As the banks have become aware of just how much bad lending has been going on over the past five years, they have begun taking drastic measures to cut down their exposure to the subprime mortgage mess. Many lenders have gone out of business, filed bankruptcy, or stopped making loans to unqualified applicants, but this has caused a general drying up of credit in the economy. The subprime debacle is leading directly to a much more generalized credit meltdown, as homeowners in trouble will be unable to refinance their homes to save them from a financial hardship, and they will fall further and further behind on all of their bills. A quick refinance to consolidate and lower bills is simply not an option for a great number of homeowners now.

Banks are not even lending to each other very much right now. Many of the large banks, such as Chase, GMAC, and Washington Mutual, although they were not large players in directly lending to loan applicants in the subprime market, were voracious buyers of these loans. They would buy large numbers of bad loans, package them, and sell them to investors or hedge funds managers, who believed the returns would justify the enormous risks involved.

However, the mistake was in believing that real estate prices would just keep rising; if the homeowners with the bad loan defaulted, the banks would simply sell the property for a huge gain. Whether the owners made the payments or not, the investors would make money in a steeply rising real estate market. Of course, these geniuses failed to realize that large numbers of foreclosures would inevitably lower the home values in areas hit hard by defaulted loans. Once this happened, the charade could not last much longer and everyone realized just how toxic are loans made to people who could not afford to pay them back.

Now, with trillions of dollars of bad mortgage debt floating through the economy, banks are desperately attempting to reduce their exposure to the risks. If another bank requests to borrow money from a large lender, what is the reason? Because they are experiencing a short-term liquidity problem, or because the only way to stay in business for another few days is borrowing money that they will eventually default on once their mortgage clients default in even large numbers?

No one even really knows who owns these subprime mortgages, so every lending decision by a bank to another bank is now consumed by a fog of suspicion and distrust, which explains why credit is still scarce despite the Federal Reserve's repeated lowering of the interest rate and direct injections of newly-printed money into the economy.

Of course, all of this reduction of risk, refusal to lend money to homeowners in trouble, and direct involvement in the economy by the central bank just leads to more problems for homeowners. They are unable to figure out who owns their mortgage, because the loan has been sold numerous times and is now in the hands of some hedge fund who sells the servicing rights to another company which then sells those rights to various other companies. Even courts now are throwing out some of these foreclosure because the plaintiffs can not prove their own the loan; while this is a positive development for homeowners, it does not allow the mortgage contract to be performed as written and leads to more confusion as to just what is going on with these subprime loans.

The homeowners are unable qualify for a loan to fix their problems temporarily, because banks are no longer lending money to people in their financial situations. And they can not even afford to keep up with rising prices any longer, as the Federal Reserve inflates the money supply, decreases the purchasing power of the dollar, and bails out banks directly. While no one party should get a direct bailout, the fact that the banks are getting it just to prop up their bottom lines for the short term will not do a single thing to provide help to homeowners falling behind. They still do not qualify for a new loan, whether the lenders have been given free money or not.

And the new money given to the lenders just increases the possibility of more foreclosures, which increases the chances that the banks will request more bailouts in the future, leading to more inflation and more foreclosures, and so on. This cycle of stealing purchasing power from the average consumer to give to the big banks because they may not make as high of profits as they once expected is no excuse for the act of stealing money from the homeowners to begin with. When the Federal Reserve, owned by the large banks to begin with, prints money to give to the large banks, this is nothing but outright theft from homeowners. As the money supply increases, money becomes worth less, but those who have access to the newly-created money can continue to prosper at the expense of those who do not.

With bad lending practices, absolutely confusing loan paperwork and unclear chains of ownership, and continually relying on inflation to bail them out of these poor decisions, the banks have been shooting themselves and their clients in the foot at every opportunity. Extracting as much profit as possible from the people through lies and manipulations is one thing; believing their own lies is entirely another. Of course, it always helps when the banks do not have to worry about things like accountability or being punished in the market. After all, they exercise inordinate control over the market through interest rates and money supply, and will begin the next bubble after the currently bursting one's fallout has been cleaned up.

It is no secret that one of the key problems with many homeowners is their enormous debt load. In 2005, nearly one in sixty households in America filed for personal bankruptcy, and this was long before the current housing crisis. Expensive mortgages, dozens of credit cards, impulse buying, and living without a budget all contribute to consumers having no structure in their lives that will allow them to defend against the constant advertising and competition for new toys and machines.

Banks, on the other hand, have made it incredibly easy for the average American to obtain nearly any item without having to pay for it. Simply whip out a credit card, given to the consumer regardless of income or ability to pay back the amount borrowed, and the newest extravagance is magically paid for. And when the overspender inevitably starts to feel the weight of the debt, there is almost always another new credit card offer waiting in the mail. The consuming culture of debt has caused many of the current economic instabilities, and neither banks nor consumers are blameless. But, it will be those who have borrowed who will pay the ultimate price for poor financial decisions, as banks can count on bailout after bailout from central banks.

Thus, it makes sense for homeowners with large mortgages and other debts to plan for the stability of their family's economic future. Banks begin pushing credit cards on college students, ostensibly in an effort to "establish a relationship" with the consumer, whether the student has a job or can afford a credit card at all. The temptation for abuse is insurmountable, in many instances, and the new consumer begins the habit of spending more than what is earned. The banks know this is the likely outcome, but they are full aware that the parents will bail out their children.

Every person should take extreme care when deciding whether to borrow money for purchases. Besides a very large purchase, such as a house, credit is most likely unnecessary and will cause undue harm. Borrowing $10.00 for lunch, which will end up costing $35.00 or more in finance charges over time, is simply bad financial management. But consumers do this all the time, and they can produce credit card after credit card in order to keep spending.

Unfortunately, though, borrowed money is much different psychologically than earned money. Homeowners are much more likely to spend the money they save very carefully, guarding it against unwise or impulsive decisions. But money given to them from a bank through a credit card is often spent as quickly as possible with little regard for the consequences.

Families have to establish good spending and borrowing habits and pass those habits on to their children, if there will be any lasting avoidance of the credit trap. That means impulse buying and unnecessary extravagant purchases must be avoided, and a little bit of money from every paycheck (or every allowance for the kids) should be put aside in a separate account to be used only for savings. And savings should have a future goal attached to it, such as a new car purchase in the long term, or a family movie night once a month if the savings goal is met, for example.

Good spending habits and working together to get out of debt can foster a family relationship that does not suffer from the financial instability present in so many homes, a problem that can lead to divorce, bankruptcy, or foreclosure. And for consumers who are already deep in debt, cutting up the cards and selling off the ill-gotten gains of a lifetime of overspending can bring the family back together. Never having to worry about an unnecessary load of debt by paying off and destroying credit cards and going on a "selling binge" is one of the longest-lasting positive projects a family can take on. It is also one that will dramatically reduce the chance of facing a devastating financial hardship leading to repossession, a scarred credit rating, or the loss of a home to foreclosure.

One of the most effective ways for homeowners to find a way out of foreclosure is simply to sell their property on the open market. In the best of cases, this will allow them to stop the foreclosure process, pay off the defaulted loan in full, and leave the house with a little extra cash for moving expenses, bill payments, or to establish an emergency fund. If the house is sold early enough in the process, the homeowners may even be able to preserve enough of their credit to purchase a new, more affordable home. But even listing a home for sale should just be one of the homeowners' options, and should not be solely relied upon.

The main drawback of listing a house for sale in order to avoid foreclosure is the lack of time. The foreclosure process will not simply stop just because the owners are attempting to sell the house, creating a race which will decide who and on what terms the property will be unloaded. If the foreclosure victims win, they can work with the new buyer and negotiate the price, closing costs, and every other part of the agreement. However, if the bank wins through the court process, they home will be forcefully sold at a county sheriff sale for whatever price is offered. The owners will be completely cut out of negotiating the terms of the sale.

Unfortunately, with the real estate market in such a slump, selling a house to stop foreclosure may be quite a challenge for homeowners. Houses now typically sit on the market for over six months to a year with no real offers. This almost guarantees that the foreclosure victims will have to request more time from the lender in order to locate a buyer. Although many banks will give the homeowners every opportunity to work out a solution by stopping the sheriff sale, an entire year is a long time for the bank to leave the foreclosure process on hold.

Of course, one of the ways to avoid waiting for long periods of time and hoping to stay in the good graces of the lender is for the homeowners to sell quickly. If they have a lot of equity in the house, many professional investors will be interested; their offers, though, will leave the homeowners with no real profits beyond a little extra cash to move out. Such bargain shoppers of the real estate industry can often be found advertising on billboards or in classified ads, with messages such as "We Buy Ugly Homes," "Cash For Your Home Today," and the like. There is nothing wrong with these investors, but they will leave homeowners with little to show for any equity they may have in the home.

A short sale is another possibility for homeowners who do not have time to sell the house through the open market and who may have little to no equity. Selling short will require the lender to accept a lower amount of a payoff than what they are owed on the loan, and each bank's short sale procedures are a bit different. However, if they accept the offer, the homeowners will be able to sell the house and at least escape from the foreclosure nightmare. There is little chance of getting much equity out of the sale, but it is a much better outcome than watching the home sold at a foreclosure auction.

Selling the house should be considered by every homeowner facing the danger of foreclosure. Due to some of the drawbacks, though, such as the time required for an open market sale and the control that the lender can exercise over the sheriff sale and short sale processes, selling should only be one of many ways to stop foreclosure that homeowners examine. As we always recommend, having more than one backup plan is an absolute necessity when facing the loss of a home. Buyers back out at the last second, mortgage applications are rejected, or unexpected title issues come up that derail the process. But for homeowners who want to make a true fresh start after foreclosure, selling the house as one of the last resorts may allow them the second chance with a new home that they are seeking.

The day after Christmas is traditionally one of the hottest shopping days of the year, and for good reason. Retailers attempt to unload items by offering once-a-year deals through hefty discounts and offers. Consumers, on the other hand, try to find the lowest price for those goods that they desire, but do not with to pay full price for. Obviously, the success of the sales of the day after Christmas for so many years illustrates an important point of the free market system.

There are no government interventions, with bureaucrats ordering which items should be purchased, who may buy what, and then robbing the consumers of the rest of their money on the way out the door. Simply lower the prices of certain goods, and retailers and consumers will be able to meet and exercise their right to freely choose which items and goods are best for them.

While we would never discourage any person from purchasing anything he or she thinks it in the best interest to obtain, a little caution should be used when shopping, when good deals are present or not. With the past year of high foreclosure rates and a housing market slump, financial prudence may be a more important habit to establish at the end of 2007 than continuing a habit of over consumption.

Homeowners who have been financing their lives with credit cards and taking out larger and larger mortgages every few years to pay off mounting bills should absolutely take stock of their current situations. The credit trap is a deadly one to fall into, which can lead to an inability to save money, bankruptcy, or foreclosure. Especially if an unexpected financial crisis hits, a family relying too heavily on credit will be unable to sustain their current quality of life, however overblown it may be.

This, obviously, leads us to a strong recommendation that saving money, rather than borrowing or spending, may ensure homeowners and consumers in general enjoy a prosperous 2008, without the worry of losing their homes or living with a scarred credit. Spending money and enjoying the fruits of one's labor is one of the great joys of life, of course, but having a substantial savings account ensures financial security. It is a much happier life than the one lived by many families, who overspend and borrow money to acquire more "stuff," but are always wondering if their next paycheck will be their last, and what they would do if something unexpected came up.

The holiday season is a good time for homeowners to engage in the free market system with retailers and acquire some last-minute deals on necessary. But taking the spending spirit too far should be warned against, and consumers who drain their finances too far may not be prepared for the events that inevitably disrupt one's life. No amount of "stuff" is any consolation when facing the loss of it all due to bankruptcy or a foreclosure auction. Nothing that we say will discourage consumers from consuming, of course, but a little extra caution to look out for one's finances in every season, and plan for the future instead of simply enjoy the present, should be taken into consideration by every homeowner.

Merry Christmas!

From all of us at ForeclosureFish.com, we wish you and your family a very merry Christmas.

As we have discussed previously, homeowners in foreclosure will often miss the initial hearing date because they are unfamiliar with the legal process and simply do not understand how foreclosure will work in the court system. Obviously, this lack of understanding itself may be one very important reason to attend the hearing, as the court can not enter any judgment unless the homeowner defendants are aware of and understand the nature of the charges against them. In any event, though, it will be worthwhile for foreclosure victims to gain a broad understanding of the foreclosure process, as well as become familiar with some of the more common terms that are used by the courts, either in regards to the process of taking the home or filing bankruptcy to stop foreclosure, two related topics.

Breach of contract is the essential claim made in the foreclosure lawsuit, when the bank complains to the court that the homeowners have failed to pay their mortgage as agreed. There are several elements of a breach of contract case that must be proven in order for the bank to win its case. These include proving a legally binding contract exists between the lender and owners, the lender performed their part of the contract as agreed, the homeowners failed to perform, and the lender has suffered actual damages as a result. If the bank can not prove every one of these, they can not win the lawsuit.

A complaint is the term given to the document that begins the lawsuit by laying out the specific claims being made by the lender and the facts of the situation. It is the first legal pleading made by the plaintiff in the case. The complaint is filed in the court clerks office and a copy must be sent to the homeowners, to inform them of the lawsuit. Another term for a complaint is a petition, and either word may be used to describe the same document, depending on the county and court where the lawsuit is filed.

The docket is an extremely useful document that lists all of the documents filed to date in a particular case and a chain of proceedings that have occurred. Courts are more frequently offering online dockets to the public, who can research the chronological summaries of any particular case without having to visit the clerk and search through court records. The docket is a useful summary for homeowners attempting to put together a defense against foreclosure, due to the information being easily summarized in order of date. It is also the formal record of the proceedings in a court case.

A nondischargeable debt is a term often used in bankruptcy cases, when describing which debts can not be wiped out by filing a Chapter 7. Any debt that is nondischargeable will still need to be paid even after filing bankruptcy; common ones include child support, alimony, and student loans. While homeowners can often wipe out many debts and free up some income by filing Chapter 7, any debt that may fall into this category will have to be taken into consideration when planning a future budget after foreclosure and bankruptcy.

Chapter 13 bankruptcy is a reorganization plan that is used by consumers to pay off their debts under the protection of the courts. Home mortgages can be included in bankruptcy proceedings, and allow the homeowners to pay back the amount they have fallen behind, along with keeping up to date on their regular payments. The payment plan during this type of bankruptcy is either three or five years, depending on the circumstances, amount of debt, income situation, and other considerations. The main reason homeowners may wish to consider bankruptcy is that is has been designed to come to fair terms with all of the creditors and allow the foreclosure victims to get a fresh start.

When a lender claims that a loan has gone into default, it means that the homeowners failed to perform one of their legal duties under the mortgage contract. When the monthly payments are not sent in at the agreed-upon time, the mortgage contract is considered to be in default. Default can also refer to the homeowners' failure to respond to the complaint filed in the foreclosure lawsuit, and will lead to the lender being awarded a default judgment. Thus, in the foreclosure process, default first occurs when the loan falls behind and the bank believes the homeowners have no intention or ability to repay, and then again if the foreclosure victims fail to respond to the foreclosure lawsuit.

Especially in cases where mortgage fraud may be suspected, or the homeowners are attempting to work with a difficult bank, a court decision called an injunction may be necessary. This is essentially an order designed to prevent harm from being done to the homeowners, either to hold off on the eviction process, or credit payments that have been made that the lender claims were "lost," but for which the owners can show proof. Essentially, it is designed to protect the homeowners against future injuries against them by the lender. Injunctions can be used against the lender to make them do something or prevent them from taking an action against the foreclosure victims.

Although most homeowners facing foreclosure would like to hire an attorney to defend them in court, this option may not be available, mainly due to cost. This does not, of course, preclude them from fighting back against the legal process that is attempting to take their homes from them. Homeowners may be able to defend themselves, and courts refer to such self-represented parties as pro per or pro se. Each phrase has the same meaning, designating a party to a lawsuit that is handling his or her own case without representation.

Class action lawsuits are one of the most effective means that have been brought to bear on negligent, fraudulent, or predatory lenders. Using this type of lawsuit, former foreclosure victims have grouped together and sued such big names as Ocwen and Fairbanks Capital (a/k/a Select Portfolio Servicing), claiming damages amounting to tens of millions of dollars. If widespread fraud or incompetence on the part of a lender is uncovered, which led to many people losing their homes unnecessarily, a class action may provide relief and shut down the unethical business.

A default judgment is typically awarded to the mortgage lender in foreclosure situations simply because the owners of the property do not file an answer or appear in court on the hearing date. Their silence is taken by the judge to mean that they have no disagreement with the lawsuit and do not wish to defend against it. Therefore, the case is decided for the lender, who is able to proceed to a sheriff sale and the eviction of the homeowners. This is one reason that is is absolutely vital that foreclosure victims at least show up to the hearing, if only to request more time to save their homes or defend against an unjust lawsuit. There is absolutely no reason to make it this easy on the lender to foreclose on the home, without even showing up to request a chance to obtain a new beginning.

Lis Pendens is a Latin term meaning "a suit pending," and is most frequently used to describe a foreclosure lawsuit that has been initiated against a particular property. A document called a lis pendens may be filed at the county recorders office, which will inform anyone researching the property that it is subject to litigation. The document informs everyone with any potential interest in the property that nothing should be changed with regards to it as long as the suit is pending in court; this is one reason few banks will lend money if a house is in foreclosure. It also indicates that the title to the property is in question and may be transferred if the house is sold at a public county foreclosure auction.

A secured debt is used to describe the mortgage, which was money loaned in return for a lien to be placed on a particular piece of property. The lender's interest is a security (the house) that will cover the debt (mortgage) that is owed if the loan payments are stopped. If the mortgage agreement is broken by the debtors, foreclosure proceedings may be initiated against the homeowners. In this process, the bank will be able to force the sale of the collateral, the home, in order to pay off the debt secured by the house. Also, lenders have no recourse to any other assets during the foreclosure lawsuit, as only the house is pledged as collateral for a mortgage. They can not take any other asset until after the foreclosure, and then only in certain specific circumstances in some states that allow for it.

There are many more terms that will come up during the foreclosure lawsuit, and state and local court rules will inevitably use different terms to describe the same or similar ones to those mentioned here. Homeowners should look up their state's rules of evidence, and the local court's rules, as well as practice by reading through their own legal paperwork. Picking up a small law dictionary will also help, and it can shed light on seemingly very confusing legal forms with dense "legalese" language. Defending against a very clearly defaulted mortgage may be difficult, if not impossible, but foreclosure victims can show the court that they will not simply be pushed out of their homes without utilizing every resources available to them, including court-ordered options. A judge with a motivated homeowner in front of him can often order the bank to attempt working with the owners to stop foreclosure completely or put the court proceedings on hold until a better solution is worked out.

When facing foreclosure, one of the most commonly suggested methods to save the home is to work with the mortgage company, either to set up a forbearance agreement or loan modification. A mortgage modification can often be the perfect solution in situations when homeowners can not afford a standard repayment plan, refinance out of the process, or save up enough to pay off the arrears. Working with the lender to modify the terms of the loan, though, can give them the fresh start and second chance they are seeking, and allow them to begin making an affordable monthly mortgage payment again.

Due to its strong-arm tactics, lenders are often perceived by homeowners as the enemy. Just a few of these practices include numerous daily phone calls, harassing letters demanding payment, and hiring a local law firm to begin the foreclosure lawsuit; all to persuade the family facing the loss of their homes to send in one more payment, even if they can not afford it. Many homeowners simply give up, and seek a way out of foreclosure that does not involve dealing with the lender. But working with the bank can often result in positive solutions.

Working out a solution to the foreclosure problem is a mutually-beneficial result for homeowners and the mortgage company, especially in the case when the homeowners have no other option besides losing the house. Due to market conditions or personal finances, putting the house for sale or qualifying for a foreclosure bailout may be simply impossible. In these situations, the lender and owners will have to work together to stop foreclosure.

A loan modification is defined by HUD as "a permanent change in one or more of the terms of a mortgagor's loan, allows the loan to be reinstated, and results in a payment the mortgagor can afford." Some of the more commonly used methods of modifying a loan include extending the term and putting the missed payments on the back of the mortgage and spreading the defaulted amount over a period of several years. The most positive consequences of this will be that the homeowners quite often experience a decrease in the monthly payment and they prevent foreclosure.

Some larger mortgage companies and mortgage servicing companies do not allow their clients to modify the terms of a loan, however. This is one persuasive reason that new loan applicants should consider using only local banks that do not sell their loans. Small banks are often engaged in the life of the community, and are thus more willing to work out a solution in the interest of the foreclosure victims. But in any foreclosure situation, even if the owners can not afford to get back on track, a mortgage modification may be an appropriate option. Obviously, there will be numerous qualifications to be met and financial documents are needed to prove that the homeowners have recovered from their financial hardship and have a stable income. But a loan modification, in the right situation, can provide the best solution to foreclosure.

One of the more commonly discussed methods of saving a home from foreclosure is working with the lender, either for a repayment plan or a mortgage modification. Many foreclosure victims try hard to get back on track but can not afford it, refinance but can not qualify for the loan, or establish a repayment plan but not afford the higher cost. For them, a successful modification will allow them to negotiate with the lender and alter the terms of the loan, which can give them the second chance they need and allow them to benefit from more manageable payments based on their current financial situation.

The lender is often seen by homeowners falling behind as their worst enemy, due to persistent, threatening phone calls, numerous mailings from the collections department, and the bank's hiring of a local law firm to sue for foreclosure. These are just a few of the tactics used by lenders to cajole homeowners into making a payment, even if they can not afford it. After missing a few months, many homeowners just want to end the foreclosure process any way possible in order to get some freedom again. However, it is usually more appropriate for homeowners to fight for a mutually beneficial solution.

The lender and homeowners both have very good reasons to work together and establish a plan to get out of the foreclosure process, especially if no other solution is available. Selling the home or refinancing the loan may be out of the realm of possibilities, depending on the circumstances leading up to the foreclosure. Thus, if the home is to be saved, in many cases the lender and owners must work together and modify the mortgage.

The Department of Housing and Urban Development (HUD) defines modification as "a permanent change in one or more of the terms of a mortgagor's loan, allows the loan to be reinstated, and results in a payment the mortgagor can afford." Lenders, according to common mortgage modification plans, may be able to extend the term of the loan and amortize the missed payments, or spread the defaulted mortgage payments over several months or years. The owners of the property will likely experience more affordable loan payments and be allowed to avoid foreclosure.

A number of banks, however, do not offer loan modifications to their clients. Because it is mostly larger banks and mortgage servicing companies that refuse to do this, homeowners can consider using local mortgage companies exclusively to obtain a mortgage. They are often more willing to work with families in the community and come to an agreement to keep the home from being foreclosed. Even when homeowners think they are unable to afford their home any longer, they may want to consider requesting a mortgage modification. The programs have numerous qualifications that must be met, of course, but as long as the homeowners have recovered from the original financial hardship and can prove a stable income, a loan modification may be the perfect solution.

With all of the furor over the subprime mortgage debacle, a number of individuals and groups are taking a closer look at the loans that made the mess possible. Adjustable rate mortgages, interest only loans, and their variations are estimated at $3.5 trillion now, and they are partly to blame for the record foreclosure rates. One occasionally-proposed method to dealing with the crisis is simply to make these types of loans illegal. Although that may sound like a plausible solution, it does not address the more fundamental causes of the foreclosure problem.

First of all, these types of mortgages have not been made illegal because they are voluntary contracts entered into between two consenting parties (the homeowners and the banks) who each had time to review, negotiate, or reject the contract before it was signed. Nothing illegal has been done in the vast majority of adjustable rate mortgages and many homeowners who have adjustable rate mortgages were able to pay them off or keep up with the payments. Eliminating an entire type of voluntary contract that is extremely useful and appropriate in certain situations does not eliminate the possibility that any other type of contract will be used when it is least appropriate. The contract itself, therefore, is not the problem, but how and for what purpose it was relied upon.

By far the largest percentages of people facing foreclosure are losing their homes because of a loss in income or medical problems. Less than 5% actually lose their homes because of a payment resetting, although it may contribute if there is another hardship. The subprime loans and resetting payments are significantly contributing to a sense of despair in the economy, and even a small decrease in the amount of people looking for new homes will begin to create a snowball effect, dragging down property values and decreasing profits developers can make from building new houses. So, the irrational fears created by these types of loans are creating instability in the market, but the usual causes of foreclosure still remain the overwhelming reason homeowners face foreclosure.

This is not to say that certain events during the mortgage application process may not have been unlawful, and fraud and negligence were obviously involved in some cases in order to pump up profits and take advantage of the real estate bubble. Specific aspects of creating contracts are illegal if they are discovered, such as disclosing material facts, not using intimidation, not giving contracts to people who can not reasonably enter into them, and making contracts with minor, to name a few. But when a husband and wife apply for a mortgage loan, sign disclosure statements that the rate will increase after 2 years, and state that they understand the terms of the contract, when they have not had the documents reviewed by an attorney or on their own, then problems will come up. The question is, who is responsible for making sure the homeowners understand what they are getting into? Obviously, no one except the homeowners can be certain if they understand completely or not, so it is up to them to raise any questions before going through with the mortgage. Otherwise, the bank will take silence to mean consent.

Again, these specific types of mortgage contract are not the real problem. More is going on in terms of lack of financial education, homeowners (and banks) not understanding how contracts work nor how to read them, and simple greed on the part of everyone involved. However, anyone who was pressured into getting an ARM or fraudulently induced into a loan should have some legal recourse to have the mortgage nullified and the lender punished. If these issues were addressed from the perspective of contract law, rather than just seeing homeowners who simply can not pay the mortgage, more than a voluntary federal program would be offered. But banks often have little to fear from lawsuits, as they hold more financial power and legal expertise than the average homeowner.

Outlawing a certain type of mortgage contract in an effort to protect homeowners from their own failure to understand the agreement they are entering into is no guarantee that the same problem will not crop up again in other areas. It is the underlying causes that need to be addressed, with community solutions and private education available to provide potential loan applicants with information necessary to evaluate the contracts they are considering. If this is not possible, and homeowners do not understand the mortgage, they need to have it reviewed by competent legal counsel. This can often be done for a few hundred dollars with the fees rolled into the new loan. Lawyers, though, should make certain the loan applicants understand the ramifications of the contract, though, and not just explain what it is while ignoring how it may play out over time. Homeowners themselves also need to plan for an uncertain future by establishing an emergency fund, saving as much as possible, and learning to live without extravagance if they have no self-insurance against the next inevitable financial hardship.

Over the past years working with foreclosure victims, it is always amazing to see the complete incompetence of mortgage lenders. When working with these homeowners, foreclosure case workers or loss mitigation representatives go to nearly any lengths to avoid helping their clients. It seems they do anything possible in order to delay a resolution, instead allowing the home to get dangerously close to the sheriff sale before turning down the workout program entirely.

In cases where the homeowners are facing the loss of their homes due to negligence or fraud on the part of the lender, the incompetence is especially frustrating. Our observations over years have alerted us to a few of the various ways that banks push paying customers into foreclosure in order to steal the home and extract the largest profit possible at the expense of the homeowners. This type of scam is mostly perpetrated by servicing companies and operates in several ways, all of which we have witnessed numerous times.

Homeowners in these and similar situations may feel as if they are the only ones caught up in some kind of Kafkaesque debacle. The lenders play the part very well through their own genuine incompetence at the customer service level. Remaining on hold for three hours a day just to confirm that a fax has been received (when it had not been received any of the previous three times it was sent) is a simple tactic resulting from understaffed loss mitigation departments and increasing foreclosures. But more and more experience and research shows us that these are not isolated events, but carefully planned manipulations of mortgages, resulting in forced foreclosures.

Possibly the most common scam that we have witnessed is when the lender places a forced insurance policy on a property. They claim they have not received proof of insurance and then force the owners to pay extra every month for the policy. Often, they place the insurance without informing the homeowners, who make their regular monthly payment, which is first applied to the policy and then to interest and principal. This makes them late on the bill even though they are paying on time every month. Faxes to the lender of proof of insurance will not convince them, if they confirm receiving the documents at all. Homeowners may only learn of the insurance policy when they are being sued for foreclosure, and assume that a horrible mistake had been made.

Another way that mortgage servicing companies push properties into foreclosure is by paying the property taxes late and charging the late fees to the homeowners' account. The next payment the homeowners make will be applied to the taxes and late fees, while the principal and interest will be partially late. Again, the foreclosure victims may not realize the scam until they are being sued and their home is scheduled to be sold at a county auction. Even then, they may have little idea of how to defend themselves in court against a company with thousands of successful foreclosures behind it who has hired local attorneys that specialize in such cases. The loss of the home may be all but guaranteed at this point.

These are the two most common ways, in our experience, that servicing companies have been known to force homeowners into foreclosure. The deviousness of the scam, combined with the bureaucratic inefficiency of many of these companies, often create the impression that errors have been made that can be corrected, as long as the homeowners can talk to someone, explain what happened, and straighten out the mess. Unfortunately, customer service centers may be specifically designed to delay the homeowners as long as possible, leading them to believe they are working out a solution, while the attorneys proceed ever more quickly to the foreclosure auction.

Even more unfortunate is the fact that homeowners have little alternative when they become a victim of this scam. Once they are behind in payments or in foreclosure, the servicing company will make absolutely sure that the balance due on the loan strips the property of its equity. This also dramatically decreases the chance of qualifying for a foreclosure loan or other solution, and increases the amount necessary to begin a repayment plan with the company. A house with little equity can not even be sold quickly enough to ensure that there will be any equity by the closing. The servicing fraud scam is one of the most disturbing in the industry, and one every homeowner should be aware of, because the power of the perpetrators so outweigh the victims in terms of money, legal expertise, and previous successful cases.

This is the second article in a series examining various general issues of relating to foreclosures and the legal environment. Homeowners often avoid going to the initial foreclosure default hearing, which makes it very easy on the bank to win a case and proceed from foreclosure to eviction. Being aware of some of these legal issues, though, can encourage foreclosure victims to make it to the hearing and present their side of the story, which may result in a better resolution to the problem than a sheriff sale. Although these issues may not be come up at all, or the homeowners will find some solution outside of the courts, being aware of these aspects of the foreclosure process can allow them to put together more backup plans if the bank does pursue the default through the county court system.

The previous article discussed what elements of a case that the lender would need to prove in order to win a judgment against the homeowners. These included proving there was a legally binding contract, the lender performed as agreed under the terms of the contract, the homeowners breached some part of the agreement, and the breach caused the mortgage company to suffer actual damages. The lender must prove all of these elements in order to win; if they can not prove one of them, there is no case. For example, if the bank shows everything else but can not prove that they own the paperwork for the loan, due to it being passed around from lender to lender, sold to hedge funds, investment firms, and then sold to the foreclosing bank, but the loan papers are not clear, there may be no judgment awarded.

Of course, if the homeowners do not show up to the foreclosure hearing, the bank will often be awarded a default judgment, with the judge simply assuming that the bank's case is sound. If the homeowners are made aware of their right to defend against the lawsuit, and simply waive that right by not answering the complaint or showing up to court, the judge will assume that silence equals consent and the lender will win.

But, for homeowners making their own defense or hiring an attorney of their own to defend them, it is important to be aware of certain techniques that can be used to answer the foreclosure. The first step should be for the homeowners to identify in the lender's complaint the specific legal claims being made. Obviously, the most common one in a foreclosure lawsuit will be breach of contract, specifically in regards to the mortgage loan. But without reading the complaint, homeowners can not be sure if any other claims are made, or if the bank has failed to make any claim at all. Identifying the claim will help the foreclosure victims begin to understand exactly what they are defending against.

Then, the homeowners may want to figure out the exact elements of each claim made against them. My first article on this subject explains the specific elements that would generally need to be proved in a breach of contract case, although every case will be somewhat unique. But, as stated earlier, the bank will need to show that a legally binding contract existed between it and the homeowners, that the lender did everything as agreed, the homeowners failed to perform as agreed and breached the contract, and the lender suffered actual damages as a result. Although this may seem quite simple in theory, mortgage companies (and all creditors) are notoriously bad at record keeping and attorneys are not always known for competence when their shaky legal claims are challenged. Homeowners who can identify exactly what needs to be proven can often easily poke holes in the case and create a sense of doubt over one or more element, depending on how thorough the bank has been.

The next step may be for the foreclosure victims to identify each fact that the bank may use to prove their case. Some of these items may be the original mortgage paperwork, any assignments of mortgage showing who owns the loan at the present time, mortgage payment records showing the missed payments, and so on. Because the lender is qualified as a debt collector under the Fair Debt Collection Practices Act, it is quite reasonable for homeowners to request specific validation of the debt. If the bank has not kept very clear transfer records, or there is doubt of who exactly owns the loan, there may be no case against the homeowners. For example, suppose the bank can not clearly show the loan was transferred to it. The homeowners may be in danger of being sued by a different lender who actually does own the paperwork, or possibly they have been making on time payments to a different lender who has the right to collect. The bank that can not show it owns the loan can not prove it has the legal right to try and collect payment for the loan.

This is one reason why homeowners may want to put together documents that they have received that can disprove the lender's claims, as well as evidence that proves the claims the homeowners will make. As long as any one element of the mortgage company's lawsuit is defeated, there can be no judgment against the homeowners for foreclosure. If the bank's transfer documents are far different from the foreclosure victims' own information, there may be doubt that a legally binding contract exists between the bank and owners. Although this may just require more documents to be produced by the bank, rather than the whole case being thrown out, it will show the lender and their attorneys that not every homeowner is willing to be pushed around and intimidated by an unfamiliar court system.

Admittedly, it will be very difficult for homeowners to get the foreclosure lawsuit completely thrown out of court, leaving the bank with no other alternative than to write off the loan or start over and try to prove their case some other way. This happens in only a very small number of cases. But, homeowners with some knowledge of the foreclosure process in the court system, and the general theories of what the bank must do and how it can be defeated, will be in a much stronger position to come to a resolution that does not involve losing the home. Judges can order the parties to consider settlement ideas through mediation or arbitration, but homeowners too fearful even to show up at court will lose their opportunities for such alternatives to foreclosure. Even when homeowners are represented by an attorney, having a background understanding of the legal process will make the experience easier to comprehend.

DISCLAIMER: None of the general information or advice offered in this article should be taken as legal advice, which can only be dispensed by a state-licensed attorney, who has completed a state-approved course of study at a state-accredited law school and has passed the state-mandated examination to become a state-approved attorney. Homeowners in foreclosure who desire representation should seek out one a state-licensed attorney who is able to work in their state. This article is designed to provide general information only.

During this busy holiday weekend, many homeowners will be out finishing up Christmas shopping, taking advantage of great deals, and enjoying the atmosphere of holiday cheer and the joys of the season. But it is equally important to focus on the what is truly important: sharing one's home, family, and community with others and having peace of mind for at least a few days out of the year. For homeowners who are simultaneously worrying about shopping lists and the possibility of facing foreclosure, this peace may be difficult to come by. Restraining one's consumer-driven impulses can help save money that can be used to keep up the mortgage, while focusing on the real meanings of the holidays by getting closer to friends and family, regardless of gifts or extravagant celebrations, can make a great deal of difference.

One of the toughest decisions homeowners will have to make to save their homes is what plan to focus on at any given time. Because each option to stop foreclosure requires different methods of contacting the bank, communicating with their attorneys, and the time frames for completion can be quite different. And the time necessary to implement a last-ditch backup effort also varies widely. This is why homeowners need to be realistic about how long they have to work out a solution.

The least complicated way to save a home would seemingly be working out a repayment plan with the lender. But, most lenders are extremely busy, and their loss mitigation departments more than a little incompetent. Homeowners or mitigation companies may call the contact at the bank a dozen times, leaving voicemails at every opportunity, and simply never receive a call back. After several weeks of this pointlessness, an additional payment has been missed and the likelihood of qualifying for a payment plan drops further.

Similar delays are almost guaranteed to happen if the homeowners are attempting to qualify for a foreclosure refinance. The mortgage broker will have to get updated payoff information, which may take ten business days from the attorneys, and be good only for a few days. This makes closing a mortgage extremely unlikely, as the information regarding the loan is outdated as soon as it is received.

Bankruptcy to stop foreclosure is another commonly-used method, but new laws and state regulations may require more than a few hours or days to file with the court and put the process on hold. Regardless, the fact that the paperwork will be held up in court for several months at the very minimum, while a payment plan is arranged and creditors are informed, will postpone the homeowners' ability to work out a more permanent solution.

And although some real estate agents will promise to work hard to sell the foreclosed house and get a fair price for it, many local markets are currently unstable or declining. A fair value for the homeowners may mean that they can sell and stop foreclosure entirely, whereas a fair value for a potential buyer means getting a great deal on a home. The real estate agent may have little choice but to present inadequate offers and leave the homeowners with no hope of selling the home before the sheriff sale.

Actual timelines for any method of preventing foreclosure are quite often difficult to predict. The fact that so many parties are involved, whether they be the homeowners, the lender, various attorneys, a mortgage or real estate broker, foreclosure specialists, or the court system, necessarily complicates the entire process. As long as homeowners have realistic expectations of the length and complexity of saving their home, though, they may be able to effect a much smoother foreclosure experience.

This article will be the start of an ongoing series that will examine various general aspects of the legal environment of foreclosure. Homeowners far too often avoid going to the initial court hearing to discuss the mortgage default, and the bank has a very easy time of proceeding from missed payments to sheriff sale to eviction. There are a number of methods and ideas that can be used during the court procedures, though, to give these families more time, more options, or a second chance to stop foreclosure and get their loans back on track. But without a broad understanding of what the court process is designed to accomplish, these opportunities may be lost before homeowners know they have them.

Every legal claim made by the lender has numerous elements that need to be proven and backed up with facts. Obviously, in a foreclosure lawsuit, the main claim will be that a contract was breached, namely the mortgage loan secured by the house. The lender will attempt to prove that the homeowners did not pay as agreed and ask the court to grant them a judgment, which will allow them to sell the house at a county sheriff sale, in order to pay off this judgment. In most foreclosure cases, this seems like it would be a pretty open and shut case, especially if the family knows it has not made a payment in several months. This may be one reason that they do not often make it to the foreclosure court hearing -- they know they have little defense and believe it will do no good to argue that a financial hardship has caused them to fall behind.

It is important, though, that homeowners understand how these processes work and what the lender has to show in order to have a legitimate case. The first element that the foreclosing bank has to prove is that there was a legally binding contract between the lender and the homeowners. After a loan has been sold numerous times, it may seem quite confusing to the average homeowner of who actually owns the mortgage. In fact, with the amount of technical, incomprehensible adjustable rate mortgages and interest-only loans and subprime mortgages that were packaged and sold off to hedge funds, financial institutions, and investors, there may be some very tough questions that the lender would have to answer if challenged on this element. A court in Ohio recently dismissed fourteen foreclosure cases because the lender could not prove they owned the loans, so this is not as easy as it would seem.

The second aspect that mortgage companies have to prove when suing for foreclosure is that the lender performed as agreed under the contract. Wading through dozens of pages of mortgage contracts is not the most inviting exercise for the average homeowner, but understanding exactly what the lender's obligations are during the term of the mortgage may help them prepare a better answer to the foreclosure lawsuit. In particular, the lender is usually responsible for collecting and applying payments in a reasonable manner, a practice some lenders have been caught not following.

In fact, we receive stories from homeowners every day that state their lender did not apply a payment, applied payments incorrectly, or lost payments completely, which led them to initiating a foreclosure unjustifiably. There are also literally hundreds of stories from homeowners who have had their loans serviced in a fraudulent manner. Simply assuming the bank has performed its duty under the contract relieves them of the burden of proof. Homeowners can ask for real proof that the bank actually did fulfill its own obligations under the terms of the agreement, a request that the bank may have trouble complying with.

The lender must also show that the homeowners have breached the contract, thereby satisfying the proof required of the third element. This is usually easier to show, because they can bring in payment records with clear gaps in payments. However, homeowners who have had payments misapplied or cashed but not applied at all can state these defenses, and the lender must prove that they did not actually receive payment. If the foreclosure victims can show they have not breached the contract, there is usually no case against them. In fact, they may have claims against the lender who was negligent about collecting payments and began a potentially fraudulent foreclosure lawsuit against the clients.

But even in cases where the payments were simply never sent in due to a financial hardship, homeowners can often utilize other resources of the court to resolve the problem. Often, judges would rather keep the case from going to trial if a settlement can be reached. This may involve the two parties coming up with a mutually agreed-upon repayment plan, temporary loan modification, or other similar program which gives the homeowners another chance to get back on track with the mortgage and repair their credit.

The final element of a foreclosure case that the lender must prove is that they have suffered actual damages due to the homeowners' breach of the contract. Obviously, they are not collecting interest or principal payments, which does hurt the lending business and decreases their ongoing revenue. Also, they have to expend more resources in attempting to collect the missed payments, reviewing loan documents, examining the benefits of foreclosing on the property, paying costs of foreclosure, and so on. It is clear that banks suffer some damages of the loan during a foreclosure, even if it is only a very small part of the company's overall business.

The burden of proof falls upon the bank to prove each and every single one of these elements of their case against the homeowners. When foreclosure victims avoid these hearings, though, and judge themselves as guilty without requiring the lender to show proof, they make the foreclosure process much easier for the lenders. Hopefully, by being aware of the general aspects of a foreclosure (and any other breach of contract) case, the homeowners will be able to mount a more substantial defense and show these mortgage companies that they will not simply be pushed around, intimidated, and forced out of the home due to irrational fears and anxieties over the situation.

DISCLAIMER: None of the general information or advice offered in this article should be taken as legal advice, which can only be dispensed by a state-licensed attorney, who has completed a state-approved course of study at a state-accredited law school and has passed the state-mandated examination to become a state-approved attorney. Homeowners in foreclosure who desire representation should seek out one a state-licensed attorney who is able to work in their state. This article is designed to provide general information only.

Consequences of going into foreclosure include losing the home, not seeing any profits at all from the county sheriff sale, having a scarred credit report with a full foreclosure showing for years, and having to explain to landlords afterwards that the homeowners failed to come to any kind of solution to resolve the foreclosure. This is not to mention having to move furniture where things break, get lost, get stolen, or need to be moved into storage. Thus, avoiding foreclosure is in every homeowner's best interests, if at all possible. But few foreclosure victims really know what to expect when facing foreclosure, how such processes as short sales and deficiency judgments work, and what options they could really qualify for, both in and out of the court system.

Resetting Adjustable Rate Mortgages
If the homeowners have a mortgage that is going to reset in the next few months, then it is important to discover what the payment will be after it goes up. If it is affordable, then the entire situation might still be alright, if not as comfortable. But if the payment will be too high too foster a stable financial environment, then they will have to figure out another solution.

The best option is probably to examine the possibility of a refinance to prevent foreclosure first, especially if the mortgage is being paid on time now and the homeowners' credit is pretty good. Qualifying for a refinance in the midst of the current foreclosure crisis may not be as easy as it was a few years ago, but this is still an option that can help homeowners with stable incomes and decent credit to avoid the possibility of facing foreclosure down the road.

Voluntarily letting the property go into foreclosure should be the very last option, in the event that homeowners have tried everything else and just can not unload the property through a sale, short sale, or deed in lieu of foreclosure, and can not keep the property. It is almost never a good idea to start thinking of letting it go into foreclosure until the homeowners seriously can not afford the house anymore due to the increased payment.

Deficiency Judgments after Foreclosure
The lender probably will not go after a deficiency by suing the former homeowners after the sheriff sale, unless they know that the foreclosure victims have a lot of liquid assets and went into foreclosure just to avoid paying some of their bills. Obviously, this is a rare occurrence, and if that is not the case, then pursuing the deficiency would most likely cost the bank more in time and money to sue after the foreclosure than they would ever be able to collect. Lenders almost never sue the homeowners after the house has been foreclosed, because they know there is little chance of recovering any of the judgment, and the bank will not want to act as a collection agency.

If the homeowners sell the property through a short sale, where the bank takes less than the total amount owed on the mortgage, there is no deficiency, and the loan is shown as paid in full on the credit report. The lender forgives the remaining amount of the debt that is not paid through the short sale, and can not sue for debt it has forgiven. The homeowners may have to pay taxes on the amount forgiven, though, since the IRS considers this to be income, as if the bank gives them the extra money to be used to pay off that portion of the mortgage. However, all homeowners should consult with a tax adviser or check the tax laws for the exemptions and ways around paying this, as there are protections for homeowners in foreclosure, of course.

Removing the Home from Foreclosure
During the legal foreclosure process that works its way through the courts, homeowners can request some assistance to work with their lender. If they can come up with some repayment plan with the lender and meet the requirements of the plan, then the loan will be out of foreclosure. To accomplish such a plan, even if the representatives from the lender turn it down directly with the foreclosure victims, the homeowners can request that the court give them a hearing in order to work out a solution with the lender. A settlement can be reached that keeps the house out of foreclosure, especially if there is enough income to pay extra every month to pay back the arrears.

Foreclosure is simply the legal process of attempting to sell a piece of real property in order to pay off a defaulted loan secured by that property. If the owners and the lender work on some other, mutually agreed-upon process, then they will hold off on continuing the foreclosure. Then, once the repayment plan, loan modification, or other solution is completed, the loan will not be in default for any money at all -- therefore, no legal grounding to pursue foreclosure.

Bankruptcy to Stop Foreclosure
Chapter 13 bankruptcy is a legal process that puts a hold on the collection of any debts until a court-ordered payment plan is established. It also puts collection activities on hold, such as any further foreclosure proceedings, for as long as the homeowners are making payments on the bankruptcy.

Because of the automatic stay of collection activities, filing a Chapter 13 bankruptcy will automatically put a hold on the foreclosure process, which is one reason it is used frequently to stop a sheriff sale. It does not save the house, but merely gives the homeowners another opportunity to repay the defaulted amounts and get the loan current again over time, under the protection of a court-ordered plan.

If the owners miss a bankruptcy payment, the house will go back into foreclosure at the point that it was left off. The lender does not have to start the whole process over again, and it will not hesitate to try any way possible to have the house removed from the bankruptcy at every point. Banks do not like having to deal with homeowners who have missed numerous mortgage payments and then file for bankruptcy, as they see little reason to believe the mortgage will ever be paid on time again.

There are a number of different aspects of the foreclosure process that homeowners need to be made aware of, if they have any real hope of understanding the process and making a stand against the loss of their homes. Without at least a basic understanding of how foreclosure works and what methods are commonly used to stop it, families may find themselves taken advantage of by their lenders, scam companies, or just miss out on valuable opportunities to save the home. Adjustable rate mortgages, deficiency judgments, court procedures, and bankruptcy to avoid foreclosure are just a few issues homeowners should begin to research when facing the possibility of having to save their homes from foreclosure.

When a property goes into foreclosure and a sheriff sale date is scheduled, homeowners will rightly feel nervous about the outcome of the auction. If the property sells for more than what is owed on the mortgage, they will receive the proceeds of the sale. This, however, rarely happens, and it is much more likely that the house will be auctioned for quite a bit less than the amount owed on the loan, creating the possibility of being sued after foreclosure for a deficiency judgment. Having an idea of what to expect after the sheriff sale, whether proceeds or deficiency, can help homeowners begin to plan for a future after foreclosure.

The main problem is that of the initial bid amount in predicting how much a particular house will sell for at auction and if the homeowners will receive any proceeds or not. Does the county begin the auction based on the purchase price, or current market value, or balance of the loan? Homeowners with no experience, who are unsure of the value of their property may assume it is the purchase price, but it should be readily apparent that this figure is unrealistic as an auction starting price.

This is because the purchase prices of any group of properties will be all over the map. The purchase price date may have been ten years ago or more, or it may have been less than a year. The longer it has been since the home was purchased, the higher it will sell for in relation to that price, typically, due to appreciation of home values over time. A home purchased in 1984 for $20,000 may be worth $300,000 now, depending on the area and condition of the home, and starting a bid price at $20,000 would make little sense, even if the mortgage was under that figure.

If one examines how much foreclosure properties sell for compared to the market value of the house at the time of sale, this is also very unstable, but a more accurate predictor. During the current foreclosure crisis, certain areas of the country have been high much harder than others, with some neighborhoods declining by 40-50%, while others just a few blocks away may not decline in value at all. A general guess for what a property would auction for compared to its current market value might be around 75-80%. But some areas like Detroit have properties that have sold for just a few thousand dollars ($1-$5,000), and it is very difficult to estimate a market value of any house when no appraiser can walk through or inspect it, as is the case when the homeowners continue to occupy their home until the time of the sheriff sale.

To begin to seriously estimate the current value of a property and what it may sell for at a county foreclosure auction, homeowners may want to obtain a list of recent foreclosure sales from their county and do some research on current market values and sales prices. (Especially when trying to make a point to the county that values have declined and ad valorum taxes should be decreased, in order to boost property values, the smaller area that is focused on, the more accurate.) Having some date of what similar properties in foreclosure have been auctioned for and possible estimates of current market value, homeowners will be more readily able to predict what price their own property may sell for at the county sale.

Sheriff sale lists can be found at the county courthouse or directly from the sheriffs department. These are the first, most reliable sources of this data that homeowners should rely upon. Numerous foreclosure listing websites also provide this data, but it is quite frequently out of date, inaccurate, or simply incorrect. When focusing on a small area, such as particular city or county, the results of this type of foreclosure research can be much better when official county information is used. Many counties now publish past and upcoming sheriff sale lists online, making the project that much easier.

Foreclosure victims are correct in feeling that they are running out of time when the bank has scheduled a sheriff sale of their home. The possibility of being sued after foreclosure for a deficiency judgment is also a cause of worry (although an unfounded one), but by researching the results of sheriff sales for similar homes, the owners can more accurately know what to expect. Although the chances of receiving proceeds from a sale may be small, and other methods to stop foreclosure should be relied upon long before hoping for a positive outcome of a foreclosure auction, it is always a better idea to be prepared and know the current status of a home, rather than leave everything up to chance.

When homeowners are sent their notice of default by the lender and are ordered to appear in court, they may feel that the situation has taken a turn for the worse. Now, instead of dealing with the mortgage company and attempt to defend their inability to pay the bill to them, they will suddenly be thrown into a complex system of dealing with county clerks, courts, attorneys, and various trial rules. No one will seem to know exactly what is going on and what the homeowners need to do to defend themselves, and mere descriptions of state foreclosure law are wholly inadequate in providing guidance. The average homeowner may begin to feel as if he is a victim of an unfair judicial system which is only accessible to those with money who can hire an attorney.

Foreclosure victims, unfortunately, are often more likely to avoid the court date for the foreclosure than appear. They are anxious about showing up and being berated for not paying their bills, ordered out of the house, or given a good talking-to by the judge. Their fears are exacerbated by the fact that they do not know how the system works and no one seems even remotely willing to explain it to them. Since every county operates differently, and trial rules are governed by state laws and local rules, there are an endless number of missteps that may be taken.

Very few people at the courthouse or clerks office will offer help, either. Many of them, even if they know what they are doing, will not provide assistance, in case that is construed as offering "legal advice." Thus, unless the homeowners already know what to do, they can not figure out what to do. The government puts the court system in place as a tool to be used to enact justice in each case. Frequently, though, justice is wrung through a progressive series of exhausting exercises, from filing paperwork correctly, to providing service to the parties, to finding out when the hearing will take place, and so on.

Is it really any wonder why homeowners are prone to giving up on the court system and attempting to work with the lender or a third party? Hiring a lawyer is certainly not a viable option in every case of foreclosure, as the victims are being sent through the court system mainly due to the fact that they do not have the money to pay the mortgage bill. If they could hire an attorney to defend them for several thousand dollars, then they could probably also afford to pay the mortgage on time, and the whole issue would be moot.

But, unfortunately, the issue does not go away and the halls of justice are frequently closed to homeowners. Whether they are legitimately facing foreclosure, or are the victim of mortgage fraud or servicing fraud, the courts offer the same answer: judgment against the defendants, and an order for the sheriff sale of the property. The innocent can not afford to argue their case nor figure out how to do it on their own and are treated same as the guilty.

It is arguable whether homeowners should put much trust in finding help through the county court system. Although they should do whatever they can and use whatever options available to stop foreclosure, including working with the court, it should not be considered as the main solution. Justice is more frequently bought than objectively decided, and foreclosure victims are frequently solely lacking in their buying capacity. Justice, a topic argued about for centuries, is now just another of those gaudy trinkets that only the rich and politically-connected can afford, and of which those of more modest means can only feel envy.

Rolls of red tape seal your lips
Now you're done in
Their money tips her scales again
Make your deal
Just what is truth? I cannot tell
Cannot feel
...
Seeking no truth
Winning is all
Find it so grim
So true
So real

If a property on your block has gone into foreclosure and the homeowners have moved out, there is a likely chance that the property is sitting empty. The bank may have it listed for sale with a yard sign out front, but no other sign of life will be visible. If the house remains on the market for long enough, and the area is somewhat secluded, vandals may break in and cause damage, or squatters may move into the house and begin living there. These may be friends of the previous owners, taking advantage of the lack of security, or simply vagabonds who have finally found free shelter. In any event, you should take action to keep your neighborhood clean and prevent property damage to houses in the area.

The first contact that many homeowners will make is to the local police or sheriff's department. While this may be necessary if the property is being actively destroyed, there is a better way to go about reporting suspicious events. Before getting the authorities involved, which may create a further level of complexity, you should try and locate the current owner of the property and inform them of what is going on. This may involve calling the bank or the real estate agent listed on the sign hanging out front. They are the parties primarily responsible for the property after foreclosure, so it is in their interests to make sure it is taken care of. After all, a damaged property will sell for far less than one in normal condition, and neither banks nor real estate agents like settling for less money.

Thus, if the bank is the current owner of the foreclosed home, why not contact them before involving the police? If the bank does not express any real desire to fix the problem, and no damage is being done, then there may be no real problem. Since the lender owns the house, they have a right to decide how to dispose of the property, as long as they are not violating anyone else's property rights. This, of course, may not be much consolation to a neighbor watching his own property value decline due to the degradation of the community.

In the case of freeloaders squatting in the property, you really can not be sure they are there without the permission of the bank without speaking with the lender or its representative. There is an off-chance that one of the squatters is actually attempting to purchase the property and has been allowed in to inspect, make repairs, or stay in the property throughout the mortgage process. This may be a rare occurrence, but potential buyers are quite free to negotiate any terms they please with a lender when attempting to purchase a foreclosure property.

It is usually a better idea just to inform the bank of the presence of squatters or vandals and allow them to call the authorities. Many of them will contact the real estate agent or local police department and request that more care is taken to secure the area. Banks are not interested in seeing their properties damaged, because they will have to accept less of an offer on the open market to encourage a sale.

Properties that have been foreclosed are all too often subject to random acts of destruction, the moving in of squatters, and falling into disrepair the longer they sit on the market. If destruction is being committed or there is a possibility of trespassing, then you have to make a decision of whether to inform the owner or not. But, it is in your interest to do your part to ensure the security of all property owners and inform them of suspicious acts being committed that they are unaware of. Banks often find it difficult to sell properties after foreclosure, especially if they have been severely damaged, causing property values to fall throughout a community. By respecting every owners' property rights, though, and informing them directly of acts potentially violating those rights, we can all take care of our communities and help prevent more foreclosures.

In recent days, there has been some speculation that the government may step in to provide assistance to homeowners facing foreclosure. A moratorium on foreclosures for a number of months and a freeze of interest rates are two commonly-proposed solutions. It is worth considering if the Congress is able to step in and renegotiate these voluntary mortgage contracts, though, and what the implications would be if such actions were taken. Many laws are designed to protect the rights of two parties who enter into a contract, while others are designed to protect both parties from certain unlawful actions of the other in regards to that contract. An across-the-board rate freeze or moratorium, therefore, could not protect unlawful actions without meddling in perfectly valid contracts as well.

As a side note, no where in the Constitution is any authority of that nature granted to Congress or any of the other branches of government. However, the Constitution has been one casualty in a century-long battle between special interests and the document as it was originally intended. Its relevance to most discussions of law these days is more to point out its unfortunate irrelevance, a trend which hopefully will not last.

Some of these subprime mortgage loans were obviously made in error -- on the part of banks to make bad loans they knew the applicants could never afford and then sell them to investors on Wall Street before dealing with the consequences; and error on the part of homeowners who overstated income to get bigger homes and failed to plan for any but the most optimistic of futures. This does not make the mortgage contracts illegal necessarily, but shows how corrupt and greed can affect banks and home buyers equally. And not all banks engaged in fraudulent inducement of debt, while not all homeowners stated incomes twice as high as what they actually made. But these practices were prevalent in the days of easy credit and low interest rates.

These other loans that are performing well due to prudent decisions on the part of lenders and home buyers, with low rates and no ARM increases, should be allowed to work out as the contracts dictate. Many of them will be paid off, refinanced down the road, and some of them will even be foreclosed. Homeowners are always vulnerable to a financial hardship, such as the sudden loss of a job, experiencing a medical crisis, or a death in the family. These loans should be worked out according to the current terms of the mortgage, whether subprime or not, if the owners can not afford the properties or otherwise sell the property, qualify for a foreclosure refinance, or find another solution. The homeowners and banks should also be completely free to renegotiate the loan on their own, without rate freezes, moratoriums, or other government involvement.

The only branch of the government that might eventually have anything to do with these contracts is the judicial branch, and only if homeowners sue the banks under some existing law and the case is litigated in federal court, appeals court, or the Supreme Court and a decision is made. This may be in regards to individual homeowners suing a lender based on the circumstances of a particular mortgage contract, or a class action lawsuit brought against a bank for widespread illegality.

But beyond this limited involvement, Congress should not simply pass laws now that overturn contracts that were entirely valid and legal at the time they were entered into. This throws any and every existing and potential contract into question, and will ensure that banks begin to add a premium to new mortgages. If a law passed a couple of years after a mortgage is secured can be changed at the whims of the legislative branch of the federal or state government, thereby decreasing profits for the lender, they will attempt to make sure they can take as much profit as possible in the early years of the contract, through a higher interest rate or charging more points up front.

Obviously, this will just make foreclosure that much more likely, as the loan applicants will be paying more towards interest in the early years of the mortgage, delaying their buildup of equity. For younger home buyers attempting to establish a mortgage history and whose income may not be entirely stable due to their recent entry into the job force, higher costs early in the term of the mortgage can put a squeeze on their budget. For elderly homeowners downsizing to a smaller home, a more expensive mortgage will increase the difficulty of living on a fixed income and keeping up with inflation.

No home buyer would benefit from the possibility of their mortgage suddenly being renegotiated by the state and the lender being temporarily barred from foreclosing or raising the interest rate as dictated by the contract. The ability to put the foreclosure process on hold or modify the terms of the contract should remain with the parties to the contract. Problems can be more easily solved when the bank and the homeowners have different but mutually beneficial goals: the bank does not want the house but wants its interest and principal payments, whereas the homeowner wants the house and is willing to begin making on-time payments again. Government interference in such mutually-beneficial negotiations could not help solve the problem.

Thankfully, many of these proposed solutions in Congress may not come to pass, and may reflect a race to the bottom for presidential candidates to offer unrealistic solutions that sound good and pander to certain segments of the country that do not understand the implications of these policies. Banks and homeowners, working together to fix the foreclosure problem, would find more beneficial solutions than government declaring valid contracts to be invalid. Although the banks themselves are not humanitarian institutions and saw homeowners more as potential targets for profit rather than providing a useful service that allows buyers to purchase houses, they have begun to realize the consequences of "working on" loan applicants, rather than "working for" them.

In reading various blogs and news articles regarding the ongoing foreclosure crisis in America, there seems to be a widespread perception that homeowners themselves, for the most part, are to blame for the problems, as well as predatory lending institutions. Ironically, calls have come to regulate or punish the banks and provide a bailout to foreclosure victims, but only the banks have received any help at this point from the federal government. But without understanding more of the context of foreclosure situation, all consumers are in danger of being victims of a similar crisis in the future.

Of course, the inability to see the forest for the trees, so to speak, is trained into all Americans through a public school system that leads students to believe that various subjects have nothing to do with one another. History is taught for one hour, followed by Spanish, followed by Geometry, followed by Current Events, and so on, with no interdisciplinary focus at all. The same tendency towards compartmentalization is seen in TV news programs, which function more like court stenographers simply recording who says what, rather than journalism, which would attempt to connect some of the dots between stories and their wider influences and implications. So, it is not primarily the fault of homeowners that they may be missing out on a broader exposure to issues affecting the housing market and foreclosure.

Just a few of these other issues to think about are presented below, and they are considered as starting points to begin thinking about ways in which to prevent such a meltdown in the market from happening again. No one article or book or program can ever adequately explain all of the causes for and influences on a historical event, of course, and more research can always be done on any of the topics mentioned here. With the widespread use of the internet, it is easy to research nearly anything, from ways to stop foreclosure to the implications of the drought in the American Southeast. But, some very brief examinations of the larger picture of the foreclosure crisis are listed below, all or none of which may be entirely accurate.

If the Iraq War was ended sooner rather than later, less money would be spent overseas on destroying parts of and then rebuilding those parts of Iraq. That money would not have to be borrowed from foreign investors or created out of thin air by the Federal Reserve, which means that the value of the dollar would not be in such decline. If this were the case, homeowners would not see inflation rates over 10% per year on food (has anyone seen the price of bread or milk recently? ) or oil, since the value of the dollar would remain more stable. They would be able to afford their mortgages easier, decreasing the chance of becoming a victim to foreclosure.

Oil prices are also being affected by the Iraq War right now, especially due to a fear of the war spreading into Iran. Iran controls the immensely important Straits of Hormuz, through with passes 20% of the world's oil supplies. If the war spreads into Iran, and they close off the straits, then there may well be a worldwide economic collapse, leading to much higher prices for goods and leading to even higher foreclosure rates. In fact, many of the goods we rely on daily may no longer be available, due to much higher production, manufacturing, and transportation costs. Furthermore, if there is a worldwide collapse, the United States' undefended southern border may turn into a huge refugee crisis with people fleeing Mexico, hoping that the US is more stable during the crisis.

Also, retired people living on Social Security would have a more stable income with less deficit spending, borrowing, and creation of money which results in their cost of living rising. It is likely that the people dependent on it will always get their Social Security checks, but they may be worth nothing if prices keep increasing. People living on Social Security and fixed incomes will experience inflation rates higher than their income can keep up with, which may result in their eventual foreclosures. Money that does not exist can not be spent, but the government can simply inflate the money supply, taking purchasing power from these retirees to spend on various programs and bureaucracies.

Illegal immigration is a problem mainly due to the state of the economy now, and we should always welcome guest workers and people who wish to make a better life for their families and see the opportunities America presents as a vehicle for that. But due to inflation and borrowing and the devaluation of the dollar, businesses want to keep as much of their income as possible, which leads them to hire employees for as little as possible. Because there are no wage controls or minimum wage laws on undocumented workers, besides the fact that they are not to be hired in the first place, they can be paid very little, businesses can keep prices lower and increase their profits. But this may keep jobs from others who would demand higher wages; this might force prices to increase for some goods while other businesses fail due to disappearing profits.

None of these issues have an easy answer, even though many will present simplistic sound bites or illogical justifications for one position or another. But, without addressing all of the issues at once, it is hard to focus on just one as the single most important. If we solve one, it won't have a substantial impact on solving every other problem and truly ending the foreclosure crisis. And these few concerns listed above are insufficient to address problems such as inner city crime and the war on drugs and the widespread use of stimulants, anti-depressants, and other mind-altering drugs. Another issue that should be addressed the corruption of the banking system that led to a manic lending of hundreds of thousands of dollars to homeowners who could not afford the loans, and the fact these loans were designed to be so confusing that now even the banks, investors, and courts are unable to determine who owns the loans.

Although most of these issues are discussed frequently in the news, few conclusions are ever reached and no connections are made from one topic to another. It always seems to be "Turning now to..." or "And now, for something completely different...," rather than anything more than a superficial glance at one issue. Of course, with so many issues to discuss, this can not be entirely the fault of media, who merely present what happens (stenography again). This is why it is the responsibility of Americans to become well-informed and dig deeper into various topics on their own; no one else can help them understand their place in the world unless they are willing to begin finding out themselves.

In the quest to find some reasonable solutions to fix the foreclosure problem raging throughout the country, the usual avenues of power have been decidedly quiet. Yes, there have been numerous public pronouncements by the president and Congress that the problem needs to be fixed. But, these institutions have relatively little influence on the real estate market and economy in general. If foreclosure victims are to find any relief, it will have to come from decentralized, creative community solutions, rather than a one size fits all federal government program.

The president himself has very little direct control over the economy and is not able to affect homeowners unilaterally, besides offering empty statements of hope and accountability for predatory lenders, neither of which represent actual solutions. The Constitution does not give him authority to take money from some people and give it to others in need of mortgage payments, or suspend the collection of private loan payments, or to renegotiate terms of contract that are already in place. Even the Congress is kind of inadequate for many of the same reasons, and others that we have discussed previously, so the foreclosure crisis is our problem as citizens. Therefore, we have to focus on helping homeowners in our own communities as much as possible.

The most important question, then, should be the following: What have you done to help the homeowners on your street avoid losing their homes? If the answer to that question is nothing, then there is no real basis to complain of a lack of government service. Government is often far behind the people, who are the source the most solutions. Also, if community citizens are worried about the foreclosure problem in their neighborhoods, for whatever reason, but do not have any ideas for solutions, then the following list may be useful as a starting point. It is important to remember, though, that the list is just one set of ideas, and it does not take into account local circumstances. The people and the market can come up with a nearly endless supply of solutions, and the government serves to enforce laws and protect homeowners from having their property rights clearly taken advantage of, but does not provide solutions directly.

Maybe a social welfare program in the city/county to help homeowners in distress. If enough people vote for such a measure, it could be paid for by property taxes or a special assessment. Rather than property taxes going to pay for salaries of low-level clerks or to line the pockets of corrupt officials, a fund set aside to provide assistance directly to homeowners may be one of the few wise applications of a tax. However, the free market and citizens themselves can probably do much better and respond quicker to a quickly-changing real estate market.

Donations from local businesses and other private citizens to help local homeowners is possibly the most obvious starting point. One characteristic of the American people is their nearly endless generosity in charitable giving. Often these are donations to provide assistance to churches, the humane society, or people suffering in other countries. But it homeowners on our own streets are currently in danger of being thrown out of their homes, this charitable giving can be directed to our own communities. Citizens themselves may not have much to spare, as they are dealing with their own bills, but local businesses may see such a donation as a great marketing tactic, as well as keeping more wealth in the local community and ensuring they have a larger potential to do business in the future. A large number of foreclosure victims forced to move to another town or county will negatively affect the businesses left behind, as their pool of possible customers shrinks.

Small, local banks offering low rates to local homeowners could be another solution, if the banks have sufficient resources. Rather than watching the central bank of the United States bail out hedge funds and banks, citizens could work with the banks in their local business area. The banks may see this as an opportunity to expand their business and create loyalty with the customers they assist. Obviously, homeowners who simply can not afford their homes any longer would not qualify for a new loan, but ones that can prove stable income and that the temporary hardship is over may be a potential source of ongoing business. Foreclosure victims often learn financial prudence as one consequence of facing the loss of their homes, and they will be grateful to a local bank that allows them a second chance. This may translate into the same family transferring their investments or personal bank accounts to the local bank, as well as sending referral business.

Church charity drives to collect for foreclosure victims is another great idea, as are such simple matters like school bake sales or a concert in the park or local auditorium with local bands with all proceeds go to homeowners. Every little idea can be considered, even if it may not result in a large infusion of cash to the cause of helping homeowners in trouble. But a concerted effort by local families, business, and institutions can take on the problem and solve it through a number of creative methods.

Of course, these local efforts by private citizens will require much harder work in the short term than doing nothing or waiting for an eventual federal government bailout. But the government can only assist some people by hurting others, and forcing people to do what they would otherwise not want to do, while discouraging the more generous from giving more. Through taxing to help homeowners in need, or inflating the money supply by providing a direct bailout with newly-created money, the problem will only be postponed at best, or simply transferred around the country, at worst. Although some communities may be helped, others paying to help those communities would themselves suffer more.

Thus, the possibilities are endless for private citizens and businesses to positively affect the foreclosure crisis in their cities and counties. It also allows them to come together, help homeowners in need, and preserve the property values and spirit of the community. No other method of foreclosure assistance will result in such a potentially positive experience and create stronger local bonds between the homeowners and the local businesses through the charitable spirit of Americans.

Obviously, no one person or effort will be able to affect all of the homeowners in the country, but private citizens can effectively help the smaller number in their communities that are suffering right now. Then, other communities can learn from what is happening around the country, and create their own local solutions. This is not to say that it is wrong to place so little trust in the government to fix the foreclosure crisis, but is meant to emphasize the creativity and charity that are only present in private citizens and the market, who are able to design truly effective methods of providing compassionate assistance without the use of force.

The longer we rely on government to solve the problem of record foreclosure numbers throughout the country, the longer the problem will last and the more people will lose their homes. It is in every homeowner's best interests to do as much as they can to help other foreclosure victims and provide assistance to those in danger of losing their homes.