction crew arrives to remove the borrowers. Usually, a few days notice will be posted on the property before the eviction is conducted, and former owners can call their local county to find out exactly when they may be removed from the home if they have not received any notice. But there will be no negotiating with the sheriff to forestall the eviction -- they are just following orders from the court and will not postpone carrying out those orders.

As with almost all aspects of the process, state foreclosure laws can vary widely in terms of what a new owner must do after a sheriff sale in order to evict any occupants of the property. The former owners become tenants once the title is transferred by the auction and will have to be treated as such under the applicable laws. Foreclosure victims can not just be removed from the house without their rights being taken into consideration and being notified and given an opportunity to defend such an action in court, so homeowners currently facing foreclosure should not worry about being thrown out onto the street with no warning.

"One of the wonders of post-modern financed was the willingness of the American government to put the American taxpayers' full faith and credit on the line to underwrite the risk-free doubling (or better) of literally billions in crack and heroin profits."
-Michael Thomas, Black Money

An interesting post at the website PopularDelusions suggests that one way to fix the economy may be for the government to legalize currently prohibited drugs and begin taxing them. This would be in an effort to recapitalize the banking system through taxing a new market, rather than just borrowing or printing more money until the problems in the economy go away.

However, making illegal drugs legal and then taxing them would create even more problems for the US and world economies than simply allowing the black market to keep operating. The number of players and vested interests in supplying and fighting drugs is now so numerous that a change in the legality of the products would only contribute to the collapse of financial markets.

According to the United Nations Office on Drugs and Crime, the value of the global illicit drug sales in the North America was was as follows:
Cocaine $43.6bn
Opiates $8.9bn
Cannabis $64.0bn
Ecstasy $8.5bn
Amphetamines $42.3bn
Total $167.3bn

The world illegal drug market is estimated to be closer to $600 billion to a trillion dollars a year.

One of the striking features of the illicit drugs markets are the high retail prices. To put them in perspective consider that cocaine sells for around $100 per pure gram, or $2,800/oz while heroin sells for $1,100 per pure gram or $30,800/oz. Compare that to the $950/oz price of gold.

Why are prices so high? Caulkins and Renter (Journal of Drug Issues, Summer 98, Volume 28, Issue 3, "What price data tell us about drug markets") estimated that around 50% of the retail price could be accounted for by the high risk run by employees - of product confiscation, incarceration and rival violence. So let's say removal of this risk would give a pre-tax market of $85bn.

The premiums for simply growing the stuff, transporting it to refineries, refining it, transporting it to distribution, and selling it on the streets can increase the price of drugs by 10 to 100 times. If illegal drugs were legalized, the prices would be more likely to collapse by a very large amount.

How much tax is the US missing out on by prohibiting this market? In NY City, the tax take on a packet of cigarettes is 58% of the average retail price. If we gross up the pre-tax market by that amount we get $117bn in annual revenue.

The total drug trade at $600 billion a year mostly finds its way into the US financial markets. The money needs to be cleaned in order to be spent, and the American dollar is still the reserve currency of the world, as well as of the drug traders. How much money would the economy lose out on if drug prices suddenly collapsed and over $500 billion a year in highly liquid assets disappeared from the market?

To take that much laundered money out of the financial system now would be a huge disaster for company stock prices. Collapses in housing of 40-50% have escalated the foreclosure crisis and turned suburbs into developing ghost towns while bankrupting Wall Street investment firms and pushing the economy into a recession. An industry that accounts for $600 billion of annual investment in the US economy where prices collapses by 90-99%, on top of all the other disasters in the market, may quickly lead to a depression.

But there's more. The annual cost of drug enforcement - police, prosecutors, judges and prisons for drug related crime is has been estimated by Jeffrey Miron at Boston University to cost $33bn annually. Adding that saving to the tax take would mean $150bn per year for the US Treasury.

The nearly one trillion dollars the US has spent since the beginning of the drug war represents a huge group of enforcers, judges, lawyers, and politicians who have extremely vested interests in keeping drugs illegal. If the drug warriors had no drug war to wage, it is doubtful that they would simply give up their lucrative government positions and pensions. And the drug war itself is another reason that politicians give in order to take more money in taxes from businesses and citizens.

Local governments have also learned to take great advantage of forfeiture laws, which allow the police to retain property and cash seized in drug arrests, whether or not the person is ever found guilty. Forfeiture laws allow lawsuits to be brought directly against property itself, giving governments another source of revenue due to the non-crime of being suspected of having illegal substances.

Unfortunately, the right answer for the economy is not to decriminalize drugs. The government can tax the substances like it does with cigarettes and liquor and like it is contemplating doing with fast foods to discourage people from eating unhealthy. People should be free to do whatever they want with their bodies, and there are far more dangerous substances available now. The FDA approves substances that has been linked to cancer but is trying to classify vitamins as drugs and restrict them.

But the very illegality of drugs has created a hugely lucrative black market where prices for illicit substances are 10-100 times what the free market would support. Making these drugs legal and taxing them would cause the US economy and government at all levels to incur huge opportunity costs and any revenue taken from taxing drugs would be not make up for the collapse in prices and liquidity lost from money laundering. At this point in time, the economy could not sustain the legalizing of drugs, which is why they will remain illegal for the foreseeable future.

Further Reading:
Fitts, Catherine Austin. Dillon Read & the Aristocracy of Stock Profits.
Gray, Mike. Drug Crazy.
Russell, Dan. Drug War.
Scott, Peter Dale. Drugs, Oil, and War.

One of the main concerns of homeowners facing foreclosure but considering a short sale is any potential income tax liability. There are numerous horror stories of families whose lender allowed them to sell for tens of thousands of dollars less than what they owed but were then sent an IRS form at the end of the year indicating they had to pay tax on all that forgiven debt. But the IRS is not such a scary institution, and foreclosure victims may not have to worry about paying extra tax just to save their homes and their credit.

The main benefit of doing a short sale is that it can reflect better on a homeowner's credit record than letting the house go through foreclosure or giving the bank a deed in lieu. Selling the home, even at a discounted price to the lender, shows other potential creditors that the borrowers attempted to make as good on the loan as was possible at the time. But the threat of having to pay thousands of dollars in income tax to accomplish a short sale could eliminate the credit score advantages if the owners are forced to declare bankruptcy to deal with the taxes.

The government's regulations on this issue are not at all intuitive. After all, how can the bank willingly forgive a portion of the homeowners' debt, but the homeowners have to treat this as actual income and pay taxes on it? One of the points of the short sale is to save money when homeowners in foreclosure can not afford to pay thousands of dollars in missed mortgage payments, attorney fees, and court costs. To impose another bill for thousands of dollars on them at the end of the year seems a cruel joke by the lenders and the IRS. Two conditions, however, must be met in order for the IRS tax liability to be triggered.

First of all, the tax liability from forgiven debt is not triggered with debt that was used to purchase or improve a primary residence. This means that homeowners who negotiate with the lender to lower their original mortgage that they used to buy the home will not have to pay taxes on this forgiven debt. The same applies for borrowers who took out a loan or refinanced in order to improve the house.

But when a loan is taken out to purchase a second house, consolidate debt, pay college tuition, or for any other purpose besides buying or improving the primary residence, the IRS may come into play in a short sale. The IRS treats any of this forgiven debt as if the bank gave the homeowners money, which the owners then immediately used to pay down the loan on the house. Thus, the borrowers are forced to pay taxes as if they received the money from the bank as regular income.

Homeowners, however, can avoid paying the tax if they can prove they were insolvent at the time of the short sale. This is often not difficult at all to prove, as insolvency merely means that the borrowers' total debts were more than the equity they had in their home and personal property. With property values declining by 40-50% in some areas of the country, many borrowers owe more than their home is worth and have little in the way of personal property to make up how much the value of their house has fallen. The banks have made the entire housing market insolvent.

But despite being insolvent or having used the proceeds of a loan to improve upon on a primary residence, homeowners who execute a short sale to stop foreclosure may still get a 1099 from the bank at the end of the year. It can be completely wrong, but the lender may still send it. In this case, homeowners can file the IRS Form 982 in order to reduce the amount they owe. Borrowers may also wish to speak with a tax professional when filing their income taxes if they had done a short sale and received a 1099 form showing income.

The Financial Stability Plan is the latest proposal from the President and Congress on how best the government can intervene in the economy to get us all out of the recession. Despite the fact that every previous government intervention has, at best, done nothing and, at worst, only made matters worse, this new plan will supposedly save the nation from the damage caused by the politicians and the banks.

The fact sheet (PDF) on the new plan is a prime example of how the government distorts language and uses metaphors and fancy turns of phrase to say virtually nothing at all. The very first line of the plan states, "The Financial Stability Plan: Deploying our Full Arsenal to Attack the Credit Crisis on All Fronts." This begs the question, our full arsenal of what? A war metaphor used to describe the actions the government plans to take to fix the economy is hardly reassuring, especially in the wake of how the government has handled previous acts of aggression and war like Vietnam, Afghanistan, and Iraq.

Especially if the nation "faces the most severe financial crisis since the Great Depression," unleashing an arsenal to attack the nonexistent credit crisis seems to be a destructive path to take. But the government answers its own question of what weapons will be used to attack the crisis with even metaphors and empty phrases: "the Financial Stability Plan is designed to attack our credit crisis on all fronts with our full arsenal of financial tools and the resources commensurate to the depth of the problem." In other words, the government will use its tools of taxing, borrowing, and printing money to do whatever it takes to force banks to... to do what, exactly? What defines success of the program?

Well, the government answers that question with another round of empty words that readers are free to pour their own meanings into. "To be successful, we must address the uncertainty, troubled assets and capital constraints of our financial institutions as well as the frozen secondary markets that have been the source of around half of our lending for everything from small business loans to auto loans." This one sentence sounds like the central planners know exactly what they are doing and have grand ideas to spend us all back to prosperity but it also has a lot of meaning missing in it, so it should be looked at piece by piece.

"We must address the uncertainty,..." The uncertainty has been caused by banks extending loans to borrowers who could not pay the money back, and by issuing securities on packages of these loans to investors around the world. The government has done exactly the opposite of what is necessary (liquidating these bad assets) and has instead tried to prop up values or paper over the losses by printing money and trading it for bad assets. It can not keep sacrificing the value of the dollar for the value of bad mortgage assets, as this impoverishes us all and transfers uncertainty of CDO and MBS and ABS values to the value of the nation's currency itself.

"...troubled assets..." This is what the Troubled Assets Relief Program was supposed to be about -- not the Financial Stability Plan. But half of the TARP money was simply handed out to the banks with no accountability or tracking of what the funds were spent on. Of course, the original idea of having the US government buy up bad assets in exchange for newly printed money was just as bad of an idea.

Furthermore, if by troubled assets, the government means propping up the housing market, this is another mistake. Home prices rocketed upwards by double-digit percentages for years and money was so easy that even people without jobs could qualify for mortgages. The banks and government artificially pumped real estate markets full of easy money in order to score easy profits and easy property tax increases. But it was an illusion, and prices will now have to fall for buyers to be able to purchase homes at affordable prices.

"...and capital constraints of our financial institutions..." Financial institutions and the government are the two parties most responsible for the erosion of capital production in the country. People work for corporations. Corporations pay people for their work. People deposit their pay with the big banks. Big banks offer corporations loans to relocate jobs overseas. People finance their own joblessness. Governments put all of the pieces in place to facilitate this system by keeping taxes high in this country and lowering interest rates artificially to make moving overseas more profitable to corporations.

"...as well as the frozen secondary markets that have been the source of around half of our lending for everything from small business loans to auto loans." The problem, of course, is that Americans already have too many loans and need to pay some of them off before they can more out. People will need to stop spending on their credit cards and begin saving again in order to facilitate a real economic recovery. The government's idea that simply printing more money so we can borrow it and spend it and be rich is ludicrous. Also, credit markets are not frozen for people and businesses that have the ability to pay back their loans.

These are just the first two paragraphs of the fact sheet for the Financial Stability Plan, and paragraph #3 is just as loaded with vacuous inanities. This blog will look at the actual pieces of the plan over the next few days, although much of it is just as vague and nondescript as these sections have been. Once again, high-sounding fancy language is being used to cover up the government's stunning lack of any real plan and as an excuse to take more money from Americans to hand over to banks and corporations. Or, as the government puts it, "bringing the full force and full range of financial tools available to cleaning up lingering problems in our banking system, opening up credit and beginning the process of financial recovery."

Citation

Kritzer, Adam. (2009, February 10). Is the Fed Hurting the Dollar in the Long-Term. CurrencyTrading.net. http://www.currencytrading.net/2009/is-the-fed-hurting-the-dollar-in-the-long-term/

Purpose

The purpose of this article was to examine how recent Federal Reserve and US Treasury Department actions to stimulate the economy may have an impact on the long-term value of the US dollar.

Summary

Due to the severe downturn in the US economy, policymakers and analysts have taken to debating the efficacy of various programs the government has created to address the crisis. However, these debates have focused on short-term goals, such as stimulating the economy, improving credit flow to businesses and consumers, creating jobs, and increasing benefits to those out of work. The long-term effects of these programs and stimulus packages on the value of the US dollar is a topic that has not been addressed nearly as much.

In fact, since the crisis began, the Federal Reserve has been inflating the money supply by creating various new programs, discount windows, action facilities, and buying mortgage backed securities. But these have not stimulated spending, as consumers are saving more, creating the threat of deflation. Growing the money supply while confidence is being lost in the dollar may lead to a complete collapse of the currency and an inflationary depression.

Foreign countries, of course, have noticed the actions that the Fed and the Treasury have taken and have begun to shift away from the dollar as reserve currency of the world. While the dollar still remains the reserve, holdings of Euros have increased, and some countries that pegged their own currencies to the dollar have abandoned that peg as being too costly. China has also decreased the amount of dollars that it holds from 70% to 45% of its total reserves.

Conclusions

Essentially, the US government is relying on an assumption that creating vast sums of new money will not lead to large increases in prices down the line. The stimulus packages and attempts to paper over losses at banks, it is hoped, will have some other result than inflation or hyperinflation. Through low interest rate policies, the Fed is also hoping that it can fight deflation and encourage consumers and businesses to begin borrowing money and spending again. But this devaluation of the dollar in order to save the US economy may have grave impacts on the role of the dollar as reserve currency of the world. Other countries are already looking for a replacement for the dollar, or at least additional options to hedge their bets against the US defaulting on its debt and the destruction of the dollar.

Implications

Can the government really expect to create trillions of dollars of new money and expect inflation not to increase over the long term? Can the government borrow trillions more dollars from the rest of the world and not be expected to default on that debt sometime through a national bankruptcy or hyperinflation? Only time will tell, but this may be a case of "to ask the question is to answer it." The US Treasury and the Federal Reserve are furiously creating programs to bail out nearly every actor in the market, including banks, industries, insurance companies, borrowers, and consumers. This vast money creation will have to lead to higher taxes or inflation in the future. Kicking the economic can down the road for decades got the US economy to where it is now -- kicking it a little further will only increase the likelihood of depression as the economy collapses and hyperinflation as the dollar is destroyed.

In some rare cases, although they are becoming more common as the financial sector continues melting down, a credit card company may not sell a defaulted debt to a collection agency. Instead, it may initiate a lawsuit against a borrower directly and attempt to get a default judgment and begin garnishing wages, attaching liens to property, or collecting on the debt in any other ways that the law allows.

Previously, this was an unheard of tactic for credit card companies to use against debtors. After all, the debt was unsecured and usually only for a few thousand dollars -- less than a drop in the bucket for many banks. Hiring local attorneys to sue borrowers would usually cost more than the company was ever going to collect on the debt, so credit card companies simply wrote off the loan on their taxes and sold it for pennies on the dollars to a collection agency to pursue.

In recent years, though, state legislatures have made it easier for borrowers to be sued, have their property stolen, and even be put in prison if they are unwilling to cooperate with the civil lawsuit. Debtors who miss a court date may have a "bench warrant" or a "writ of attachment" put out for their arrest. County sheriffs deputies are then able to invade the person's home or place of business and arrest them on site. They will either be held until the next court date or have to pay a cash bond of up to several thousand dollars.

Obviously, in many states, the banks' appointed officials have overpowered the peoples' elected officials. So, it is in the best interests of borrowers to defend against such tactics, legal and fascistic as they may be. Thankfully, this site and others can help prepare borrowers for what to do when they are served with a summons for a credit card lawsuit from an original creditor and how to answer the complaint. And even more promising is the fact that few lawsuits for unsecured debts are paid in full by borrowers, as long as they show up at the hearings.

Responding to the Summons

Responding to a complaint by a credit card company can be remarkable similar to responding to a foreclosure lawsuit. Debtors can immediately request more time by filing a Motion for Extension of Time, which will put the lawsuit on hold by an additional thirty days or so. This gives the borrowers more time to research the issues and prepare their answer.

But if the lender has violated certain laws or failed to follow the correct court procedures, debtors may be able to have the lawsuit dismissed without filing an answer. Especially depending on notice requirements for such a lawsuit and the bank's failure to attach the original contract to the complaint, it may be worth filing a Motion to Dismiss the case based on these procedural failures. Just as when homeowners in foreclosure request the bank to "produce the note," people being sued by credit card agencies can do the same.

Homeowners who have exhausted the possibilities on a Motion to Dismiss, though, will then have to file their answer to the summons and complaint. The best way to do this is to research the federal laws, beginning with the Fair Credit Reporting Act (FCRA). This act dictates how the bank can report negative information to the credit bureaus about accounts, and every violation of the Act can cost the bank $1,000. Borrowers have every incentive to research this law and pick out all of the relevant violations. Since these lending laws are almost impossible for creditors to follow, there will always be some violations.

Most of the time, simply by filing a Motion to Dismiss and then filing an answer to the complaint, borrowers can force the bank to accept kind of payment plan or settlement. Especially if there are enough violations of the FCRA or other laws that it would eliminate most of the lender's debt anyway, it is in their best interests to end the lawsuit and settle. It is especially costly for creditors to sue people in court for unsecured debts, because the longer the case goes on, the more it is costing in attorney fees and banks often collect very little from borrowers on such defaulted credit card debts. They can also be discharged in Chapter 7 bankruptcy quite easily.

Debtors can also request the courts offer some sort of negotiation or arbitration between them and the original creditors. A judge can order the parties try and work out a deal to avoid further legal battles, and if the terms are agreeable to both parties, the lawsuit will be put on hold. Borrowers will have an opportunity to pay back a portion of what they owe and creditors will not be able to continue pursuing the lawsuit in court.

Very few cases involving foreclosure, collection agencies, or credit card companies ever go all the way to trial. The banks and borrowers almost always work out an agreement for less than the total amount the bank is requesting in its lawsuit, and debtors are happy to pay off a little bit to get the lawsuit out of the way. But even if the case does go to trial, homeowners can be prepared to defend their side of the story by researching what laws and procedures the bank has violated that voids its claims against the borrowers or at least offsets them severely.

Did the Bank Even Lend Any Money

One defense to a lawsuit brought by the original credit card company is worth mentioning here. It involves the so-called Jerome Daly defense, which argues that, because the bank creates the money for every credit card transaction out of thin air, there is no valid contract. For a contract to be valid, each party much put up some sort of consideration. Banks creating money out of nothing to make borrowers incur a debt does not count. Including this argument in the answer to the complaint may not work, depending on the judge, but it can always be included in a Motion to Dismiss the case.

Watching all of the coverage of the latest economic stimulus on television, one question comes to my mind repeatedly. Has the government been holding out on us all? After all, if the point of the spending bill is to get the economy going again, create jobs, put people back to work, save the environment, and get credit markets unfrozen, then the government has a lot of explaining to do about why its previous packages failed.

The new stimulus will provide nearly $800 billion for the president to spend on a variety of projects, plus a number of tax cuts. Will this be the magic $800 billion that saves the economy, despite the already nearly $8 trillion that the Federal Reserve, Treasury, FDIC, and other government agencies have spent or provided to the banking, insurance, and auto industries?

It always seems like "this next package" from the politicians is what will get the economy moving again. But there is never any acknowledgment of the failures of previous plans. Stopping foreclosures is another of this plan's goals, yet every program the government has put in place to address the foreclosure rate has failed. Hope Now, Project Lifeline, the Hope for Homeowners Act -- none has yet put more than a couple of band-aids on a ruptured artery.

But over and over again, Americans are promised that, by simply stealing more of their money through borrowing and inflation, the government can put them back to work, create new green jobs, save the planet, and lower taxes. The magic wand that will create all this wonderfulness out of a corrupt economy fueled by easy government credit is, of course, the printing press. Trillions of dollars have already been created, and trillions more are on the way.

While the $800 billion stimulus bill is not the beginning, it is also not the end of the government interventions in the marketplace. The wrong regulations set up the housing market to fail, and now new regulations will prevent the entire economy from recovering. On top of that, we will all have to pay our share of the numerous bailouts of industries that are failing for very valid reasons -- they are out of money, out of customers, and out of trust.

Creating $8 trillion in the space of a year, with nothing but more spending planned for the future, will result in only more problems for the economy. Instead of causing the next Great Depression, where money was tight and unemployment high, the government is setting us up for a far worse fate: an inflationary depression, where unemployment is high but prices keep rising anyway. After doing its current duty of covering up losses at financial institutions and other industries, all of the newly created money will eventually find its way into the market and drive up prices.

Now is the time for Americans to begin saving more, paying down debt, and reducing consumption. But these actions are exactly what the government is preventing from happening. A reduction in consumption may cause some companies to go out of business. However, businesses need savings in order to increase production, and both the savings rate and the industrial base in the country have been decimated over the past decades.

If the government does not allow the correction to occur, the current recession may continue for years. The government can not stop foreclosure, save the planet, or create lasting jobs for a large segment of the country. All it can do is redistribute money from successful businesses to failed ones, destroy the currency, and encourage the exact opposite of what is needed to get the economy working again. Unfortunately, destroying what is left of the economy seems to be exactly what the politicians are trying to do.

Question
I just read your useful article on taking appliances after a foreclosure. I have a question regarding your statement:

Fixtures can only be taken, but only if they are replaced with substitute items.

You said you can replace taken items with lower-end models, however, a lawyer stated that it should at least be a model that is as good as the model that would have came in the standard package. Which do you know to be fact?

Answer
It depends what the lawyer means by "standard package." That would depend on the type of fixture you and him are discussing.

Most people will want to remove a fixture because it has sentimental value or because it is brand new and better than what their new place to live has.

For example, if you have special doorknobs that have been in your family for generations, then you can replace them with lower quality knobs. The "standard" ones you could get at a Home Depot would work. You don't have to replace them with different "standard" quality ornamental antique knobs just to be able to take yours. Same with a fan, chandelier, or anything else.

Or, if you just bought a new high-end oven and you want to take it with you, you can replace it with the old oven or a lower-end oven. But just leaving the pipes and connections with nothing connected to it would not be allowed.

Unfortunately, I don't know exactly what type of fixture you and the lawyer are referring to, so it's hard to make an informed judgment. But any working lower end model that you get at a home improvement store or even buy slightly used from somewhere can usually replace a fixture you want to take with you.

One of the major problems with media outlets offering advice to homeowners on how best to face a foreclosure is that they will often recommend hiring an attorney. For most homeowners facing the loss of a job or excessive medical bills, this is simply impossible. But what is rarely mentioned is how many families are able to save their homes without the help of an attorney or with only a minor consultation from one.

Winning a foreclosure case in court may require the use of an attorney or an amount of dedication to legal research that most homeowners can not spare the time to engage in. However, this is often not a goal of many borrowers, who would just like to modify their loan, sell the house, In fact, most of the common solutions to foreclosure can be negotiated by homeowners on their own or with the use of a foreclosure assistance company. While many of these companies are run by lawyers or at least affiliated with one, they can be much more effective and cost less. This is because the borrowers pay for the professional research, consultation, and actions performed by the company, but do not pay for an actual attorney to represent them in court.

Even in the case of filing bankruptcy to stop foreclosure or to discharge debts, the use of an attorney may not be justified. Federal bankruptcy forms are available online and include instructions that make it very easy for people to file their own bankruptcy. As long as they are honest about their assets and debts, and do not try to hide anything from the courts, it can be surprisingly easy to eliminate old debts.

While getting an initial free consultation with an attorney to discuss possible ways to stop foreclosure may be a good idea for many homeowners, a better one may be to research options on their own. Especially attorneys who specialize in only one area of the law may recommend one method over another and borrowers will not know all of the possible ways they might be able to save their homes. Just like with any company offering foreclosure assistance services, independent research by homeowners will protect them from entering into a plan that is in the best interests of the company or attorney but will only harm the owners.

Question
I am in a situation where I might be able to continue making my first mortgage payment but not my second. I did live in the house before moving and it is my only house.

I rent out the house, that is how I am able to pay the first. The second is totally unsecured at this point. The only asset I have is my wages. I'm thinking of continuing to pay the first as long as possible and see what happens with the second.

I would like to keep the house but I'm also not emotionally attached to it. It would be easy for me to make a business decision about it and stop paying if it gets to the point where I can't afford it anymore (like if the renters don't renew their contract).

I don't have any other debts but I'm thinking that I might file for bankruptcy to protect myself in the future. I have no assets and I barely make it paycheck to paycheck.

Do you think I should cut my losses and file for bankruptcy? Or should I keep current with the first as long as possible?

Answer
If I was in your situation, here's how I would look at the two choices -- paying the mortgage or filing bankruptcy.

If I could afford to keep paying the house, all my other bills, and fund a savings plan, and I cared about my credit, then I would keep paying on the house. I would list it for sale, hoping for a short sale, but wouldn't count on that. If I didn't care about all that, I would probably just stop paying and let the house go into foreclosure. I'd let the tenants know that I couldn't afford the house anymore and let them either keep living there for free or let them break the lease early and move out when they found something else.

Once the house went into foreclosure, I would do everything I could to get the two mortgage companies to agree not to sue. I would try to get the second mortgage to settle for even just a few thousand dollars (paid through a monthly payment plan), and then fight the first bank's foreclosure process by attempting to delay it in court for as long as possible. In the meantime, if I could delay it, I would try to work with the first mortgage company for a deed in lieu of foreclosure with no possibility of deficiency judgment.

If none of that worked and the first foreclosed and the second sold the debt, I would let the house go and just wait. Since all I have is my wages and no other assets, I figure the banks would not even bother selling the debt or going after a deficiency judgment. If, on the outside chance they did try to sue me, I would file Chapter 7 bankruptcy. Since I live paycheck to paycheck, my income is under the median for the state, so I can't be forced into a Chapter 13 payment plan. I would have the debts discharged and all my nonexistent assets would still be mine.

That's what my gameplan would be for that situation. Some may say that potentially having a foreclosure and bankruptcy on your credit would be the worst outcome. However, banks rarely sue for deficiency judgments, so filing bankruptcy may not ever be necessary. And the use of credit is somewhat overrated anyway. Credit cards are a death trap, and people with a foreclosure on their history can qualify for a mortgage 2-3 years after losing the home, as long as they have a down payment for the house.

What is your background and your company's experience in foreclosures?
My background is in the real estate, mortgage, securities, insurance, and financial planning industries. I have held licenses with state real estate regulators, insurance regulators, and mortgage banking divisions. I have also been licensed through the federal government in securities. All my licenses have been in good standing, with never a complaint, warning, or other negative mark. My education background is in the same areas.

All of the employees of our company have similar backgrounds, and we work with attorneys who specialize in real estate, contract, bankruptcy, and other areas of the law that would relate to foreclosures (licensing law, lending law, etc.).

How can you stop a sheriff sale?
There are several ways to stop a sheriff sale. The easiest is to call the bank and request a postponement because you are working on another solution. Put your request in writing, ask the bank for a fax number, and send the request. It is deceptively simple, but banks will most often just delay the sale for an extra 30 days.

Or, you can fight the foreclosure in court. If there is already a judgment for the foreclosure, you might want to hire an attorney to get the case reopened in the county courts. If you are in a nonjudicial state, you can just file a lawsuit against the bank for a temporary restraining order until there is a hearing to determine if the bank's case for foreclosure is unwarranted. Then you can get a preliminary injunction, which will stop the sale until the courts rule on the case.

Third, filing bankruptcy immediately stops any foreclosure proceedings. The automatic stay in a bankruptcy prohibits banks from collection activities, and a sheriff sale is a collection activity. You can file just a few hours before the auction, and the foreclosure sale will have to be called off or reversed. Bankruptcy puts the matter into federal court, and the bank can not use the local courts to take your house.

If a borrower defaults on a loan modification, does the bank have to start the foreclosure process all over again?
If the bank modified a loan in 2007, and you fall behind in payments again now, the bank should have to begin foreclosure proceedings all over again. Unless there was some order from the court simply putting the process on "hold," all of the requirements will have to be met again. What the bank has to do to foreclose depends on state law, but they can not just schedule a sheriff sale date if the borrowers fall behind for a month or two on a modification.

Often, I get questions sent to me by the readers of this blog, and my usual habit is to fire off an email and answer the questions. But over time, I am beginning to realize that some of the same questions are being asked, which leads me to believe that, if one person takes the time to write an email and ask, other homeowners may be wondering about the same things.

So, in a new feature here, I will be posting the answers to questions I am emailed on this blog. Of course, if borrowers send information about their specific situations, that will be kept confidential. But if you have any question about the content of this blog or any of the individual posts, please do not hesitate to send an email, and I will do my best to get back to you as quickly as possible. Also, if you have any ideas for future posts, send them and I will put up a blog for you.

Are you a lawyer?
I am not a lawyer myself, but many of our blog posts come from either the attorneys on staff or other legal sources. Much of our time here is spent researching legal issues about foreclosure and credit, and take pride in our series on introducing homeowners on how to defend themselves against foreclosure -- a work heavily inspired by legal sources and lawyers. We also work with or have affiliations with several different types of attorneys (real estate, contract, bankruptcy, and so on).

Are you affiliated with The Debt Advocacy Center?
Our website is affiliated with the Debt Advocacy Center, which you can read more about on our site or by visiting their site directly. In a nutshell, they will research your mortgage and loan transactions to determine which lending laws the bank, mortgage broker, title company, or other parties have violated. Instead of fighting you in court for years, the bank will be more willing to offer you a mortgage modification.

Do you help people on an individual basis?
We do help people on an individual basis. If you have general questions, you can search our blog or website, or just email them to us and we will track down the answers and get back to you. For specific questions, you may want to call the Debt Advocacy Center directly, as they can help you with your particular situation. Every foreclosure situation is unique, with different chains of ownership of the note and various procedures followed by all of the parties involved in a mortgage transaction.