Banks are beginning to rely more and more on a unique method of bribing homeowners to leave a foreclosed property without causing damage to the house. For a few thousand dollars, banks attempt to persuade foreclosure victims to leave the house without having to be evicted, and without ripping out any of the fixtures or making the house unlivable. Homeowners with no other option to save their home may wish to consider this offer from the bank, which is called a cash for keys offer.

Local real estate agents or home inspectors are often the representatives that the banks hire to provide these kinds of offers to homeowners. They are not directly affiliated with the mortgage companies, and are not working for the owners, so they are inserted into the foreclosure process as a third-party which can help negotiate a deal. The homeowners will receive a small sum of money, which they can use for moving expenses or a security deposit on a new apartment or rental home, while the bank gets the property free of any undue damage or theft.

Banks are beginning to offer more of these kinds of deals in response to the "buyer's revenge" syndrome that some foreclosure victims engage in before being kicked out of a house. By the time the sheriff gets into the house and the bank has the locks changed, the former owners may have taken all the appliances, stripped the copper pipes to sell for scrap, damaged walls, dumped hazardous materials on the floors, ripped up carpets, or let pets and animals into the house to cause even more damage. Obviously, homes in this condition are nearly unsaleable, and will have to be listed on the market with the severe defects taken into account in the asking price.

Thus, banks have realized that it costs them more in lost sales revenue than it does simply to bribe the homeowners into leaving with no extra troubles. Houses in many markets will sit for months unoccupied, which will contribute to the deterioration of the building, even without extra destruction caused by soon to be evicted former homeowners. If the banks can put a few thousand dollars into the pockets of foreclosure victims in return for a house in as good of condition as possible, then all of the parties will benefit even slightly.

Destruction to a home after failing to stop foreclosure will not help the former owners or the bank. Homeowners are usually protected against the consequences of their actions, though, because banks rarely sue for the damage caused to the house. They know that foreclosure victims will not be able to pay off the judgments anyway, and they are finding that it costs less to offer a cash for keys deal to attempt to prevent any extra damage to their new REO property.

Of course, knowing that banks do not want damaged houses, homeowners are able to negotiate for a higher payout to leave the property in good condition. While most banks will offer a few hundred dollars, other pay more than a couple thousand to ensure that the home will be left undamaged. Obviously, homeowners should not be engaging in blackmail to the banks in order to get more money to leave, but a fair cash for keys deal can benefit both the banks and the owners. Pursuing the eviction process can be expensive and time-consuming; both banks and homeowners have something the other can bargain for. Banks want a clean property, and homeowners want an incentive not to take out their frustration on a property that is no longer theirs.

Recently, the local government in Philadelphia, Pennsylvania has made the decision to suspend sheriff sales of foreclosed properties. No more foreclosure auctions will be conducted for homeowners who have adjustable rate, subprime mortgages, and the suspension will last all through the month of April. This remarkable measure may provide relief to thousands of homeowners, and is one of the very small victories for individuals in the foreclosure crisis.

From Ohio judges throwing foreclosure lawsuits out of court to this latest suspension of sheriff sales, local governments have been able to act much more forcefully to combat the rising foreclosures than the federal government. Anyway, no one can really tell which companies, hedge funds, investors, or banks own the paperwork and have the legal right to collect on the loan. The marketing of subprime loans was just a scheme to generate as much money as possible in loan origination fees and sell toxic loans to investors. This has been accomplished and now the fallout must be dealt with.

But banks are getting their bailout courtesy of the American public, through generous loans and packages provided by the Federal Reserve. It seems that it is only just for people, through their community leaders, to come up with their own solutions. In fact, maybe the entire foreclosure crisis will reach some sort of perverse equilibrium with the Fed stealing money from the public to bail out the banks, creating massive inflation and taking the banking industry completely away from all government regulation, while homeowners find ways to void out their mortgage contracts completely and suspend the auctioning of their properties and the financial destruction of their communities.

Another question that should be raised is if the banks are suffering any actual damages from the foreclosing mortgages. They are receiving hundreds of billions of dollars from the Federal Reserve, which essentially pays off many of these mortgages. So where is their standing to sue? The people who pay taxes have already paid off the defaulted mortgages through the Fed's granting of US Treasury securities to the banks. If the banks no longer own the mortgages, and have had them paid off nonetheless, it would seem they have little reason to keep going after homeowners to steal properties.

Ending the incessant whining about subprime mortgages going bad and the danger of the survival of the banking industry, though, would mean the banks would not be able to ask for more bailouts. The banks already made a killing on the way up by packaging what they knew were bad loans and selling them to unsuspecting investors, who were fooled by the bond-rating agencies into purchasing what they believed were prime-rated securities. Now that the loans are going bad, the banks' reserves are drying up (on paper), so they need generous loans and free money from the Fed to ensure that they can make more money on the resulting crash of the market.

The people of Philadelphia, by suspending foreclosure auctions, may be on to something important. Hopefully, the suspension will last longer than just one month and the banks will have no choice but to deal with homeowners as negotiating partners, rather than as hosts for their parasitic lending practices. The banks have put themselves into a situation where the only logical reaction for local governments is to realize the invalidity of the mortgage loans. With the decrease in property taxes to local governments, the banks' ability to manipulate local communities into allowing invalid foreclosure lawsuits to go forward may also be evaporating.

More people every day seem to be confused about the foreclosure help programs being proposed by politicians in Washington. Any economic help provided to homeowners will not be able to keep up with the subsidies being provided right now to the banks without increasing the problem of inflation. But the propaganda has been effective thus far in tricking most of the public into believing that a solution is just around the corner and the people suffering from foreclosure will benefit. This line of thinking confuses families in foreclosure with the banks who took advantage of these people.

The government, through the Federal Reserve (or is it the Federal Reserve, with the blessing of the government), is helping the banking system by giving financial institutions below-market interest rates loans. Just last week, another $200 billion was made available to banks so that they can trade in bad mortgage debt in return for US Treasury securities. With increased reserves and fewer bad debts dragging down the banks' balance sheets, they can keep lending money out of thin air.

Making Treasury securities available in exchange for defaulted mortgage loans effectively means that the banks have absolutely no reason to work with homeowners to put together options to stop foreclosure. The lenders know they can just hide the foreclosing loans later on and get free money to bail them out from the government. So there is no reason for the banks to spend any of that free money on helping homeowners save their homes from foreclosure, and there is no reason to make any better decisions in lending policies.

There has been a lot of talk in the media and from politicians about helping the homeowners, but nothing substantial has been done in over half a year of discussions. The HOPE NOW and Project Lifeline programs involve only a handful of the largest lenders in the country, and the programs are voluntary for the banks to participate in. Also, they do not offer any solutions that banks could not offer in the first place, making them completely public relations schemes.

So, the banks have all the low and no interest rate loans they can handle, which came care of the Federal Reserve and US Treasury Department. Another related issue not being discussed is that easy credit and low interest rates created the housing bubble in the first place. More low rates and easy credit will only exacerbate the problem. Thus, the Fed is just doing whatever it can to create another bubble somewhere in the economy to bail the banks out of this current bubble's collapse.

Homeowners seeking help to stop foreclosure on their homes should not look to what the politicians in Washington are talking about. Far more enlightening (and disturbing) is to look at what they do. They talk about helping families in foreclosure (even proposing funds of $30 billion), while freely giving out hundreds of billions of dollars directly to the banks. Maybe $30 billion for 300 million Americans; over $200 billion and counting for a handful of the largest banks. Who benefits from this?

Even after setting up a payment plan or modifying the terms of a loan to avoid foreclosure, some homeowners keep receiving post cards and letters from attorneys and other companies. These often include sales pitches threatening them with foreclosure, sheriff sale, and eviction, but offer various services to save the home. It may be quite confusing for homeowners as to why they keep receiving such letters, because they believe they have worked out a solution to foreclosure.

However, there are three main reasons why these letters may keep coming. Two of them are most likely not a big deal, but the third should give the foreclosure victims a strong reason to contact the courts or local sheriff's office for more assistance. More than likely, though, the reason for the continuing letters offering foreclosure services will be one of the first two, making their appearances relatively unimportant, although they may be somewhat irritating reminders of the foreclosure experience.

1. In most cases of foreclosure, working out a repayment plan does not actually end the foreclosure process -- it just puts it on hold until the owners pay back the amounts they have fallen behind. They are still behind in the mortgage and in foreclosure until the loan is completely reinstated. Of course, many workout solutions may take months to complete, so the owners will keep receiving mail for quite a while.

   The lender may be keeping their lawyers on retainer and not informed them that there is a solution that has been worked out and approved for the short term. Lawyers are also not very efficient and may just keep sending the foreclosure victims the same collection letters threatening foreclosure until the homeowners are completely paid back in the defaulted amount over the term of the workout plan.

2. The homeowners may be getting letters from foreclosure help companies and attorneys offering their services to help them save their home. In this case, these companies are not affiliated with the mortgage company or its attorneys, but are offering their own third-party assistance programs. Most of these companies get their property and homeowner information from public records, which may not be updated once the property is out of foreclosure.

   These foreclosure services companies would not know if the owners have put the process on hold with a forbearance agreement, so the owners will remain on their mailing lists. Thus, it should not be too surprising that they will receive mail offering foreclosure help for quite a while. This, however, does not actually affect any of the negotiations with the mortgage company.

3. The lender is lying to the homeowners, their house is scheduled for auction, and they are just keeping the owners' workout plan payments to get as much money as possible out of them before selling the house. In this case, the foreclosure victims should call the county courthouse or sheriff's department to find out if their house is scheduled for a county auction.

   But this possibility would be more easy to tell, because the bank and its own lawyers would send out information relating to the foreclosure lawsuit or sheriff sale. Other companies offering help would also send out information, but the lender itself would also be attempting to continue to collect and threaten the sale of the home at auction.

Homeowners in foreclosure are almost guaranteed to keep receiving mail long after they have found a solution to stop foreclosure. If the letters and postcards comes from the bank's lawyers, it may be due to the fact that the workout plan has only put the foreclosure process on hold. Mail from foreclosure assistance companies indicates there is a good chance their information gathered from public records data is out of date. But if the lender itself keeps threatening to auction the house and has set a date for it, the homeowners should get clarification of the true status of their home so that it is not sold out from under them while they are making payments on a plan they believed would save their home.

The foreclosure crisis raging across the country is beginning to have an effect on governments at the local and state levels. Declines in property values and more abandoned homes will lead to a decrease in the tax base that cities and counties depend on to say in business. Local governments in some areas are already facing insolvency due to high foreclosure rates and a dollar that is losing value by the week.

With decreased tax revenue, some of the wasteful increases in government over the past decade may have to come to an end. Local governments rode the upside of the housing bubble, increasing property taxes and issuing municipal bonds to fund new developments, like subsidies for strip malls and Wal-Marts. And as long as property values were increasing, homeowners and people moving into the area were more willing to pay a premium for living in highly-desired neighborhoods and watching their home equity increase every year.

The collapse of the real estate market has hit local governments even harder than it has hit the banks, who can rely on Federal Reserve bailouts to get them through the credit crunch. But now the local governments that made the most generous donations to big business at the expense of the people are experiencing a flight of homeowners out of communities. They either go rent, which does not help increase property tax revenue, or they move out of the expensive community entirely.

And now their houses are sitting abandoned, owned by the lenders who gave out loans for properties that were worth far less than how much was owed on them. Even a minor number of properties in this condition, vandalized and empty, can drag down the quality of a neighborhood, reducing home values. Squatters may move in, creating crack houses of once-desirable McMansions, and local crime rates may increase even as revenue to pay for police departments is falling.

There are many solutions that could be proposed on the local level to help homeowners in communities stop foreclosure to avoid creating ghost towns in suburbia. Cutting waste, reducing tax burdens on homeowners, eliminating subsidies to businesses, or instituting local currencies to facilitate more trade could all help keep the noose from closing around whole cities. But many local governments have only proposed increasing the size of government further, by instituting local and state commissions and hotlines offering foreclosure advice.

Eventually, in some communities the worst may happen and the local institutions of government may fail. Governments will not take in enough in property taxes to keep operating at such high levels, and simply pulling over more people to hand out speeding tickets will not make up for a great loss of income. When there is a danger that governments won't be able to pay their workers, there will be far fewer services and even the danger of some governments facing bankruptcy in paying back their own debts to banks and the government.

A well-known index of home prices in the country indicates that property values fell over 10% in January in both large metropolitan areas and in wider geographic areas. This obviously indicates a worsening foreclosure crisis, and homeowners may no longer have enough equity to refinance or sell their homes outright. Many of them may be completely underwater by ten or hundreds of thousands of dollars.

The banks, too, are worried about this, because homeowners who feel they have nothing to lose by walking away will be much less inclined to try to stop foreclosure. Many people simply feel that it is not worth the effort to negotiate with a mortgage company to be able to keep paying a mortgage for a property that is increasingly worthless. In this real estate environment, selling at a short sale can help both the banks and owners unload a property and receive a fair price, and avoid taking the mortgage through foreclosure and having it sit on the open market for months.

Especially for homeowners who are worried about their finances, or are already feeling the effects of the recession, a short sale may allow them to avoid foreclosure very quickly. For the right price, many investors can put in an offer on the house within a few weeks, and the lender may be willing to put their foreclosure on hold while the sales process is pursued. Not all lenders allow short sales, but many of them are now willing to consider offers, because they know how overvalued properties were and getting anything to pay the loan is better than nothing.

The main benefit of the short sale is that it allows a sale of a house for its current market value or less, which may be far less than what the homeowners owe on the mortgage. The sales price can be negotiated between the buyer, seller, and lender, all of whom are interested in avoiding foreclosure and getting the most out of the deal. Many investors are expert at influencing the bank's estimate of the value, and will attempt to negotiate for as low a sales price as possible, which helps the homeowners because they will be able to sell to an interested party for a price that reflects reality.

The short sale can also be completed fairly quickly, compared to listing the house for what is owed on the mortgage and waiting months or years for local real estate markets recover. Once the homeowners have an offer, they can submit it to the bank and request that the foreclosure process be put on hold. The lender is often willing to do this, if it seems there is a reasonable chance they will get the mortgage paid off and avoid foreclosing on the house.

Benefits of a short sale far outweigh any potential drawbacks, especially in circumstances where the owners of a property owe more than their home is worth. Banks know that they would never be able to make up the entire amount of the mortgage if the property was taken all the way through foreclosure, so they are also more willing to negotiate a reasonable price when markets are declining. Although selling at a short sale does not directly save the home and allow the owners to continue living there, it can give the owners another option to stop foreclosure and deal with a significant loss or lack of equity.

There have been numerous calls from politicians and interest groups about how to help homeowners in foreclosure. Far too many of their proposals, though, involve providing direct subsidies to foreclosure victims, in the form of money from the government. The government, however, should not "supply money" to anyone, whether they are facing foreclosure or not.

The key question is where does the government get the money to give away to people or businesses? It gets it through one of three methods, taxes, borrowing, or inflation. None of these options, though, involve the government actually producing anything of value or creating more wealth that can be spread around the economy.

The first option government has is to tax people, which takes money from homeowners struggling to make their mortgage payments. Second, it can borrow money from investors or foreign economies, increasing the amount of tax money that is spent on interest payments and pushing the problem of paying back the debt onto future generations. The third option is for government to print the money out of thin air, which causes inflation by diluting the money supply and will lead to increased prices for goods and services.

Government does not produce anything tangible, so it can not create wealth out of nothing for people who need more money to meet their own obligations. Government can only provide money to one group by stealing from another group, borrowing money and stealing from future generations, or stealing from all of the people by inflating the supply of money. Any of these actions may hurt more people than help homeowners facing foreclosure.

But the government also should not supply money to the banks that are in trouble from the foreclosures, either. That is what the government has been doing for over half a year now, while it has been "debating" what to do with homeowners in foreclosure. From tens of billions of dollars in direct "liquidity injections" to hundreds of billions of dollars available to trade in bad mortgage debt for US Treasury securities, the banks have been given generous donations care of the American people to get them through the credit crisis.

But all the government and its rulers at the Federal Reserve have done is give the banks inflated money and talk about giving inflated money to homeowners. Neither is a long-term solution and may lead to dangers like bank failures, a collapse in confidence in the dollar, or increasing inflation. Providing corporate welfare is all the government has done so far to address the foreclosure crisis, and it has not helped any homeowners keep on top of their mortgages.

The banks may be able to get rid of this bad debt by giving it to the Fed, but that just hides it away. The bad debt becomes the backing for the American currency through a not-so-clever trick. The people in foreclosure are still suffering -- but now the government has hidden away their loans so that the banks don't have to report the bad debt and they do not look like they are in such trouble anymore. Of course, the banks are still in trouble, and homeowners are still suffering, but there is a perception that it is not quite as bad anymore as it was a few months ago.

Possibly the worst aspect of subsidies to the banking industry will be that this gives the banks the incentive to do absolutely nothing to help homeowners stop foreclosure, since they can count on future bailouts when property values decline further and more mortgages go into default. But the lenders end up with free money from the Fed, they keep up the appearance of solvency, and they steal properties away from people.

The following article should probably be considered for educational or entertainment purposes only. It is rare to find such a knowledgeable judge working for government that puts the interest of the individual over the financial interests of the banks and their system of credit and money creation. Homeowners facing foreclosure should absolutely be aware of this case and the arguments, but taking any of this as actual legal advice should be warned against.

I first stumbled across the very curious case of Jerome Daly through an article by Ellen Brown, author of the book Web of Debt. It concerns a foreclosure case in Minnesota in 1968 that has yet to be overturned, and the issues go straight to the heart of the sleight of hand that the banking system is built upon. The case also presents an optimistic view of how individuals can take back the power to create money from the private banks.

Jerome Daly was a homeowner living in Minnesota who stopped paying his mortgage. The lender, First National Bank of Montgomery, of course, sued the man for foreclosure. Daly presented his argument before a jury as to why he did not owe the bank anything.

Essentially, he argued that the bank had not provided any consideration for Daly's promise to pay back the loan. Consideration is one of the requirements for a valid contract, and without it, a contract is void. Daly was arguing that the mortgage contract was void and did not need to be repaid because the bank had not actually given him any money. The lender had created the money out of thin air in response to the promise to repay the loan.

This credit, argued Daly, was not real money that counted as consideration and therefore did not need to be paid back. Without valid consideration, the mortgage contract was null and void and nothing was owed to the bank. Astoundingly enough, the jury agreed with him and declared that the mortgage was not a valid contract.

The judge and a representative testifying on behalf of the bank also agreed with Daly's argument, in effect. The bank's president, Mr. Morgan, admitted that the money did not exist until Daly was given the mortgage, and the money was created out of thin air.

The judge wrote a supporting decision in the case agreeing with Daly, writing "The money and credit first came into existence when they created it. Mr. Morgan [the bank's president] admitted that no United States Law or Statute existed which gave him the right to do this." Thus, the lending of the money to Daly in the form of a mortgage did not constitute valid consideration. The bank did not even have the authority to create money out of thin air according to any known law or statute.

This case has been suppressed far more than argued against, and it has not been overturned. What this means to homeowners facing foreclosure is that they may not even owe their bank any money, and the lender is trying to take the home to pay an illegal contract. This case is, quite possibly, a get out of debt-jail free card.

But that does not mean that the local judges will allow these kinds of rational arguments in their courtrooms. Just because mortgage contracts can be proven invalid and the lending system a scam does not mean that corrupt judicial systems will allow the truth to be told about the equally-corrupt banking system. Political power and money work hand-in-hand.

Thus, it should not be surprising that people who have used the Daly arguments to protect against foreclosure have not always been successful in finding a court to listen to them. Rubber stamping foreclosure lawsuits generates good money for lawyers in the form of legal fees and for local county courts in the form of filing fees. (Of course, neither of these parties seem to be aware that the money they are helping to steal was created out of thin air itself, and they are selling out fellow human beings to an illusion.)

Homeowners, as I mentioned above, should be aware of this argument, because it shows the banking system to be the scam that it is. Now that so many more homeowners were given bad loans and are losing their houses because of them, will more of them rely on the argument of a void mortgage contract and the unconstitutionality of the monetary system itself? That remains to be seen, but it is a convincing, rational, and very interesting argument that Daly put forth. Even more interesting is that the judge and jury agreed with him.

But, on the less interesting side will always be the corrupt judges, lawyers, and others who benefit from the banking scam. As one of them stated in regards to this issue, "If I let you do that -- you and everyone else -- it would bring the whole system down... I cannot let you go behind the bar of the bank... We are not going behind that curtain!" The "whole system" supports the banks and the government -- why should we expect them to help people defend against unlawful acts and contracts?

For homeowners who file bankruptcy in order to save their homes, there is always a fear of falling behind on the payments and ending up back in foreclosure with their credit scarred even further. But the vast majority of homeowners who do file a Chapter 13 bankruptcy will end up back in foreclosure if they do not work with the right attorney and are not prepared to meet the requirements of the legal payment plan.

The bank, once the homeowners begin missing the mortgage payment, will start to move towards foreclosure, regardless of whether or not the house is included in the bankruptcy filing. The bank's process will not be much different if they are in the Chapter 13 or have not yet filed, seeking other ways to stop foreclosure first. But the details of the bank's pursuit of foreclosure will vary slightly if the house is included in the Chapter 13 or not. That may change how the bank will go about the foreclosure, but not by very much.

If the house is not in the Chapter 13 plan, then the bank will just file the foreclosure lawsuit with the county court, get a sheriff sale date, and attempt to sell the house to pay back the defaulted mortgage. This is pretty much how any bank takes a property from homeowners who are not able to make their payments. The overall structure of how foreclosure works varies from state to state, though, so homeowners should check their state foreclosure laws to find out exactly how long the takes and what options they may have to save the house with or without bankruptcy.

But if the house is included in the Chapter 13, then once the homeowners begin falling behind on payments, the bank will petition the court to have the mortgage dismissed from the bankruptcy plan. This is also known as seeking a release of stay, as the stay is what automatically puts the foreclosure process on hold. If the owners were not making the payments, this would be pretty easy for the bank to accomplish -- the Chapter 13 is designed to give people a chance to make the payments on time and get back on track with missed amounts during the length of the plan. If they fall behind, the creditors can have their debt removed and pursue collection activities again.

In that case, then the mortgage company would begin pursuing the foreclosure process once the automatic stay is released. They still have to follow the state foreclosure laws and county rules in order to take the home. Nothing would change any of that, no matter if the house was ever involved in a bankruptcy or not. Once the house is out of the bankruptcy, the lender will follow the usual process of taking back a property to satisfy a defaulted mortgage.

So, there is just that one extra step of getting the house removed from the bankruptcy payment plan, if the homeowners include the house in their Chapter 13 filing. But in any case of foreclosure, the bank will have to follow the laws that dictate how the foreclosure process will work in a particular state. And to know how much time the homeowners have and what options they may have to stop foreclosure before or after bankruptcy, they can search online for their state foreclosure laws and read about various foreclosure solutions.

There seems to be much confusion about the why banks did not see the wave of foreclosures coming. After all, they lowered their lending standards down to the level of "nonexistent," allowing people with no income to get mortgages on houses that supposedly doubled in value over the period of one year. Obviously, this level of growth could not continue indefinitely, nor even for very long.

But when the inevitable collapse came, the banks cried out that they were just as much victims of the market as the homeowners whose properties they were taking. In fact, the banks cried out that they were even larger victims than the homeowners, as the banks faced a drying up of credit and potential collapse. The Federal Reserve, in response, provided generous bailouts to the banking system in the form of direct injections of liquidity and low-interest loans.

But how did the lenders and financial institutions miss the bubble? Or were they planning on the foreclosures for some other end? Did the foreclosure crisis really catch any of the highest executives of the largest banks by surprise? Or did they want the foreclosure crisis rather than continuing to collect mortgage payments from homeowners?

The banks certainly wanted their loans to be paid back, but foreclosures did not bother them at all. The wave of foreclosures sweeping across the country is not materially affecting the business models of the largest financial institutions very much right now, except they have stopped lending money to people who can not afford mortgages (and are cutting off access to credit to homeowners who are not behind yet). But this action was taken only because the real estate markets are in a condition where the banks can not make money from the poor lending and foreclosure scam at this point.

As long as property values kept increasing (which they did for nearly a decade due to the bubble created by the Fed), foreclosures were not a problem. If the banks gave a loan to someone who eventually fell behind, it did not much affect the bottom line. The homeowners got kicked out of the house and the loan was a loss, but the bank ended up with the property through the county sheriff sale, and resold it right away for a higher, quicker profit. Real estate agents, banks, mortgage brokers, appraisers, and the local governments all made out very well during the period of increasing home values.

The main danger the possibility of property values stagnating or beginning to fall. In that scenario, the banks would not be able to regain a loss on the mortgage loan right away through a sale to another gullible home buyer, and the property might sit on the market for months, costing money in property taxes and insurance. But that is the environment the real estate market is in now, where property values are falling and banks have all of these foreclosed properties that are not moving.

But even now with so many foreclosures, the banks have already made their money from originating the loans and packaging dodgy debts to sell to hedge fund managers and investors. So the lenders have not really "lost" much -- they just are not "gaining" as much as they were a few years ago when they were taking advantage of the real estate bubble to pump and dump homeowners out of their homes and resell properties for ever-higher amounts.

When bank profits go down, though, they are very good at crying "Wolf!" to the government and receiving bailout packages, as is happening now. The banks have received hundreds of billions of devaluing dollars in bailouts and below-market-rate loans from the Federal Reserve in order to keep them looking profitable and solvent. With the collapse of Bear Stearns, though, it should be clear to everyone that the financial institutions and Federal Reserve will do whatever it takes to keep the banking system afloat at the expense of the average American.

In the end, the banks have been able to take their profits from making bad loans, take homes from people unable to stop foreclosure, and steal even more money from Americans by giving the government the bad mortgage debts in return for Treasury securities. Our currency, the rapidly-devaluing dollar, is now backed by these bad loans that are not being paid back. This is a far cry from the gold standard or pseudo-gold standard, but probably not that far from the backing of most other fiat currencies.

Foreclosures may not have been part of any sort of centrally-managed "master plan" of the banks for the economy, put forth by wicked idiots or conspirators to rob people of their homes. But foreclosures have definitely not been a great loss of money to the banks, who are receiving more in "assistance" than the people who have been victims of the banks. In fact, the banks are getting their free bailouts paid for by you, me, and even all of the people that they are foreclosing on.

With foreclosures at historically high rates across the country, some homeowners feel that they have no other option to save their home other than taking out more loans. Some end up taking out payday advance loans, which is almost universally a bad idea for people facing a financial hardship or foreclosure. A growing use of these loans will delay any recovery in the economy, rather than stimulate growth.

Once homeowners take out a payday loan to make the mortgage, they can quickly fall into a cycle of not having enough money to pay back one or the other, and then not having enough money to pay back either loan. Even if the loan is only a few hundred dollars, interest rates can be several hundred percent, and the term of the loan is usually very short. Homeowners may not want to put themselves in a position where they only have two weeks to pay repay a loan with an annual 800% interest cost.

However, the rise of this kind of loan is coinciding with the decline in lending by traditional sources. Banks are experiencing their own credit crisis, and homeowners who bought or refinanced a home within the past few years may not have enough equity for a foreclosure refinance or other solution. Thus, increasingly desperate homeowners in danger of foreclosure are turning to the cash advance and payday loan outlets, instead of attempting to work with a bank that is no longer responsive to their credit needs.

What should not surprise too many people, though, is that the banks also have ownership interests in these payday loan providers. Traditional lenders may not own them outright, but they do profit when homeowners take out short-term loans with astronomical interest rates in order to pay back their long-term mortgages with lower (but increasing) rates. Banks profit from making bad loans to people who can not afford the loan, and then make even more money when these mortgages go into default and the homeowners turn to payday loans to stay afloat.

The homeowners then may end up with both their foreclosing bank and the payday loan outlet aggressively attempting to collect on these loans. Even if they are able to find a way to stop foreclosure on the house, the cash advance loan may push them into danger of bankruptcy, collections, or further judgments and lawsuits. We have received emails from homeowners in exactly this situation, who first had taken out numerous payday loans in order to pay the mortgage, but ended up having to take out more of them just to pay back the previous ones. This may go on for several years before their savings are completely wiped out and they can no longer keep on top of their finances.

The propensity of people who are unable to manage their finances, with or without a hardship, and the increase in reliance on payday loans will only make the foreclosure crisis worse. It is no wonder banks are unwilling to work with homeowners to stop foreclosure, though, as they will make money when these families take out cash advances on their paychecks in order to pay the mortgage. Homeowners who have been taken advantage of in their mortgage loan should be extremely cautious of being taken for another scam through feeling as if they have no other choice than to take out a payday loan.

For many homeowners facing the loss of their home, hiring a loss mitigation company can make a great difference in reducing levels of stress and having the best chance to put together a plan with the lender. Loss mitigation professionals are able to negotiate with mortgage companies for solutions that allow homeowners to get out of the foreclosure situation and establish a reasonable payment plan going forward. However, it is important that homeowners know when to take advantage of the services of a loss mitigation company, and when the chances of success may be low.

Especially if the bank has denied a foreclosure victim's loss mitigation application because that option had already been used but failed, the bank may not be willing to reopen negotiations. The question in that case should be, what makes the homeowners think any other company is going to be able to get a better result at this point? Loss mitigation companies may be able to speak with the bank, but if the homeowners' financial situation has not changed appreciably, then the exercise may just be a waste of time.

Unless the homeowners are somehow able to find a foreclosure help company that can assist them in obtaining more income or is willing to give them extra money to offer the bank, the loss mitigation company will probably not be able to make much progress. Of course, if the homeowners have come up with some extra money they can disclose this to the loss mitigation professional, who will offer the bank a higher amount. If this is the case, the homeowners may wish to consider loss mitigation, but also contact the lender for any extra guidance.

But no loss mitigation help company can work magic and put homeowners with no way to afford the loan back into their home. They will not be willing or able to force the bank or trick them into approving a repayment plan that the homeowners could not keep up with once before and will fail at again. (And any loss mitigation company willing to participate in fraud with the homeowner is probably one to stay far away from.)

The bank will just tell the company that the foreclosure victims had already been given a chance with a workout program and had not completed the plan as agreed, so the mortgage company is unwilling to do anything more to help. Then the loss mitigation company will be able to say they did their part in negotiating with the bank, even though they simply told the foreclosure victims what they already knew.

Thus, if the homeowners have fallen behind on their mortgage, established a repayment plan, and fallen behind again, there may be few options that even a loss mitigation company could present. Thus it probably would not be a good idea to pay anyone else to give the homeowners a result they already have. If they were just deathly afraid of calling the lender and wanted to hire someone to work with them to stop foreclosure, and had not attempted loss mitigation on their own yet, that would probably be an appropriate situation in which to involve a loss mitigation professional. But if they have already tried negotiating with the bank, and have given them all of the necessary documents, there might be very little the loss mitigation company will be able to accomplish.

They may be able to pull out some new trick, but the possibility is pretty slim. The homeowners in such a case may be spending quite a bit of money on the loss mitigation services just for a small chance another solution would present itself. Loss mitigation can be a great opportunity for homeowners to reestablish the mortgage payments and have a second chance to save a home, but entering into a plan should not be undertaken lightly. Breaking a workout solution will make it much more difficult to get another plan, regardless of who negotiates on their behalf.

Although the entire experience of facing foreclosure is just one challenge after another, homeowners and potential sources of help should be aware of some of the more common problems homeowners face. The list below is definitely not exhaustive, but it highlights some issues that everyone facing foreclosure should take care to avoid or overcome. Running into any problem should not be a reason to give up the fight to save a home.

1. Homeowners who wait too long to call the lender. This is probably the most common problem when trying to stop foreclosure, but it is also the easiest one to prevent.
2. Lenders who do not return phone calls asking for help. They have no problem calling homeowners all day at home and work to demand payment of the mortgage, but getting the loss mitigation department to return a call can be a very trying experience -- for individual homeowners and professional companies.
3. Lenders who do not acknowledge receiving faxes/paperwork from homeowners to apply for a workout solution. This is related to problem number two, but getting through to a customer service representative does not guarantee that the homeowners have taken any meaningful step towards saving their home yet.
4. Too little equity in the home to qualify for a new foreclosure loan. This is especially a problem now with real estate prices declining nationwide, but some banks are beginning to accept short payoffs on refinances.
5. Homeowners do not have stable or enough income anymore to get the mortgage back on track or qualify for a repayment plan. The lender will not approve a workout solution unless the homeowners' income situation has stabilized and can support a higher payment for a short time.
6. The lender will not accept a short sale, and the homeowners owe more than their home is worth. This problem can be especially distressing since it effectively eliminates the option of selling the house to stop foreclosure, but homeowners may be able to persuade the bank to reconsider, based on recent comparable sales and a signed purchase contract from a buyer.
7. The homeowners have filed bankruptcy in the past and can not do it again to stop the sheriff sale in time. Although the sheriff sale can be postponed other ways, having the option of filing bankruptcy as a last resort can often persuade the bank to put off the auction voluntarily in order to give the homeowners another chance to save the house.
8. Homeowners are unaware of any programs that could help them, so they abandon the house rather than seek out assistance that they do not know exists. With more media coverage of various programs offered by the banks and government, hopefully this problem will become less severe. But knowing that there are options to stop foreclosure is almost half the battle and will prevent homeowners from giving up too quickly.
9. The homeowners have a potential buyer for the home, but there is not enough time to close the sale, and the bank is unwilling to postpone the foreclosure auction. Usually, the bank can be persuaded to put a hold on the sale, or the homeowners may be able to petition the court for an automatic stay of the auction. This is not an insurmountable problem in the foreclosure process.
10. Poor credit scores caused by late mortgage payments make getting a personal loan to pay off the arrears impossible. Although getting more credit to pay off previous late credit is not recommended, homeowners should have every option available to them for reasonable access to borrowing money. Ending up at a payday loan shark is almost ever a good part of the plan to save a home from foreclosure.

These are some of the ones that homeowners in foreclosure may run into pretty frequently. Of course, there are many more challenges than just the ones briefly examined here, but many of them will be unique to certain situations. The ones listed here can be pretty common, as frustrating as that is, but none of them guarantee that the homeowners will lose the home. Every problem during foreclosure can be overcome.

It is unfortunate that so many homeowners and average people have been taken in to such a high degree by the debt machine. Now that the economy is slowing down and more jobs will be lost, defaults will increase due to financial constraints. Foreclosures will keep increasing, and more people will be persuaded to file bankruptcy, while others will feel they have no other choice than to steal money from friends or family, flee the state, or otherwise run from their financial problems.

Even the threat of lawsuits against individuals for credit cards and other unsecured debts has been growing. Being sued by a collection agency used to be almost unheard-of in the credit card industry. But with the rise of decadent living and overspending, these lawsuit-happy collection agencies are filling a desire in the market by the worst bottom-feeders to keep going after people years after a financial hardship.

Thankfully, most of these collection agencies are just as ignorant of the laws and consumers' rights as are the debtors themselves. The only advantage that the collections agencies have is that they can hire a lawyer to file a lawsuit in a local court. Lawyers are insulated from any consequences of representing a criminal collection agency, in most cases. After all, they are just the dutiful lawyer filing the required paperwork to grab as much money as possible from people facing financial hardship -- they can not be expected to make sure they are representing a law-abiding institution.

Collection agencies usually repeatedly and flagrantly violate federal and state laws that govern the collection of debts. Many states now have licensing laws which require collection agencies to register themselves and post a bond for several thousand dollars. In order to initiate any collection activities in a particular state, the agency must be licensed by that state -- not just the state in which the company is located. Yet many companies that try to collect debts do so nationwide with no respect for local laws.

They do this because they know that most people behind on their bill payments will not take the time to research licensing laws for collection agencies. The agencies can then hire a local attorney and begin suing the individuals in court, while the issue of licensure is never brought up. Judges assume that their lawyer friends are always right, until the debtors try and argue that the laws should be followed. In that case, the judge can usually come up with some excuse not to follow them, or simply ignore the individual altogether in order to benefit their fellow lawyer.

Collection agencies have also learned their lessons from suing homeowners and other debtors. Even if a person asks for the agency's licensing number for a particular state, they are more likely to have their request completely ignored, or met with more demands for payment. Especially collection agencies that masquerade as law offices have mastered this act of demanding money, pursuing baseless lawsuits, and refusing to become licensed. Being a friend of "The Law" often means not having to follow the laws that are designed to protect people.

Thus, collection agencies, regardless of whether or not they have bought a debt correctly (usually they have not), must be licensed in many states in order to pursue debts. Simply suing a debtor for a judgment is not sufficient, although it drags the matter before a highly biased judge who makes the money needed to feed his family from the filing fees paid by these collection agencies. Thus, people who have fallen behind on their debts are nominally protected from many of these vulture collection agencies, but it is best to keep the issue out of court where the lawyers will feed on any remaining assets the debtors possess.

For over half a year now, the Fed has been actively bailing out some of the largest corporations and especially the banks. Despite lowering interest rates, providing essentially free money to the banking system, and devaluing the dollar, little confidence has been restored to the markets. In fact, it seems that the more the Fed does to stimulate the economy, the more people wake up to the scam the banks and government have been pulling for decades.

JPMorgan Chase taking over Bear Stearns was a show of just how weak that company had become, despite all of the help offered to the banks so far. Even after receiving financial aid to prop up hedge funds and their failing subprime mortgage investments, the financial firm took a buyout offer $2.00 per share, less than 2% of its high value near $172 per share. An enormous drop in value, however, did not persuade the Federal Reserve or the other large banks that a failed institution should be allowed to fail.

The Fed can made their aid contingent on pretty much anything, but why would they want to do something to promote accountability and free markets within the banking system? In fact, many of the largest banks in the country have hired ex-employees of the Federal Reserve system and its network of regional banks. Bear Stearns even did this, although it did not seem to do them much good in the end. This provides the banks with insights into how the Fed will manipulate the markets, but also allows them the false security that the central bank can efficiently manage the economy.

Probably the best way to find out what the Fed is doing is to hire people who used to work there. Companies in other industries hire former employees of competitors to better gauge their strengths and weaknesses. And of course it works the other way, too. What better way for the Federal Reserve to find out how the banks are doing than to ask former Fed employees who now work at the largest banks in high-level positions for their opinions?

Thus, it is surprising that any individual would seriously consider asking the Federal Reserve to make their former employees, now working at the banks most exposed to the subprime mess, put their own assets and investments at risk in order to receive aid. At risk of losing assets to a bubble created and inflated by the Fed? That seems to be going a little far in terms of accountability for banking and government institutions working together. Corporatism is not such an open system as to privatize losses.

On the contrary, what we will probably see is more free bailouts handed to the banks at the cost of a dollar destruction and further losses in the stock market. Homeowners, even if their mortgage rates stay the same, will experience higher gas and food prices, which will just keep pushing more of them into situations where they have to find methods to stop foreclosure before the bank ends up with their house and inflated money. This will put the banks in even greater trouble as they will be forced to foreclose on ever-depreciating assets, and they will end up back at the Federal Reserve requesting more "help" at the expense of and funded by the people whose homes they are taking.

The entire banking industry is certainly the most effective at privatizing all of their profits for corporate executives but passing off all of their losses onto the American people. For example, see the Fed's $200 billion lending program where banks can trade in garbage subprime loans for US Treasury securities, in effect giving the nonperforming subprimes to the people to deal with while the banks keep up an appearance of solvency. However, the banks will not be returning any of the massive profits they made from these loans to the people -- just the losses now that the loans have gone bad.

There will be more large banks to fail in the coming months, and many more smaller and mid-size banks. The next multinational financial institutions to crash might be Lehman or Citigroup, which are both in big trouble in terms of running out of money very quickly. For average homeowners and people, it may be a good idea to consider getting out of the dollar while it holds any remaining value and find some real store of value that is more stable. Gold, silver, or even seeds that can be grown into food hold more value than processed and died green paper right now.

With what looks like a coming collapse of the banking system and the Federal Reserve taking steps to make the situation much worse, the Panic of 2008 seems to be just beginning. The price of gold and oil keep increasing as inflation and interest rate manipulation are creating a flight of capital out of the US dollar. And with high foreclosure rates, a slowing economy, and rising prices, the American way of life for many is turning increasingly depressing and desperate.

The run on Northern Rock bank in Great Britain, the short run on Countrywide, and now the collapse of Bear Stearns show how weak the banking system has really become. Of course, that is also a reflection of how much doubt there is about the mortgage crisis -- banks are not lending to each other because they are not able to gauge even their own exposure to the subprime mess.

Taking lessons from Enron in how to securitize and hide debt was apparently not a good idea for large banks, as they now have to deal with trillions of dollars of potentially bad debt. Even worse, no one can quite figure out who owns this bad debt, or how to get rid of it.

But the Federal Reserve has stepped in to take care of even that problem, by offering to trade bad mortgage debt for Treasury securities. This deal is only for the largest banks in the country, so average homeowners will not see any benefit from this self-defeating action by the central bank.

On the contrary, the average American should see a continuation of the decrease in his standard of living. The central bank of the country is inflating the currency and destroying the value of the dollar, which will make it difficult to afford even the most basic necessities, such as food and energy.

Thus, it should not be surprising that the prices of commodities are increasing in terms of devalued dollars. Oil and gold are just two of common measurements on the health of the currency. Producing nations will not want to continue trading oil, the most energy-dense fossil fuel, for worthless paper. And the price of gold has always been a reflection of the level of confidence in paper currency, which is why it has been suppressed for decades.

Now that the price of gold has been escaped the control of the world's central bank manipulators, though, the Federal Reserve is focusing on keeping up the appearance of economic health for as long as possible. A recession is probably the best they can hope for, as opposed to an inflationary depression.

But the Fed is walking the path of inflation by lowering rates weekly and injecting essentially free money into the banking system. For some reason, they do not seem to grasp the fact that it was artificially low interest rates that helped grow the housing bubble to such heights. Fixing the problem of inflation with more inflation is not even a short-term band-aid, let alone a long-term solution.

It should not surprise very many people that the bubble has now collapsed and the project of suburbanizing America has slowed down dramatically, even reversing in some areas. Building homes dozens of miles away from any reliable source of energy, food, water, or gainful occupations was never sustainable as an industry, but its tragic collapse has put many former homeowners who were unable to stop foreclosure out into the street.

But even with the slowing economy, loss of jobs, and high foreclosure rates, Americans are being stolen from to bail out the large banks that helped foster this environment. After all, it is America's place in the world to consume through debt the worthless products of the rest of the world, and without healthy banks to trap people into debt slavery, the entire system would have to find some sort of sustainable future not predicated on endless growth to finance interest payments to the banks.

Unfortunately, it is only a matter of time before the situation goes completely out of control. The Federal Reserve, in an effort to avoid the extreme lack of money during the Great Depression, seems to be going in the just-as-extreme direction of hyperinflation experienced in Germany in the early decades of the twentieth century. Except now, they are doing it on a global scale by devaluing the dollar, which will hurt America more than any other country.

One of the great questions that homeowners have while battling foreclosure is what the bank may be able to take from them even after they have taken the house. Many foreclosure victims fear deficiency judgments, believing that they may lose a second home, car, or even their bank accounts and retirement funds. This is a reflection of the general lack of knowledge of how foreclosure works, since the possibility of the bank going after any of these assets is very small.

During the entire foreclosure process, only the house used as collateral can be taken by the bank. Since the homeowners pledged the property as collateral for the loan when they originally applied for the mortgage, the lender will sue for the forced sale of that home to pay off the loan. They can not sue for anything else to be sold to satisfy the loan because nothing else was pledged as collateral, and they can not pursue any deficiency judgment unless a deficiency is created by the county sheriff sale. If the homeowners find some other way to stop foreclosure before the auction, then the bank can not sue for a deficiency, even if the homeowners use a short sale, where the bank takes less than what is owed, or a deed in lieu of foreclosure, where the bank takes the property instead of any payment.

In terms of a deficiency judgment after foreclosure, the bank may be able to go after other assets, but any retirement funds the former homeowners have are generally protected. Especially if they invest their retirement savings in an IRA or through work in a 401(k), 403(b), or similar program, then the bank can not try to seize any of these savings. However, if their retirement funds are "invested" in a second home or a prize race horse, then the bank may be able to to go after those other assets. That is because specifically designated retirement accounts are protected from creditors, while assets simply invested in for the purpose of saving for retirement without the special designation are not protected.

More relevant than what the mortgage company may be able to take after the foreclosure, though, is the issue of banks going after anything at all. In most cases, the lender rarely pursues the deficiency judgment after the home has been sold at sheriff sale. Mortgage companies know that people in foreclosure do not have the money to pay the monthly mortgage payment, let alone pay the entire foreclosure judgment or a deficiency judgment after foreclosure. Thus, it is just not worth the lenders' time to keep suing homeowners with no expectation of ever collecting anything from the lawsuits.

The only institutions currently going after any homeowner's retirement funds are the banks and government, but not through the foreclosure process. However, they are inflating the money supply, manipulating the interest rates, and generally contributing to a slowing economy which makes retirement funds worth less right now. Unfortunately, this kind of theft can not be stopped by homeowners, but they can rest assured that the banks and government will be unable to go after their retirement funds directly by seizing them to pay off a deficiency judgment, even in the case of foreclosure.

Over the weekend, we received an interesting email from a former homeowner who had lost a house to a sheriff sale. The experience of this foreclosure victims illustrates the fact that many of those in danger of losing their homes are unaware of many aspects of how foreclosure works, both before and after an auction. The full text of this email, somewhat corrected for grammar, is represented below:

You are probably aware of this, but please tell people in your articles to be aware of any other defendants' names on the foreclosure. I broke my back in 1999 and became disabled, losing my income, and the Bank of America foreclosed on me in 2001. Unbeknown to me, I had a surplus at the auction of $30 thousand dollars, which was given to the county and then to the state as unclaimed. In 2006, one of those defendants took the money even after they were discharged in the bankruptcy. I just found out about this in 2008 and I don't know if I have any recourse. Let them know if anyone's name is on the foreclosure with them and they don't owe them money to try and have it removed. Also tell them to be aware of the bank and its attorney. My house was auctioned at the end of December 2002, and before that somehow the bank let the winner of the auction take my house and a lot of my property in October 2002, previous to the auction. You get screwed in these foreclosure. If you ever get hurt in this country, you lose everything. Yet now the government is going to bail out all these people and their mortgages. I say let them go through what I went through -- nobody came to me, my wife, and my seven kids' rescue.

The homeowner was entitled to $30,000 in proceeds from the auction of the house, but it appears that someone else with an ownership interest in the property named as the defendant in the foreclosure lawsuit was able to claim that money from the state. This may have been from a co-signer or just someone else listed on the deed to the home or named in related title paperwork. In any event, the homeowner who faced foreclosure is now out all of that money, which could probably have made a significantly positive impact on his family's life.

This case also illustrates the fact that the government is not there to protect homeowners' property. Although this is one of the three reasons that governments are established in the first place (to protect life, liberty, and property, i.e., "the pursuit of happiness"), it is clear that the state did not lift a single finger to protect the homeowner's $30,000. Instead, it simply kept the money for itself as "unclaimed" until someone came along to request it. After all, if the government court named a defendant to a foreclosure lawsuit, then the government will give the proceeds of that lawsuit to whoever is named. Being correct is irrelevant, as the homeowner's silence was taken for consent.

Unfortunately, the homeowner in this email is probably correct when he guesses he has little recourse. He can try to sue the other party who claimed the $30,000, but will not be able to hold the government accountable for paying out the money to someone who did not have a real claim to it. Governments have "sovereign immunity," which means they can not be held accountable, in most cases, when they fail to uphold their duty to protect life, liberty, or property. For example, people can sue a thief for stealing their car, but can not sue the police department for failing to protect that car, even though they have a constitutional (both state and federal) duty to protect the property of "citizens."

Therefore, the homeowner may be able to go into the government courts again and sue the person who took the $30,000, but if it is already gone and spent, then it may be very difficult to get any portion of it back. Also, if the government decides that the original foreclosure lawsuit paperwork is correct, it may declare that the $30,000 went to the third party legally. Going back and showing how the paperwork was wrong and the parties should not have been named in this manner may be even more difficult, expensive, and time-consuming.

This should serve as another warning to homeowners in danger of foreclosure. Avoiding opening the mail or reading through the foreclosure paperwork can have serious, negative, costly, unintended consequences later on, even years after the ordeal is over. It is also quite admirable that this particular foreclosure victim took the time to write a warning to other homeowners in similar situations, and it should be ignored only at other homeowners' peril. The government and banks should never be trusted to conduct the foreclosure process in the correct manner -- always make them prove it in court. This is the best way to keep on top of the parties and make sure that even the smallest benefits will go to the homeowners.

With news of the sale of Bear Stearns to JPMorgan Chase Bank, a certain sense of irony seems to permeate every story written so far about the failed investment bank. At a purchase price of $2.00 per share, the value of Bear Stearns has been declared essentially worthless, although announcement of the acquisition gives the bank a handy reason not to report profits, as they were originally scheduled to do on Monday. The low share price (down from a high of over $150) is perhaps the best representation of the solvency of the bank.

But it is quite ironic that Bear Stearns has been hit so hard by a mortgage crisis that they have actively participated in for years. Bear Stearns owns EMC Mortgage Servicing, a notorious servicer alleged to have been involved in hundreds of cases of mortgage servicing fraud. Through some very shady practices, they were instrumental in pushing people out of their homes. Whether through outright fraud or forced institutional incompetence, the servicing company is no stranger to foreclosures.

Through some years of experience with the servicer, it seems their main tactics were to force homeowners and potential mortgage brokers or real estate agents to give up due to absolute confusion and frustration. "Mistakes" made were never corrected, faxes sent were never received, payoffs could take a week to arrive and were frequently out of date. And these results were the best one could hope for after spending nearly half a day on hold or fighting through the voicemail system.

EMC has always been one of the more difficult banks to work with in terms of everything. It is doubtful to me whether the entire company had a single working fax machine, as it was a common occurrence for them to request information from a client and then claim never to have received it. This could go on for weeks, using numerous fax machines to send them the requested information, which they stated they never saw.

And even if they could be kept on the line to confirm receipt of a fax, the customer service representative on the phone was not the person who was "handling the file." Calling back a few days later, it turned out that the person "handling the file" had not received the fax and there was not record of it "in the system." With such poor customer service and communication, it is not surprising that homeowners had such trouble finding a way to stop foreclosure with EMC.

One of the great ironies that can be read in stories about the collapse of Bear Stearns is that it had a so-called "ownership culture" of its employees, who owned about one-third of the stock of the company's stock. Although not every employee of the company was involved in the alleged mortgage servicing fraud, it seems that karma has finally caught up to the bank. EMC, through willful fraud or gross incompetence equating to negligence with the same end result as fraud, stripped the equity and took the homes of their mostly-unwitting foreclosure victims, but it is EMC's parent company that has the "ownership culture," which deserves the pity of the media.

Whether JPMorgan can fix the problems at Bear Stearns remains to be seen, but the question has not been asked whether these are problems worth solving through any means other than a full collapse of the company and the dismantling of the the mortgage servicing division. EMC has been able to operate as it has due to the high profitability of its scam, and the fact that any other bank would be willing to rescue it from destruction is disturbing. When there are so many communities facing the possibility of local refugee conditions (tent cities, abandoned suburbs), do we really need our largest banks in the country rescuing a greedy "ownership culture" that has contributed greatly to so many more people losing ownership of their properties and giving up everything they own? Some culture that is.

It seems a majority of homeowners do not attend the foreclosure hearing when the bank is suing them to take the house. This is almost universally a mistake, however, as the banks and courts are well aware of the fact that the owners are facing financial hardship and can not make the mortgage payment. This gives the foreclosure victims more leverage in working with the court and lender for a solution to avoid taking the home through the sheriff sale.

Especially for homeowners who can not save their homes, they may wish to attend the foreclosure hearing. Of course, if they have concluded there is no way to save the home and they do not have any problem with the mortgage company taking it through foreclosure, then they can probably skip the foreclosure hearing with no adverse consequences. The foreclosure process will continue according to the state foreclosure laws and the homeowners may never have to deal with a government bureaucrat or representative from the bank. With no effort by the homeowners, there is no chance to stop foreclosure, however.

The courts will award default judgment in the foreclosure lawsuit to the bank if the homeowners do not file an answer or appear at the hearing. If the foreclosure victims do not want to save the home or argue against any of the claims being made by the lender, then there may be no real reason to file any paperwork and get involved in the court process. Foreclosure can take months to wind its way through the court system, which just gives the mortgage company more time to add interest and attorney fees to the total amount owed on the defaulted loan.

This is not to say that it is always a good plan to avoid going to the court hearing, as homeowners can get concessions from the bank and courts, as well as more opportunities to prevent the full foreclosure. The best idea for going to the hearing, even if the owners do not want to keep the house, would be to tell the court that they have been trying or would like to try to sell the property to pay off the loan but have not had any luck yet. The owners can request some extra time (up to 1-2 months) to put the process on hold and find a buyer. The judge can allow them the extra time to work out the problem before going ahead with the foreclosure auction.

Possibly, with 2 extra months to sell the home, the owners would be able to find a buyer to stat the process, at least. And if they can find a buyer to put in an offer, even at a reasonable short sale, the bank will be much more willing to hold off on the rest of the foreclosure process until the sale is complete or the deal falls through. This can even include postponing an upcoming sheriff sale, as the mortgage company would rather have the loan paid off through a regular sale, instead of having to take a loss on the loan and end up with the property back. It costs the banks less money to help their clients stop foreclosure and avoid the worst of the consequences afterwards.

Requesting the court for more time to sell the house might be the best chance for the homeowners to save some of their credit, as well. Paying off a loan, even if it was in foreclosure, will be a much more positive sign to potential lenders in the future, and will avoid the homeowners having to explain why they did not save the house. Not disputing the foreclosure is one thing, but appearing at the hearing just to request more time to avoid losing the home entirely might be worth it in the long run. Even if the homeowners can not save their property, it may make sense to use the court in self-defense and get more time to improve their financial positions.

After the $200 billion bailout offered to the banking system this week, it is becoming more clear by the day that the banks are completely insolvent. The Federal Reserve is making a futile attempt to stave off collapse by stealing even more money from the public through inflation and trading new money for bad mortgage loans. The longer they keep propping up the system will only worsen the inevitable collapse.

The bailout, like others before it, is an attempt by the Fed to remove enough of the toxic mortgage debt from the balance sheets of the most exposed banks to keep the system appearing financially sound, although weak at the moment. Complete collapses of the largest banks in the country may correctly induce runs on the remaining banks. If people realize that they are not the only ones facing financial ruin and foreclosure and pull their money out of the banking system, the largest financial institutions could not survive without even great bailouts.

These banks have already burned through much of their reserves to cover losses resulting from exposure to the mortgage crisis and have borrowed as much as possible from each other and foreign investors. The fire sale of American companies to foreigners may be just beginning, but they will not buy if our institutions are facing bankruptcy. While credit from other banks has been drying up, the Fed has been turned to as the garbage dump of last resort for these banks and their nonperforming, highly inflated mortgages.

For now, these debts still retain a small semblance of officially-recognized legitimacy through the bond rating agencies, so the Fed is more than willing to keep up the charade by trading Treasury Securities for them. Slightly better money (dollars, Euros, Swiss Francs, and other currencies) will be used to chase after very bad money at the expense of those who hold the better money.

So the banks will be able to move $200 billion worth of bad debt off of their balance sheets in exchange for new loans from the Federal Reserve in the form of Treasury Securities, which will prop up their dwindling reserves and make them appear solvent. But it is very doubtful that this action will really fool anyone who owns a home, lives in a neighborhood, or invests with banks, hedge funds, or other institutions that are exposed to the mortgage meltdown.

The mortgage crisis has now spread far beyond just a few regional markets and has infected over 200 markets across the nation. Florida and California now have at least 33 soft markets each in various counties and cities as the values in certain areas rose faster and higher than in other communities. These are the markets where much of the bad debt will come from to be traded in at the Fed. (Otherwise, if these banks held mostly good debt, they would not need a Federal Reserve bailout in the first place; therefore, the debt must be coming from these distressed and severely distressed markets.)

The Federal Reserve, though, will be giving the banks loans even as their previous loans fail spectacularly. The inflation will continue pushing up costs for consumer goods, including food, energy, and everything derived from energy (everything else in the economy, mostly). But at least homeowners having trouble making their mortgage payments or keeping the heat on or feeding their families will be able to rest assured that their bank will not feel any financial pain from kicking them out of their homes.

And as the values of these inflated properties continues to fall, and more houses remain empty on the market for longer periods of time, the restrictive bankruptcy laws may just push even more homeowners towards giving up on their increasingly worthless homes. This is the financial and legal environment that the banks set up for themselves. And just as designed, it will be the public who will lose their homes and bear the costs of bailing out the banks.

Medical problems are the second most cited cause of homeowners falling behind on their payments and facing foreclosure (loss of income is first). The fact that so many people in the country are uninsured almost guarantees that they will face financial doom if faced with a sudden medical catastrophe. Even the ones who have insurance have to fight for coverage, and far too many conditions can be excluded under dozens of clauses and excuses used by insurers to maximize profits. So it is not surprising the problem with insurance is contributing to the foreclosure crisis.

People facing a medical emergency do not even really have a choice about paying for healthcare or keeping up on the mortgage. If an untreated emergency will result in their being severely disabled, disfigured, or unable to work, then there is a strong possibility they will not have the resources to continue paying the mortgage. For many homeowners who have an accident or need cancer treatments or just come down with a bad case of the flu when their immune system is least able to cope with the stress, it is not a matter of paying for the house or for their health -- health always comes first.

But the healthcare system in the country is in serious need of reform. No one quite knows whether to categorize it as socialized medicine or privatized insurance out of control. This system of government managed care and semi-socialized, semi-privatized insurance companies have caused tens of millions of productive workers to be uninsured and tens of millions more to have effectively no coverage even though they pay for nominal "insurance." Once they actually face a crisis, they realize how many exclusions were written into that expensive policy, especially if they are self-employed or covered under a personal plan instead of through their employer.

So the choice about health insurance as it stands right now is really between not paying for insurance, or paying for useless insurance that does not cover any actual catastrophic medical problem. Either way, if someone in the family gets sick or has an accident that requires intense medical care, the possibility is very low of making it through the medical and financial hardship without loads of debt, massive stress, and possible financial ruin.

Completely privatized care might not be good. Corporations have a tendency to run right over the people, especially if they are politically powerful, as the drug companies and insurance companies tend to be. Business is usually more efficient than government and competitive industries tend to lower prices; there is no reason healthcare and health insurance should be any different. But now all we have is huge corporations that work with government to keep prices high and exclude people from the system.

Completely socialized care might be even worse. Imagine sitting in a hospital run like the post office or the local Social Security Administration. Most government-run bureaucracies are filled with unhappy people doing as little as possible to get their paychecks, since they have no incentive to do a good job and provide better service than a competitor. Even the buildings these agencies are located in after often filled with nothing but walled-off locations so people can not see what their government workers are doing. The walls, on the other hand, often spew out loads of regulations and prohibitions, from no smoking, no drinking, no guns, and how to apply for food stamps. Hospitals should not be unhappy places filled with unhappy workers exhibiting unhappy messages.

But a combination of large insurance corporations working with large state and federal bureaucracies is corporatism, where the people only lose. This most resembles the situation we have now, and it is no wonder a medical emergency can lead to bankruptcy and the inability to stop foreclosure after recovery. People lose their health from the initial hardship and the stress of dealing with the insurance company for months after recover, they lose their money to the insurance companies and the healthcare providers whose services are not covered by the supposed insurance, and they far too often end up losing their homes to the banks that could care less.

It is not difficult to notice the connection between big government, big business, and the health insurance company fraud which makes having insurance even more expensive than not having it. Homeowners should be able to save up at least 3-6 months of their income to make it through a job loss or layoff period. If the mortgage and other debt makes this level of savings impossible, then selling the property and moving into more affordable housing should be considered. But it is the very rare homeowner who can afford several hundred thousand dollars to pay a catastrophic emergency or for long-term care. The fact that assumed insurance may not be there due to the profit maximization goals of insurers should not, however, be one of the leading causes of homeowners facing foreclosure and financial ruin.

Many of the discussions of people facing foreclosure categorize them as greedy, overspending, and having no one but themselves to blame for their poor financial conditions. Individual homeowners, despite their lack of financial resources and lack of financial education from government schools, are held responsible for their inability (or willingness) to adequately inform themselves about the mortgage contracts they were entering into.

However, just the opposite seems to be true of the government, which has also overspent, raising its own debt limit and inflating the currency to finance war and welfare programs. But now that a systemic financial collapse is leading to recession, the government is considered to be just another victim of the economic crisis.

Obviously, this perception is due to the fact that the government controls the message through its collusion with the largest media companies. For example, General Electric, one of the top defense contractors in the nation, receives corporate welfare to build the equipment used in war. GE also owns NBC, one of the largest media companies that are able to control what people hear about issues. Government can control the money that goes to GE for defense contracts, and NBC can control the message heard by consumers about certain politicians.

Both government and media companies have an interest in remaining on good terms with each other, even at the expense of the average homeowners. It is not that homeowners actually are more responsible than the government for their own personal economic catastrophes. It simply influences how people feel about the government and their own finances.

It is also said that only government bailouts will help the situation now that there is danger of a widespread financial collapse of the banking system. Thus, people should expect to have to give up more in taxes and purchasing power in order to give government the resources it needs to grow and create new help programs.

However, it is never said that government policies created the problems in the first place. No media company will allow coverage of the reasons why the Federal Reserve lowering interest rates inflated the housing bubble, and why further interest rate manipulation and liquidity injections will only lead to more problems.

But this should not come as any surprise. When the government can influence the message in the media, then no economic recession will be blamed on any institution of government. It is much easier to shift the blame away from the government and politically-connected interest groups and corporations onto the politically weak people. This results in blame for the problems being given to people while credit for economic success is given to the government's wise policies handed down by the benevolent philosopher-kings.

More of what is not being said is that the government is run by evil idiots who are now see themselves as victims of their own poor economic policies. Of course, the issue of government centrally planning the economy will not challenged, despite the fact that it has led to hundreds of thousands of homeowners facing foreclosure with potentially millions more to come. Only people can act in the economy; no one group can direct it without unintended consequences.

But government is more responsible for the foreclosure crisis than are most homeowners who are losing jobs or facing medical emergencies. That is a message that will not be widely spread, though, because of the myth of government benevolence. But hopefully the economic devastation in the housing market will help more homeowners realize that government creates the problems and then offers solutions that make the problems worse. Instead of blaming just greedy homeowners, banks, mortgage brokers, and real estate agents, maybe it is time to reconsider the government's manipulation of the economy and hold it directly accountable for the fallout of its unnecessary economic manipulations.

For homeowners who are not behind on their mortgage yet, but are worried about falling behind, it may seem that their bank is acting quite illogically. Most banks refuse to accept a short sale or modify the terms of a mortgage unless the owners are numerous months behind in payments. The homeowners come to the bank to ask for help to avoid foreclosure before it happens, but the bank says they can not offer any actual programs until there is a real danger of foreclosure. But by this time, the homeowners may not even qualify for a solution because they are too far behind.

Unfortunately, systemic stupidity and shortsightedness are not crimes in America (yet), so the banks are able to get away with this circular logic which pushes people into foreclosure in order to save their homes from foreclosure. In such cases, the owners of properties may feel like they have very few legal resources available to them. They are right to feel this way, as the courts can be very inhospitable to homeowners trying to work out a solution to foreclosure without actually being in default.

In essence, their legal resources probably involve very little more than negotiating with the lender to change the contract as written. But this brings into play the situation where the bank refuses to negotiate the mortgage there are no missed payments. Thus, homeowners who make payments on time are rewarded with no extra help when attempting to sell in a down market, while those who are unable to pay the mortgage are given numerous concessions which may lower the rate or allow them to sell for less than the total amount owed and help them stop foreclosure.

If the homeowners have any evidence the mortgage company has not been keeping up its end of the mortgage contract, they could sue the bank for defaulting on the contract and try to discharge the mortgage loan entirely. Obviously, banks and courts do not look too favorably on this, even if the bank has committed egregious acts of mortgage fraud or servicing fraud. If homeowners could prove that banks are criminal organizations and have their mortgages discharged, politicians and bureaucrats who receive much of their power from the banks would be quite threatened. So this legal resource is open in only a very small number of blatant cases or class action lawsuits.

The possibility of mortgage fraud may be present if the homeowners were given a really shoddy loan and not informed of various aspects that would cause penalties or higher payments. For example, many states still allow the bank to attach a prepayment penalty if the loan is paid off too quickly, and many homeowners are coming out and stating they were not aware of receiving adjustable rate mortgages until their payment doubled. If they signed a piece of paper disclosing these types of aspects but did not ever bother to read that piece of paper, though, they might be out of luck showing how they were tricked into a particular mortgage.

Otherwise, homeowners in these kinds of situations could use the legal resource of bankruptcy to stop foreclosure to establish a payment plan for the housing debt and unsecured credit lines, but that would not make sense since this article is about those who are not yet behind on the mortgage. Bankruptcy is a legal method for dealing with a mortgage loan and other creditors, but it would not be appropriate for people who are not behind, since judges are not currently able to lower the total amount owed to reflect the current market value of a house. There is some talk in Congress to change this and allow judges to adjust the total debt, but it is unlikely to result in any more than talk.

Unfortunately, getting a second home that is more affordable and letting the first one go into foreclosure might be the option that stubborn banks push homeowners to consider. Seems a bit ironic since the lender will be hurt much worse in this situation than the homeowners. But if the homeowners are not far enough behind on their mortgage to qualify for a solution, but will not be able to keep their home for much longer, and it is unlikely the bank has done anything legally wrong (and stupidity on the part of a bank is perfectly legal, or else we wouldn't be able to have banks), homeowners have very few legal options to make the lender negotiate on a mortgage that is not in default.

A not insubstantial number of homeowners in foreclosure, after saving or losing their home, realize that real estate can be a pretty good investment. Especially with their first-hand experience with the foreclosure process, these homeowners may get into the property management or investment business after taking a few years to reestablish their credit and maintain a savings account for emergencies and down payments. Real estate investing can be a great opportunity for previous foreclosure victims to help others in similar situations in their communities and make money for their own families.

The main difference between various types of foreclosure investment properties is that of pre-foreclosure properties and foreclosure properties. Purchasing a pre-foreclosure homes indicates that the original homeowners are still living in the house and may be looking for ways to stop foreclosure. They have not made a payment in some months, and are quite likely being sued for foreclosure by the bank and its attorneys, an experience previous foreclosure victims can well relate to. The house has not been sold at a county auction (sheriff sale) yet, though, so it is not considered a fully foreclosed property yet.

To buy a pre-foreclosure house, the potential buyer would negotiate directly with the owners of the property for the terms of the sale. The bank may have to accept a short sale if necessary or hold off on the sheriff sale if there is little time to make a deal, but the actual decision to sell or retain the property, and for how much to sell it will be up to the homeowners. Foreclosure victims who realize that they can not stop foreclosure any other way may be willing to sell the house for little just to end the process, which gives investors many possibilities to find good deals in the current real estate market.

A foreclosure house that an investor buys has already been through the entire foreclosure process in the county courts. The homeowners have most likely been evicted or have moved out, if they are not illegally continuing to occupy the property. Either way, if a new investor buys this type of property, the bank should guarantee in the sales contract that it will convey clean possession of it, meaning no one else living there. Great deals in foreclosed properties can also be found, as banks are watching houses sit on the market for months while property values continue to decline.

Buying this kind of home means that the bank (or a third party) purchased the house at the auction and is now the legal owner. This purchaser from the sheriff sale is the party the potential investor will negotiate with for the sale -- not the previous homeowners whose ownership interest in the house was eliminated by the forced sale of the property. Third parties often buy properties at local sheriff sales to rehab and sell or quickly flip, so they will be looking for as high and quick a profit as possible. Banks, though, would rather sell the house on the market and recoup some of their losses from the foreclosure process, which gives the buyer more leverage to negotiate a lower purchase price.

There is no one "best route" to go in buying a house in some stage of foreclosure. There are simply too many different factors to consider and parties to work with. Sometimes, homeowners will sell for very cheap to stop foreclosure from taking the home, and the bank will accept a low short sale offer. Other times, the bank will not accept a reasonable offer and the homeowners will hold out until the last second, hoping to find some magical way to avoid losing the house. In this case, the best deal might be had after they have left the house, but there is danger the property will be damaged or vandalized by resentful former owners. Either way, potential new investors should do as much research as is prudent to make they you are getting a good deal -- in a world of possibilities, it is impossible to know which is the best way, but a good route to go to help fellow neighbors in the area is better than not going any route and leaving them to the same depressing foreclosure situation.

If the potential investor buys the house with a large down payment, or buys it for substantially less than the market value, they will create instant equity in the house and protect it against future declines in value or foreclosure. These are really the best ways to obtain equity in a property right away, besides creating it slowly over time as the mortgage is paid off. Either get a good deal, or pay down the mortgage over time; just hoping that property values increase forever to create equity has been proven by the current real estate market to be quite misguided.

This article is not about former foreclosure victims becoming new real estate flippers and ending up back in trouble due to overextending themselves on numerous foreclosure investment properties. There have been numerous failed investors of this sort who attempted to make money through real estate rehabbing and flipping in all the hottest markets of the country. This was the wrong way to make money, as is evident from the fact that so many have now lost their investments and are losing their properties to foreclosure. But in the coming economic downturn, homeowners who have experienced the foreclosure process and have survived can provide valuable solutions to their communities based on their experience.

My post yesterday was about the help that government programs have been providing to homeowners facing foreclosure, and if the programs being offered compare favorably to the direct bailouts that have been given to the banking system. Obviously, most homeowners would rather receive a portion of $10 billion of newly-created money, instead of working with their mortgage company on a plan that was completely voluntary for the bank. The federal government has a long history of creating new problems to solve old problems and socializing financial losses while allowing companies to privatize profits from shaky deals.

Today, in another effort to prop up the banking system at the expense of the homeowners whose defaulting loans are harming that system, the Federal Reserve and other central banks worldwide have announced another $200 billion expansion of their lending program. None of the previous injections of money into the system have solved the liquidity and credit crunches, but central banks do not have very many alternative tools. Manipulating interest rates and destroying currency values through inflation have worked in the past to steal money from the public and give it to the banks.

The lending program allows banks to trade in their failing mortgage-backed securities for loans from the Federal Reserve. Since the Fed actually holds no reserves of dollars, though, the money is created out of thin air. This has the predictable result of diluting the money supply and giving the banks the opportunity to use the new money first, when it is at its most valuable. Banks give their worthless mortgage securities, the values of which were always highly inflated and are now in complete doubt (with many of them being worth nothing at all anymore), and receive brand new cash in return.

This gives the banks the incentive to continue making poor loans and removes any real desire to work with homeowners to stop foreclosure from taking these homes. If they can count on periodic bailouts from the Federal Reserve, not under the control of Congress, the courts, or the Executive Branch, there is little reason for them to play along with the government programs to help homeowners. After all, they can simply keep trying to collect money from homeowners, foreclose on houses, and allow the Fed to keep them afloat until they can sell the properties in a better market.

So the Fed will be holding all of the toxic mortgage securities while providing new money to banks at preferentially-low interest rates. This will, at best, only postpone the collapse of the banking system and will more likely prolong it. A central bank loaded down with nonperforming debts should lose all legitimacy in printing the currency of the nation. The dollar has already lost much of its value compared to other currencies, due to the out of control spending of government and doubts about the American economy.

Combine overspending and an economy that no longer produces much with loads of bad debt, inflation, and artificially low interest rates, and the outlook appears very bad for the banking system this year. The Federal Deposit Insurance Corporation and a regional branch of the Federal Reserve are already warning and preparing for bank failures. The government will be unable to prevent or reverse the coming failures without further selling out the public to the banking system, which may lead to even higher inflation in food and energy prices for homeowners already struggling to keep on top of their mortgages and feed their families.

As the foreclosure crisis has only grown worse by the month, and large banks are in danger of collapsing, the focus of government appears to be focused on helping homeowners save their homes from foreclosure. The government has stepped in with a number of different policies and programs that are designed to help people suffering from the foreclosure crisis. With most of what government does, though, the people who are designed to benefit are actually being hurt, while the parties who are most responsible for the financial crisis are socializing their losses.

The real estate bubble was inflated beyond all reasonable expectations of value at an increasing rate once the Federal Reserve lowered interest rates in an effort to avoid a recession after the crash of the dot-coms and the 9/11 terrorist attacks. Rates were lowered to below one percent, and people were encouraged to cash out home equity or buy a new home. Even people with poor credit were able to get mortgages for relatively low rates, and they took advantage.

Banks looked the other way during this boom, as many of the people setting lending guidelines were just as taken in by the low rates and rising values as everyone else. Hedge funds on Wall Street were only too willing to purchase bundles of these loans and were confident they would make money even on foreclosures. Home values were rising and people were buying as quickly as they could, which meant the inevitable foreclosed house could be sold for a profit.

But once the general awareness of the low quality of these loans spread throughout the economy, and property values stopped increasing, the entire house of cards began to fall. Unfortunately for those homeowners who made prudent decisions and did not take advantage of the run-up in prices, the large number who were facing foreclosure helped drag property values down even further. A likely response has been the calls from homeowners, concerned interest groups, and some politicians for a federal government bailout of homeowners.

The message of providing help directly to foreclosure victims has been much more widely spread through the media than any description of the actions being taken by the government to bail out the banks at the expense of homeowners. First of all, the Federal Reserve has been creating new money out of thin air to give to the banks. The central bank has been injecting tens of billions of dollars into the financial system and are even considering about $200 billion more in the near future.

However, direct injections of liquidity have so far failed to stimulate the economy. So now the Fed is left to its favorite tool of inflating the money supply and causing the dollar to fall in value. The price of goods like food and energy are going up dramatically, which hurts the people who need to eat and go to work in order to pay their mortgage. But it bails out the banks and helps them cover their poor lending practices. Of course, this is a reflection of the fact that the banks are infinitely more influential in Washington than the average person, especially an average person too busy trying to stop foreclosure to worry about what is going on in politics.

HOPE NOW and Project Lifeline are two voluntary programs the government has put together and presented as a saving grace for homeowners facing the loss of a home. Essentially, the programs are nothing more than media relations programs where a handful of major banks in the country are voluntarily offering homeowners various programs to save their homes. This might be through repayment plans or loan modifications, or freezing the interest rate for a set period of time. But these have always been offered to homeowners who can qualify for them -- putting a fancy new name on them does not change what the programs actually do.

Thus far, these have been the only responses from the government in regards to the foreclosure crisis. Although it would probably be better that they stay out of the situation entirely, the Federal Reserve continuing to inflate the money supply and manipulate interest rates will have unintended consequences for homeowners while benefiting the largest, most politically-connected banks. Monetary bailouts and voluntary programs for the banks. Inflation and currency collapse for homeowners.

Homeowners attempting to find some way to stop foreclosure would be better off trying to negotiate with their banks right now and trying to work something out, even if just for the short term. This will more than likely result in a much better chance to avoid losing the house, rather than waiting for a different government program to save them. For example, there are some proposed changes to bankruptcy laws that may allow courts to lower the total amount owed on the mortgage to reflect current market conditions, but nothing is set into law yet and certain members of Congress and the banking industry will probably be successful in blocking the changes, as they benefit people instead of corporations.

From changing the bankruptcy laws in 2005, to manipulating interest rates from 2001-2006, to injecting tens of billions of inflated dollars into failing banks, much of what government purports to be helping the average person instead only serves to take what little money they are allowed to keep after paying taxes. The temptations of the easy credit conditions fostered by the government that inflated the housing bubble does not absolve homeowners of their individual responsibility to educate themselves on how mortgages work and what may happen if the good times did not continue. But it is not surprising that some of them also took advantage of these conditions to profit in the short term, while setting themselves up for a financial collapse down the road.

The questions that homeowners in foreclosure have are nearly endless. What are the consequences of going into foreclosure? Should homeowners be worried about being sued after they lose a home? If so, would it be better to file bankruptcy before the bank can sue for a deficiency judgment, or after? And what about their credit after facing foreclosure -- how long will it be scarred and what does that really mean? Thankfully, many homeowners will have similar experiences and the answers to these and other questions may be found relatively easily.

First of all, there is almost zero chance the mortgage company come after their former clients for the deficiency after the house is sold at the sheriff sale. Mainly for practical reasons, banks hardly ever do this, because it will cost them more time and money to sue homeowners after the foreclosure has ended. Furthermore, the foreclosure victims did not pay back the bank on the mortgage or the foreclosure judgment, so the lenders have little reason to expect that previous homeowners would ever pay back a deficiency judgment for tens of thousands of dollars relating to a house that they no longer own. It makes more sense from the bank's perspective to spend their resources trying to sell the house on the market, rather than pursuing more credit.

Therefore, if homeowners are considering bankruptcy in order to clear up their credit in anticipation of a deficiency judgment, they may want to hold off on filing right away. The chance the bank will sue them after the foreclosure for a deficiency is not very likely. But if the mortgage company does decide to sue them (which would be a huge shock to me), then the foreclosure victims may be able to have the debt discharged through bankruptcy.

But in the short term, the most relevant reason to file bankruptcy to stop foreclosure is to avoid having the home sold at a sheriff sale. Bankruptcy will put the entire foreclosure process on hold, which may give the owners the time necessary to sell the house or use the legal payment plan to get their defaulted mortgage back on track. Using the law in self defense to avoid losing a house to an aggressive bank is a quite acceptable reason to file bankruptcy, if there are no other options to stop foreclosure that can be closed before the auction date.

In terms of the credit situation after the home has been saved or lost, in the short term the homeowners will not be able to get any new credit at a decent rate -- not for at least a couple of years. This is mostly due to the large number of late mortgage payments that typically lead up to the foreclosure lawsuit. So homeowners who have just gotten out of foreclosure or bankruptcy should take this opportunity to pay down the debt they already have and start a savings plan. Then in 2-3 years, their credit may be good enough and the foreclosure far enough away that they can obtain new credit lines, refinance an existing loan, and borrow money at competitive rates of interest.

In terms of being able to qualify for a new mortgage or large loan after foreclosure, the owners' savings and down payment will be much more important than just their credit score. Banks will overlook the poor credit caused by the foreclosure if the loan applicants are putting a good amount of money into whatever asset (car, new home, etc.) that they are trying to get a loan for. This reduces the risk that the bank assumes, since they will be loaning less than the asset is worth and it shows that the homeowners are also financially invested in paying back the loan on time.

A few years of poor credit may just give homeowners the breathing room to pay off their credit card, personal loan, or medical bill debt. Not being able to borrow and saving helps homeowners escape from the credit trap and keep out of debt slavery. And if they can save money, then they will have more resources to use as a down payment or emergency fund to show new lenders that they are financially responsible enough for a new mortgage or other loan.

Foreclosure, although it is a depressing, devastating financial situation to be in, is not the end of the world. Neither is collections, repossession, bankruptcy, or judgments. The most difficult aspect is just not knowing what will happen next and what risks are involved in the foreclosure process. This is why most homeowners have more questions than answers when trying to save their homes. But even the answers to many of these questions are not difficult and should give some hope in even the most difficult foreclosure situation.

As the housing bubble inflated beyond all reasonable estimates of property values, one of the largest beneficiaries was the local governments that depend on property tax revenues. Some areas saw tax increases of 300-500% while homeowners were moving into areas and paying more and more for properties.

But now with the housing bubble collapsing and many homes either being abandoned or the occupants simply refusing to pay anymore, these governments are seeing their own existence threatened. After all, how can government keep increasing when property values are falling and tax revenues are decreasing?

So, in an effort to fight this threat, many governments have resorted to instituting new programs to assist homeowners in danger of foreclosure. Such hotlines or bank-government partnerships are designed to keep promoting the theft of homeowners' money, now in a misguided effort to help them stop foreclosure. The real problem with these programs is that government at all levels often has a very, very difficult time rolling itself back, which is the only way to reduce the burden on homeowners.

Look at all the new foreclosure help programs being created by local and state governments right now. They are not going away any time soon, even if the foreclosure problem becomes less severe. And they will just continue to create a tax revenue drag on the average homeowner long after the current housing decline has ended.

Once government programs are created, they often stick around to become entrenched interest groups. And one such as a government foreclosure help hotline which "helps the children" and "keeps the American Dream alive" in the community will not be easy for any politician to do away with once its purpose has ended. Many people are not familiar with the term "mission creep," but government has made an art of continuing to grab power and redefine its original aims to serve new perpetuations of itself.

After creating these new initiatives, the programs need to be financed, with ever increasing budgets to pay for new equipment, new invasions of privacy, new employees, and cut-backs in actual services provided to homeowners in foreclosure. Many of them may end up with the ever-increasing prices and scaling back of hours and services that are endemic to government programs, such as the Post Office, for example.

Cutting property taxes without cutting government spending will not help the people who have been funding this huge increase in government through their participation in the real estate bubble. If government did spend less, then more homeowners could keep their property taxes and use them to pay their adjustable rate mortgages or spend on increasingly expensive food and energy. After all, government provides no productivity to the economy.

Ironically enough, though, government will keep spending on new unproductive programs to help homeowners save their houses from foreclosure, which will just hurt homeowners and cause more declines in property taxes. This may continue to the point of so many foreclosures in an area that the local government finds itself in financial danger, facing insolvency. Without property tax revenue, the governments will not be able to pay back their municipal bonds and fund the militarized police departments and other so-called government services.

But instead of cutting expenses and doing away with the wasteful programs that homeowners can no longer afford to fund, government will more likely use the blunt instrument of police power. If the police departments and judges may face the possibility of not getting their taxpayer-funded payroll checks through property tax theft, they may decide to turn to direct extraction of revenues at a much higher level.

This means a new reliance on increasing government revenues through other means than property taxes. Cops could pull over more people for coasting through stop lights or speeding, and issue more tickets with higher fees. Fines for smoking in public or a county income or sales tax on everyone living and creating productivity in the area may stabilize or increase revenue in the short term, but will just engender even more disillusionment with government.

To be effective for the long term and actually help homeowners facing foreclosure on their inflated homes, government needs to cut spending and return some or all of the money based on unrealistic property values to the homeowners and other taxpayers. This means cutting the additional waste that was added to government services during the housing boom of the last seven years.

Otherwise, all these temporary programs will just continue to hurt the people they have been set up to help and create more empty houses, crime will increase through actual violations of property values or through absurd government declarations of new crimes designed to produce new revenue, and governments, after giving the people a push into bankruptcy and foreclosure, will face their own solvency crises.

Especially in the case of homeowners who own multiple properties, they may find that their mortgage company has had the locks changed on a house in foreclosure. This can be very unsettling to owners who are still trying to find a workable solution to foreclosure, because it indicates that the bank is exercising control over the property before it has been sold out from under the owners at a county auction. But banks may have the locks changed on a house even though they are not the legal owners of the property.

Of course, they can not really just take the property away before the foreclosure has gone through and the house has been sold at a sheriff sale. Without a reason to request that the house be secured, the bank can do nothing to the property itself until after the foreclosure auction. However, they can request the court to secure the property temporarily, which might mean changing the locks on an apparently-abandoned house.

Especially if the homeowners have not responded to any of the bank's motions in court or filed an answer to the foreclosure lawsuit or appeared (on their own or through an attorney) at the scheduled foreclosure hearing, the bank may just assume that they have decided to walk away from the house. Even if they know that the house is a vacation or investment property, they will not want to see it sitting empty and a potential target of vandalism or damage.

The government courts and sheriffs department will usually do whatever the banks tell them to do, so that helps explain why a house may be locked up before the foreclosure auction. The mortgage company can usually show that the owners have not responded to the lawsuit and that the house has not been occupied for a certain number of weeks or months, and that it should be secured to prevent damage. The courts will usually accept this argument and order the sheriff to change the locks.

But once this happens, it can be extremely difficult for the homeowners to regain access to their home. This is why they should keep in contact with the lender throughout the foreclosure process so they can explain why the house will be empty. But preventing the county government from changing the locks will always be much easier than cutting through all of the red tape later on to get back into the house. After the government changes the locks, even if the homeowners try to break into their own home, they may be held liable for any damage.

Once the locks have been changed and the homeowners are shut out of the house, but before the foreclosure auction has been conducted, they can try to get access back to the house by calling the local sheriff's department or the courts. They will most likely have to inform the court that they are still in possession of the house even though it is not their primary residence and may be empty at times. Even this simple act of explanation may require filing paperwork in the court and having the government remove the locks that were changed or allowing the legal owners access to their own property.

But the house is still the private property of the owners until it is sold at the county foreclosure auction. The mortgage company can and usually will secure the home if it looks like the homeowners have abandoned a property in foreclosure. However, they can not not otherwise interfere with the foreclosure victims' ownership interest until that interest is transferred by the applicable laws. The government may act as the right arm of the banks in securing the property and keeping the homeowners out for as long as possible, so keeping the house from being taken over by the government, even temporarily, should be a high priority for homeowners who are attempting to stop foreclosure on their homes.

Some homeowners facing foreclosure find a solution and are able to save their homes. Some of them just give up on the house and find somewhere else to live until their financial condition has repaired and they can attempt qualifying for a new mortgage. This post is not about either of these groups of homeowners, though. This post is about the ones who neither find a way to avoid foreclosure nor leave their home, remaining in the property and living rent and mortgage free for as long as possible.

With such high foreclosure rates across the country, it should not be surprising at all that some homeowners are taking advantage of the backlog in county courts. The Big Picture showcases an article about such homeowners living in multi-million dollar homes who have not made a payment for nearly two years while their houses are listed on the market and in foreclosure.

This phenomena is not all that surprising, as we have always run across homeowners who are looking for foreclosure advice only so that they know how long they can stay in the house. Some of them have already planned where they will go once the house is scheduled for eviction, but they want to continue living in the foreclosed house for free until the last second.

It seems it is usually the owners of higher-valued property that engage in this activity, as well. These are not the owners of an $80,000 house that try to stay for as long as possible; they move out quickly to avoid being taken by surprise by the sheriff who has come to remove them. Property owners whose houses are worth several hundred thousand or more were most often the people who contacted us to learn about the foreclosure process and how long they would be able to live mortgage free.

The homeowners may have their plans to live without the worry of a mortgage payment for as long as possible, but the mortgage companies are seemingly at a loss as to how to deal with these properties. The article suggests that these may be properties whose losses have not even been declared by the banks yet. Further compounding the problem for the banks is that they are waiting more than half a year in some states and counties just to get a court date to have a foreclosure lawsuit heard by a judge.

Of course, this just leaves the opportunity open for homeowners to contest the lawsuit or request more information that they are due under the various laws regarding debt. Especially if the loan has been sold numerous times and there is some question about ownership of the mortgage, the case may be extended for several more months before the house is ordered to be sold at sheriff sale. Over the last decade, mortgage debt, subprime or not, has seen a large increase in how it is bundled, securitized, and sold off to investors. A bank that collects the payments may not own the actual loan, and homeowners should not assume that their mortgage company has any grounds to sue them for foreclosure.

I have written before about when homeowners should consider walking away from their home and some of the considerations when doing so. Most of the rest of this blog provides information on how foreclosure victims can save a home through various methods to stop foreclosure. But the third option may be catching on in popularity as banks and local governments fall further behind the foreclosure crisis and the value of properties falls far lower than the amounts that homeowner owe to their mortgage companies.

I always find it amazing to read news stories and commentaries about personal finance put out by the mainstream media. Many of them seem to lack any focus in their messages to consumers, if they are not openly schizophrenic. This may be due to the fact that these large media corporations are attempting to appeal to the broadest audience possible, but conflicting stories serve no real purpose but to keep up the appearance that everything is the same even if the world and economy are radically changing around us.

Take, for example, a couple of the stories posted by MSN Finance recently. One is titled "The Credit Card Party is Officially Over," which discusses credit card companies jacking up interest rates and the overall drying up of consumer credit. Even for consumers who have a perfect credit history, banks are cutting down on the limits offered to them on new lines of credit and are trying to discourage people from opening new credit cards in order to transfer balances from old credit cards. Overall, the article is somewhat cautious about consumers using credit and advocates them taking care of their own personal financial situations without borrowing more.

However, just a few stories down is another article published on MSN Finance, although it is taken from Bankrate.com. This one is titled "Why You Need Multiple Credit Cards" and deconstructs the arguments against having multiple open credit lines. The wonders of using consumer credit are boundless if used correctly, according to this article, such as the feeling of financial safety and the lure of rewards for using the card. People who use their numerous credit cards wisely will also boost their credit scores, which means that they will pay overall lower rates of interest on other debt, such as housing or auto loans.

So, the message is... what, exactly? Maybe the message is that credit may be used wisely to rack up rewards and feel safe, until the bank jacks up the interest rate and lowers the credit limit. That does not seem very reassuring, and the average person will have to decide between heeding the warnings of the dangers of credit or continuing to do their best to keep on top of a mounting pile of debt. The fact that the second article aims to reinforce spending through credit cards is not surprising: consumers should use more credit, so that they can qualify for lower interest rates on more credit. The circle only ends when the homeowners are in foreclosure or the consumers are in bankruptcy.

But of course, finding oneself in bankruptcy or foreclosure can not be blamed on the poor decisions of the consumer or the misguided advice of the financial gurus. People who do not save for a rainy day have a brain disorder is all; or at least that is what CNNMoney.com has to say about it. An article titled "Can't Save? Blame Your Brain" discusses the psychological differences that humans feel when given a choice of instant gratification compared to waiting for a larger reward later in time. So all those home buyers who are now trying to stop foreclosure before they lose their overpriced homes that were bought at the top of the market can put the responsibility for their situation on the physiological makeup of their brains, not on their lack of ability to control the thoughts and feelings that go on in that brain.

The only solution offered in a recent article, of course, is to trick oneself into saving money now. CNNMoney.com has an article about this, as well, titled "Fool Yourself Into Saving Smarter." Saving up a few thousand dollars and then spending it on more consumer goods like iPods or big-screen TVs, though, is little better than just applying for another credit card to use "wisely" and rack up "points." Much more effective would be a change in attitude about the role of money in one's life; whether or not it is to be used just as a blunt object to score points and more stuff to keep up with the neighbors. Money represents energy and the ability to do work, and it is doubtful to me that anyone should just expend energy to keep up an appearance of having more money.

The large mainstream media corporations are not there to provide consumers with the most important information about the nature of money and law, though. It should not be surprising that they encourage people to continue consuming far beyond their means through credit cards, while quietly warning them of the dangers of this activity. But even those who end up in foreclosure or bankruptcy can not be blamed for ignoring these warnings -- they are just responding to the chemicals in their brains that tell them to consume until they lose it all. Of course, the media and banks also can not be blamed for the propaganda; after all, they issued a few perfunctory, half-hearted warnings, right?

Although many homeowners worry themselves over the possibility of being sued after foreclosure, few seem to know exactly how a deficiency judgment works. There is no way to tell for sure whether or not the bank will even be able to go after this, let alone if they will decide to pursue the additional lawsuit. Homeowners can only find out the risk they have to a deficiency judgment once the foreclosure has already gone through and the home has been auctioned off. They will not be able to find out before the sheriff sale of the property, because the bank and county do not know how much the property will sell for.

The mortgage company and county government, before the sheriff sale, know only how much the judgment is against the the homeowners, which is why they are selling the house. Of course, they may run comparable sales, order a broker's price opinion, or otherwise attempt to come up with a realistic value for the property, but nothing is settled until the sheriff sale is actually conducted. If the foreclosed home sells for more than enough to cover the amount owed on the mortgage at the time of auction, then the bank has absolutely no grounds to continue with another lawsuit after the foreclosure.

Thus, the homeowners will just have to wait for the sheriff sale of the house to find out if a deficiency judgment is even a possibility. If the home sells for less than the total amount that was owed to the mortgage company, which is entirely probable, then the former owners will have slightly more to worry about. The bank may be able to sue them, depending on the state foreclosure laws, after the auction for the difference between what they were owed and how much the house sold for. This is not allowed in all states, but just having a deficiency in the amount paid at auction and amount owed does not automatically mean a deficiency judgment will be pursued by the mortgage company.

In fact, why would the bank bother to sue the foreclosure victims again? They were unable to pay the monthly mortgage, they could not stop foreclosure by selling or refinancing to pay off the foreclosure judgment, and the county government had to force their home to be auctioned off to the highest bidder. Those are not the actions of a person who has the financial ability to pay tens of thousands of dollars in further judgments after foreclosure, and the lenders are well aware of this fact when considering whether or not to sue for a deficiency judgment.

Homeowners should not take this as a personal attack against their willingness to pay their debts -- foreclosure happens because people run into unexpected financial hardships when they are unprepared to deal with them. But from the bank's perspective, that hardship protects the foreclosure victims from the lender trying to go after even more of the owners' resources. They will have to hire local attorneys again to initiate another lawsuit in the local court system for the deficiency. Then the bank will have to try to collect on it, when the homeowners proved they were unable to pay back the mortgage loan and foreclosure judgment they had to begin with.

Thus, it is not really in the mortgage company's interest to sue the homeowners again after they have just lost a home to foreclosure. The time and money spent on pursuing another worthless, noncollectable judgment could be much better spent soliciting for new customers or preparing the home to be listed on the open market. Unless the homeowners have vast, liquid assets (not second homes or automobiles or collectibles) that the bank could seize, there is very little reason to expect that they will be sued for a deficiency judgment if they lose their home to the foreclosure process.

As the housing bubble is in full collapse and the economy begins to contract, the personal debt load of the average American becomes even more difficult to carry. Mortgages on homes that are no longer worth what is owed on them and credit cards with "adjustable" rates from 9% to 31% if a payment is missed are pushing consumers in record numbers into foreclosure and bankruptcy. But it is even more difficult to file bankruptcy now since the 2005 law changes (written by MBNA bank), and they are simply contributing to the foreclosure problem as homeowners are unable to discharge some of their debt.

In this environment, watching the documentary Maxed Out, originally released in 2006 by James Scurlock, seems eerily prescient. Almost every homeowner addicted to housing debt also used credit cards to furnish their dream homes and keep up an unsustainable lifestyle of consumption. In the good times, this can mean borrowing the money to build a home that the bank appraises at current market value (using mark-to-market accounting, which was also used by Enron). Elevators, wine cellars, numerous laundry rooms, and enormous kitchens are all must-haves for the most decadent debtors of society who lived it up during the housing boom.

The documentary examines much more of the dark side of the credit story, though, from the collectors who "put people first" to those who have been so hounded and humiliated by creditors that they feel suicide is their only option out. These are, of course, the human interest stories of the work, and every homeowner currently trying to stop foreclosure or pay back their creditors to stay out of bankruptcy will be able to relate to some of the more frustrating and disheartening moments.

It should not be any surprise that borrowers who fail to repay their loans on time are the most profitable customers to the banks. These are the people who are charged obscene interest rates and huge late fees, whose payments, which never manage to pay down the principal, make up two-thirds of these bank's profits from credit card debt.

But even when the homeowners run into a financial hardship, and pawning personal items no longer works, the defaulted debt is sold off to vulture collection agencies to continue the harassment/humiliation process. While the collectors need to tell themselves that they are "putting people first" in order to get through their day, all they really do try their best to get people facing hardships to send them as much money as possible to pay back loans that the bank knew they would never collect on and should not have loaned in the first place. "Feeding off the productive of society" would be a more appropriate way to put these activities, rather than "putting people first."

But these benevolent pirates of the collection agencies liken themselves to having their targets "walk the plank" as far as possible before they are drawn back. Using these psychological techniques that put people first, like calling the debtors' neighbors, is supposedly to allow these people the chance to get back on their feet and pay back what they owe to the banks. Of course, the agents never admit that the consumers really owe the collection agency a penny, nor that the money used to make these loans was created out of thin air at the moment it was borrowed, making it not really a loan of money at all.

But the power that the concept of money has on the uninformed homeowner facing a financial hardship can be devastating. The documentary interviews the families of people (even college students) who lost a loved one to the humiliated suicide of a debtor far beyond his means. Also interviewed are borrowers who are currently in the downward spiral, facing lawsuits, judgments, liens, and foreclosure, and who speak openly about their own thoughts of suicide as the only escape from the debt.

The two classic responses to any stress-provoking situation are commonly referred to as "fight or flight," meaning one is prone to run away from a situation or stand one's ground to meet it. Standing up to multi-billion dollar international banks and fighting against the crushing burden of too much debt is not often done by consumers, though. Far more common is falling into a deep depression and hiding from the problem, even if it leads to the loss of a home to foreclosure, filing bankruptcy, or even giving up on life in general.

The banks, unfortunately, do not care at all, as this is exactly the environment where they make the most money. Offering perfunctory admissions of being aware of complaints about their practices, and having to pay hundreds of millions of dollars in settlements for abusive lending and collecting practices are just a few of the very small repercussions these politically powerful banks must face. But the entire banking system is possibly the most successful ever created in privatizing gains and socializing losses, paying out obscenely large bonuses when times are good and receiving federal bailout money when profits are down.

As homeowners face foreclosure and bankruptcy in record numbers, the lawsuits, judgments, wage garnishments, and property value decline will continue, possibly at ever greater rates. But what do homeowners have to show for it all? They now owe more on their homes than they will ever be worth again, and the massive money creation caused by borrowing just contributes to the rising cost of living. Banks made their money and cashed out long ago, leaving the average Americans to fund the bailouts covering up this massive theft of homeowners' and debtors' wealth.