If you are facing foreclosure, it can be a traumatic time for you and your family. Your “American Dream” has just turned into a nightmare.  If not handled properly, you could end up without your house, a foreclosure on your credit and still in debt to the lender for thousands of dollars.  If you’re in that situation, DON’T PANIC.

In Kansas the lender must take you to court and the process can take up to 6 months before they actually sell the property at auction and even then you have redemption rights (a right to buy the property back) usually for 3 months.  You can stay in the house during that time and this can be extended by the court and often is if you are working toward a resolution.

In Missouri, the process moves more rapidly as the Trustee sells the property in a Non Judicial foreclosure.and the redemption rights are much more restrictive.  If you receive a notice that a sale is eminent in Missouri you need to take action immediately or you could lose your house quickly, usually in less than 30 days.

Delinquent homeowners looking to break free from default notices are getting tricked by brokers promising to save them from foreclosure, only to make off with thousands in fees or what home equity is left.

Take rent-to-buy scams. In cases like these, a fraudulent rescue company convinces a homeowner to sign over the title while building equity as a renter. The homeowner avoids foreclosure but risks being evicted by the very firm that promised to save his home.

It’s no wonder such scams are surfacing. In April and May of this year, foreclosures were at an all time high.  As many as 13% of the homes in the country are either delinquent or in foreclosure.  Some areas, such as Las Vegas, nearly 70% of the homeowners owe more on their homes than they are worth.

With rising foreclosures threatening homeowners, rescue brokers prey on subprime or adjustable rate borrowers because many facing foreclosure are overextended and desperately looking for a way out of their mortgages. BUT BE CAREFUL.  There are plenty of people who will take advantage of you at this time when you are most vulnerable.

Here's What To Watch Out For

Low-level schemes involve those who pose as mediation specialists or counselors promising to rescue homes from foreclosure. Naturally, they work for a fee. While they might not charge an excessive amount of money, between $300 and $6,670, but once homeowners pay that first check, these so-called specialists disappear.

It hurts to lose a few hundred dollars, or even a thousand, but the wilier schemes involve surrendering the title.

The most basic involves pushing on homeowners’ phony documents that appear to be a new mortgage application. These are known as rescue loans which, if correctly represented, give a homeowner the cash to stave off a foreclosure. Instead, these false documents turn over the title.

A more sophisticated version of this scam involves a rent-to-buy provision. Here, a mediator matches a distressed homeowner with a management company that takes over the property while giving the homeowner the ability to become a long-term renter, with his rent paying down the mortgage.

The premise here is that the management company has great credit and can refinance at a better rate, which they will do for a fee. This arrangement is attractive to a delinquent homeowner because the months-long foreclosure process is a black mark on a credit report.

“By the time a delinquent loan goes into the foreclosure process, borrowers typically are behind many months in payments, and the debt has grown with late fees and other charges,” says Peggy Twohig, associate director of the Division of Financial Practices at the Federal Trade Commission. “Because of the late payments, the borrowers’ credit histories have deteriorated.”

Of course, once the title is surrendered, the fraudster makes off with what equity the homeowner has built. Even worse, if the title has been surrendered and the new owner falls into foreclosure, the original homeowner will be evicted because they no longer possess a legal claim on the property and can no longer redeem the property legitimately.

One of the simpler yet more effective scams is presenting a distressed homeowner with what looks like an application for a new mortgage or refinancing, but is in fact title transfer papers. Once these are signed, the homeowner loses his claim on the home and whatever equity was in it.

Many so-called mediators insist on upfront fees, which they say are for locating rescue funding. In fact, once homeowners hand over their money, they never see the would-be negotiators again. The Illinois state’s attorney office estimates that these fees can be as little as $300 and go to as much as $6,670

Some frauds will promise to resolve credit problems by working with a homeowner’s lender. In a way they do accomplish this, but it’s not in the homeowner’s best interest. After they pocket whatever fee the homeowner pays them, they’ll file a bankruptcy case, which homeowners are lead to believe will save their home.

Bankruptcy may be an option, but you should only work with a licensed attorney that can advise you of all the implications of filing and the likelihood of success.  The bottom line is that if you can’t afford a house before bankruptcy, you might not be able to afford it after one.  There are exceptions, the biggest being that second mortgages or HELOCs can be discharged in Chapter 13s under certain circumstances.  Check out the “Bankruptcy” tab to get more information about bankruptcy and HELOC elimination and to see what will be required of you to file bankruptcy.

When interest rates reset and payments rise, overburdened homeowners stretch to find a way to stay in their homes. Some turn to rent-to-buy schemes, in which fraudsters offer to buy the property with a provision that the homeowner will pay rent while building equity. However, once the title is handed off, the homeowner can be locked out or forced to leave, since they no longer possess a legal claim on the home.

Because the foreclosure process wrecks homeowner credit, refinancing or second mortgages are difficult to obtain. Some fraudulent rescue funds promise to bail out distressed homeowners by secure outside funding with their higher credit score. This happens once the homeowner hands over title of the home.

One of the best ways to know if you’re dealing with an illegitimate operation, besides its demanding upfront fees, is whether it promises to be a jack-of-all-trades that can handle the responsibilities that would otherwise fall to your credit counselor, lawyer and lender. The more someone insulates a homeowner from the foreclosure process, the easier it is for them to pull off criminal malfeasance.

Many people turn to foreclosure mediators because they’re intimidated by the prospect of calling their lender. Keep in mind here that given the scope of the current foreclosure crisis, every bank has dealt with thousands of foreclosure cases and that it’s in the bank’s interest to resolve or restructure problematic payment schedules. With the help of a credit counselor and a real estate attorney, you’re more likely to stay in your home than with a so-called mediation specialist who promises to save it.

There are legitimate people, I represent several of these, but your antennae should go up if someone approaches you.

What Is A Short Sale?

If you are facing foreclosure, this might be a good option for you to investigate. A “Short Sale” is a procedure where you put your home on the market and ask the lender to delay the foreclosure process. When a purchaser is found, the seller will request that the lender take whatever amount they have sold the property for as a total pay off of their loan.

The lender, however, is not obligated to take the funds as a total satisfaction for the loans, but this alternative is often more profitable for the lender than taking the property and selling it themselves. First, they don’t have to become the owners of the property which will necessitate them taking care of the property, paying taxes, attorney’s fees and fixing the property up for sale. This can sometimes cost them $20,000 to $30,000 cash out of pocket before they even can sell the property. Secondly, they don’t have to put additional cash in reserves for bad loans. This puts less pressure on already strapped financial institutions and investors.

What are the steps? The first thing you need to do is contact a real estate agent that deals with these types of issues on a regular basis. Not every agent has the expertise to successfully negotiate you through one of these sales. It can take between 4 to 6 months to get one of these approved by the lender and then you have to make sure that your buyer is still there at the end.

PATIENCE, INTEGRITY and PERSISTENCE are the key words in a short sale. If your agent is looking for a quick sale and approval, they are just sadly mistaken. Your Agent needs to be Patient with the seller, buyer and lender. They need to have the integrity to let you know all the facts before you get started and Integrity and credibility with the lender, with whom they should have had dealings on dozens of sales. And finally the Persistence to keep contacting the lender, providing documents again and again and pushing the process to as rapid a close as possible.

If you don’t have an agent that deals in these, contact my office and I will be glad to give you a referral to someone that has the P.I.P. to take care of your short sale.

I do not charge up front fees for consultations on these issues and will work with your Real Estate Agent to assure that you come out of the situation in the best possible condition.

The lender will ask for a plethora of documents and statement from you and then make a decision to move ahead. Having all this information available up front can make the process move forward more rapidly.

After that, they will order what is called a BPO or Broker Price Opinion. This is basically what a real estate broker thinks the house will sell for in today’s market. It is an AS-IS, quick sale opinion so don’t worry about fixing up your house or preparing it for them. The lower the opinion the better. This is what the lender is going to use to determine what offers they will accept.

If you provide them the information they need and they accept the short sale option, you will need to get an offer. Be sure that the Buyer understands that they are getting a good price on the property bu that they will have to stick out the process for 90-120 days. It’s just a fact of life in this end of the business.

If everything works out, then you should come out without a foreclosure on your record and no further obligation to the lender.

I CAN NOT EMPHASIZE ENOUGH, HOWEVER, THAT YOU NEED TO HAVE EXPERIENCED PEOPLE HELPING YOU THROUGH THIS PROCESS. If you have someone that hasn’t ever done one of these before you could end up in foreclosure, with no house and still owing the lender thousands of dollars. Check out your agent before you sign on the dotted line.