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What to do when foreclosure looms

Published Aug. 25, 2005

Foreclosure "rescue" plans that can cost people their homes are proliferating, according to the National Consumer Law Center. Here is what to do if you are facing foreclosure:

1. DON'T PANIC. Figure out where you are in the process. Are you behind on payments and getting a "deficiency notice," meaning you can "cure" the debt? Or did you get notice of an immediate sale?

2. TALK TO YOUR LENDER. See if you could restructure the payments or refinance.

3. GET INFORMATION. Find out how the foreclosure process works in your state and how much time you have to resolve problems before losing the home. It may help to contact a counseling agency approved by the Department of Housing and Urban Development. A list of agencies by state is at www.hud.gov.

4. CONTACT A LAWYER. You can get referrals through the National Association of Consumer Advocates Web site (www.naca.net), the Legal Services Corp. (for low-income individuals; www.lsc.gov for lists of state programs) or your city or county's consumer protection agency. (Warning: Knowledgeable consumer attorneyslawyers are hard to find and are swamped.)

5. WATCH WHAT YOU SIGN. Be especially wary of signing a contract under pressure or anything with blank lines or spaces where information could be added later. Beware of anyone asking you to sign a "quit claim deed," especially if they say you could lease the property and buy it back after two or three years. Your "rescuer" could end up with all your equity.

6. PAY DIRECT. Don't pay your mortgage payments to anyone other than the lender, even if that person promises to pass them on to the mortgage company. If you can't pay the mortgage, don't ignore warning letters from your bank or lender.

7. GET A RELEASE. Beware of any home sale contract where you aren't formally released from your existing mortgage. You could end up with no house but still obligated on the mortgage.

8. DON'T RELY ON ORAL AGREEMENTS. Get everything in writing with full copies of everything signed. Offers of "help" can end up involving outrageous charges.

9. DEALS CAN BE COSTLY. Beware of those who offer to pay your arrearage and take the house off your hands in trade for papers assigning them the surplus from the foreclosure sale. Houses can and do sell for a profit at foreclosure sales in hot real estate markets.

10. SELL IT YOURSELF. If you can't get out of your jam, you might have to sell to pay off the money you owe the lender. But even if you have to become a renter again, if you sell on the open market you get the built-up equity.