The important thing is to remember that most homeowners wait too long to start investigating their options. It is almost as if they are looking for a reprieve from the lender.  Unfortunately, those in poor financial standing are unlikely to get that reprieve. Therefore, it is to your advantage to understand the facts of short sales ahead of time and begin negotiating with your mortgage lender as early as possible in the process.

Not all homeowners are able to receive assistance from their lender and not all banks are willing to offer it.  If you find yourself in this position, a pre-foreclosure sale at the full price of the mortgage may be the only way to keep your credit in good standing.  Don’t be mislead, a foreclosure will negatively impact your credit score for many years to come.  Some foreclosure lawyers advise their clients declare bankruptcy to stop foreclosure.  This can work in some states but it is also risky and will damage your credit score as well.

If you make the decision to sell your home, either at full price or at a price lower than what you owe (aka a short sale), it is a wise to make arrangements ahead of time with your lender. This is required in the case of a short sale but even if you manage to sell your home for you owe staying in touch with the mortgage lender will help smooth the process. If your lender knows that you are actively trying to sell your home they are more likely to allow you time to close that sale and may assist the sale in other ways. Staying in touch with the lender is something you should do.

As for that sale, it can be handled by you or by a realtor.  If you are upset about the loss of your home, working with a realtor who knows how to work with pre-foreclosure sales and short sales is advised.  Not only might you have difficulty dealing with prospective buyers who seem to have no regard for you or your troubles, you will also want to have someone who knows the process helping you out. If you do end up using the services of a local realtor who understands short sales to assist you with the sale of your home, you may actually receive more money.  This happens because realtors usually sell homes for somewhere at or around their actual assessment value.  Although it may be the case that not much will be left over after paying your mortgage and the realtor, it may be just enough to help you make new living arrangements. Since buying another home likely isn’t an option, you will most likely need to have enough money for a security deposit as well as first and last months rent.

Remember, buyers who’re interested in pre-foreclosure and short sales aren’t always careful with the words they choose.  Believe me, you may have to deal with people who look down on you. This can be an unpleasant situation, to be sure, but it is important to remain calm. Unfortunately, you will find that there are many misconceptions about people who’re facing foreclosure, most of which are not true.  Remember to always keep your head held high.  As painful as it may be to deal with a jerk, at least you can avoid foreclosure and keep your credit in good standing.

The biggest downside to selling your home, a home that you liked well enough to buy in the first place, through a pre-foreclosure or short sale, is the loss of your home. This stark reality is why many homeowners procrastinate until the last minute to begin looking into how to sell their home like this. It is a decision that many homeowners are uncertain and frightened about.  However, you have to know that unless you can get your mortgage back to good standing, you will lose your home regardless of what action or inaction you decide to take.  A pre-foreclosure sale or a short at least helps you retain a decent credit score, especially if your mortgage is paid off in full.

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The main reason people are choosing to take this drastic step, in spite of having a good job with sufficient income to pay their mortgage, is that housing prices have fallen so far in some areas and may have little hope for recovery any time soon. People just can see continuing to invest money in an asset that no longer has the value they expected, even given the considerable negative effect strategic defaults have on a person’s credit score.

In the past, strategic defaults were rare. Generally, mortgage defaults were caused by a serious financial problem the borrower encountered, such as long term job loss or a medical crisis. Occasionally, there would be strategic defaults by people who had purchased a dangerously faulty home or who had another non-financial crisis but this was quite rare. In most cases, people were willing to tough out bad situations in order to save their home and credit. But, today, this may be changing.

Financial experts have long assumed that 99% of the time a homeowner would not chose to face the serious consequences of defaulting on a mortgage. They believed that borrowers would rather deal with problems associated with a home rather than having their credit ruined and never owning a home again. But, this attitude seems to be changing. Why?

In areas that have been hard hit by the housing crisis, such as California, home values have fallen an average of 45% from peak prices of 2005-2006. This would make a house that was worth $500,000 in 2006 worth about $275,000 in 2010. What’s worse, economists are predicting that home prices may not rise significantly for 10 to 12 years in certain hard hit areas. This economic climate makes strategic defaulting an attractive choice for many homeowners.

On paper, it makes sense to do a strategic default for people living in certain areas. Since home values are expected to remain low for so long, a homeowner could potentially lose thousands of dollars should the sell their home or simply lose the opportunity cost for thousands in mortgage payments. The classic argument against renting is that you’re thowing money away, but, when there’s not equity to be gained from owning real estate it makes this argument less compelling. With rents depressed as well, a strategic default could put $1000 or more a month in the former homeowner’s wallet, freeing them up to purchase things, pay off other debts or even save money.

Also, in the era of big bank bailouts and long distance commuter subdivisions there is less civic pride to serve as a psychological barrier to strategic defaults. People today tend to see mortgage lenders more as “Mr. Potter” than “George Bailey” and thus don’t feel bad about defaulting on a mortgage loan that they believe was taking advantage of them. Also, with people less connected to their neighbors, they’re less likely to feel badly about the consequences their strategic default might have on their neighbor’s home prices and the quality of their community in general.

The only barrier that remains is the tough financial punishment that defaulting on a home loan brings. The result is that the defaulting borrower won’t be able to borrow money for quite some time except at very high interest rates. With the consumer credit markets remaining tight, one who does a strategic default on a mortgage may find it impossible to get a loan at any reasonable interest rate.

What does it mean financially if you do strategically default?

Basically, it means that if you carry out a strategic default you’ll be living on a cash basis for many years to come. Any consumer products you want, you’ll pay cash for them. If you buy a car, you’ll have to pay cash for it. And you probably won’t be able to qualify for a home loan for at least 10 years, maybe longer depending on what happens in the credit markets.

The bottom line is that you’ll have to maintain a strict financial life after you default. This kind of frugal, disciplined, lifestyle may be difficult for someone who’s been on a credit binge for years. Operating your household on a strict cash basis doesn’t come naturally for many people but it is possible if you commit yourself to it. In fact, I recommend it even if you don’t plan to do a strategic default. You’ll find yourself in much better financial shape if you do.

Should you do a strategic default on your mortgage?

A lot of people are asking themselves this question since around 15 million homes have mortgages that are upside down and nearly 5 million mortgages are facing foreclosure or are behind 2 or more months. Some estimates calculate that about 1/4 of these troubled mortgages are held by someone who may be in or considering a strategic default.

Such a default isn’t easy. It requires some tough choices and tough lifestyle changes. It requires balancing your civic responsibility to your community against your own financial well-being. It means determining if your personal integrity means that you should keep your promise to the mortgage lender. It means preparing yourself and your family to shun credit and live on cash only. These are questions that you’ll need to consider before committing to a strategic default on a mortgage.

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These second lien mortgage payments were common during the housing boom a few years ago. These loans allowed borrowers to buy a home with no down payment by adding a second lien. Unfortunately, many of these loans are failing to due the recession and the ongoing problems in the housing and credit markets. Second lien mortgages are particularly troublesome since they typically carry a higher interest rate than the primary home loan. The idea behind the new Treasury plan is to use cash incentives to mortgage investors to encourage them to either reduce the interest rate on these loans or to simply consider them paid in full.

Previously, second liens weren’t considered in modification plans. This gap meant that there was some difficulty in renegotiating some loans under the ‘Hope for Homeowners’ plan. The idea of the new rescue plan is to bring the interest rate of the second lien in line with the primary mortgage interest rate with the hope of making the loan payments more affordable for borrowers. The Obama administration is hoping that this plan will reduce the cost of homeownership for up to 9 million homeowners who’re struggling to make their monthly mortgage payments.

These changes and some others are expected to improve the performance of the Hope for Homeowners plan. So far, the performance has been dismal and only a few homeowners have had loans modified effectively. The Department of Housing and Urban Development (HUD) hopes that this new plan that will offer mortgage holders thousands of dollars for each home loan that they successfully modify will improve the effectiveness of the program and help it meet its goal of keeping people in their homes. HUD also announced that they would be working to reduce the bureaucratic red tape involved in securing a home loan modification through the program.

It is hoped that the biggest sticking point, second liens which are sometimes called ‘piggyback loans’, will be adequately addresses by these changes. Previously there was little incentive for holders of these second mortgage loans to cooperate with a loan modification plan. The Obama adminstration is banking on these new policies to improve the situation since these piggyback loans are attached to around half of all troubled mortgages. It was common for borrowers who had poor credit scores, who did not have proof of income or who couldn’t fully qualify for a loan to take out these second liens. But, because previously there was no incentive for second loan holders to negotiate a mortgage modification plan, this made it difficult for many people to get the house payment reduction they needed. The new plan should help get rid of this oversight in the home loan modification program.

The way the plan is supposed to work is that mortgage companies would get an incentive of $500 for each loan they modified and then $250 a year for three years provided that the borrower doesn’t default on the home loan. The borrower themselves would get up to $1000 over a 5 year period to apply to the principal balance of the primary mortgage. There are some additional backend incentives to help mortgage companies recover expenses as well, such as a $2500 payment for participation in the plan.

The Obama administration has been disappointed with the performance of the plan so far. The ‘Hope for Homeowners’ plan was intended to help around 400,000 homeowners who held troubled mortgage loans replace risky sub-prime loans with traditional 30-year fixed rate mortgages with reasonable interest rates. However, the plan hasn’t worked well since the plan, as it was originally implemented, was financially unattractive to banks and it was difficult for homeowners to qualify. In fact, only one loan was modified under this plan between January and March. It is hoped that these new incentives, especially in the area of second lien mortgages, will help improve the program so that it assists more homeowners in trouble.

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Perhaps you are at the point where you are certain that you will lose your home simply because you can no longer afford it. Maybe you have already been considering a short sale in order to avoid a foreclosure. Unfortunately, if you’re like many people, you may have found it difficult to get the mortgage lender to agree to sell your home for less than what you owe.

This situation has become common since the housing meltdown began. Often it takes months for an overwhelmed mortgage lender to respond to a short sale request. By then, it’s often too late because the buyer has gone elsewhere and the lender’s foreclosure department, or worse yet, their attorney or foreclosure legal services firm, may have started legal proceedings. What’s more, there have been no clear guidelines as to what types of short sale offers were acceptable. Beyond that, many borrowers also have second mortgages that further complicate the situation.

During the current housing crisis only about half of short sale offers have been accepted nationwide. In some hard hit regions, this number is less than 20%. As a result, many real estate agents have stopped listing short sale homes. This inability to close on homes in the short sale process has resulted in most of these homes winding up in foreclosure anyway. This is what the new Government Short Sale Program, the Home Affordable Modification Program, is supposed to correct.

Under this program, when a troubled homeowner decides to list their home as a short sale, mortgage lenders are required to respond to any short sale offers within 10 days. Additionally, the Home Affordable Modification Program also provides a number of incentives to both the homeowner, mortgage loan servicers and secondary lenders.

Under the program, homeowners get $1,500 to assist with moving expenses and cannot be charged any administrative fees for participation. Most importantly, borrowers are released from all legal obligations associated with the loan. This provision prevents mortgage lenders from seeking a deficiency judgment against the homeowner. These judgments can result in wage garnishment and other financial punishments in many states.

Loan servicers get $1,000 to help cover the cost of paperwork. Plus, the home is sold so they don’t have the additional overhead of maintaining a vacant house and trying to resell it, which can become very costly in some areas. For secondary lenders, there are up to $3,000 in incentives to encourage them to participate in the short sale offer.

To qualify for the Home Affordable Modification Short Sale Program you will have had to have unsuccessfully tried to get a mortgage modification through the program. Naturally, the property in question must be your principal residence. The mortgage loan must have been made prior to January 1, 2009 plus it must be guaranteed by Fannie Mae or Freddie Mac.

Additionally there are financial requirements. First of all, you must be behind on your mortgage. Your total monthly mortgage payment has be be more than 31% of your monthly income before taxes. Lastly, you cannot owe more than $729,750. Remember that lenders will check for any hidden income and/or assets and the tighter application process allows lenders to have greater access to a borrower’s financial information.

The Home Affordable foreclosure alternative program will expire on December 31, 2012 unless Congress decides to extend it. Let’s hope that the economy and real estate markets improve significantly by then, thus eliminating the need for the program.

Will the new Home Affordable Modification Short Sale Program help you get out of a home you can’t afford with as little financial and credit damage as possible? Maybe, but the results of the government loan modification program haven’t been that great since it was launched over a year ago. However, it is worth a try if you qualify for it.

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First of all, don’t wait around, ask for help as soon as you realize there’s a problem with paying your mortgage. Banks and other loan servicers are becoming more willing to help now than they have been at any point during the current mortgage crisis. Sure, some of them are still bureaucratic nightmares to deal with but others are realizing that the political backlash against them could cause them to have to deal with even more regulation. Even if you fail to make any headway in preventing foreclosure, taking action can help your self-esteem much more than waiting around for things to happen to you.

Should you ask a government agency for help with your mortgage? That’s a good question. There are HUD-approved mortgage loan counseling services available that can help, provided you can get an appointment to speak with them. Many offices are having trouble keeping pace with the demand and with governments having to cut back on programs and expenditures to get their own financial house in order this situation may not improve soon. It is, however, always worth a try since these services are free of charge and can help you avoid mortgage repayment scams.

Some government sponsored agencies have been offering foreclosure prevention workshops. These can be helpful since they can gather all the necessary people and resources in one location. Just make sure that any foreclosure prevention workshop is government sponsored and not a trick by a dishonest mortgage service company.

Should you seek help from a private foreclosure service? I generally recommend that you avoid these services due to the dishonest nature that many of them have exhibited. Also, even if you find an honest foreclosure service, you’re probably no financial condition to pay for their services or to deal with the consequences of bankruptcy, something many of them push.

Should you seek a loan modification? While it is possible to get a lender to agree to change the terms of your existing loan to terms that you can afford, this can be quite difficult to do. Many homeowners who’ve pursued this route have ended up in worse trouble since lenders tend to accelerate the foreclosure process after a failed loan modification. I’m not saying that you shouldn’t try this avenue if it’s open to you but only not to hinge your entire financial future on it being successful.

Perhaps the biggest thing you can do to get help with your mortgage and financial life in general is to not apply for any more credit and work hard at paying down your current debts. At the same time, work out a budget plan so that you know how much you’re spending and what you can realistically afford when you pay cash. Once you’ve taken this step and really know the truth of your financial situation, you can begin to formulate a plan to help yourself get out of the mortgage trouble you’re facing.

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Foreclosure rescue firms have many different ways to find potential clients. Some of them simply check local foreclosure listings in local legal announcement newspapers or directly access public records at local government offices. These rescue firms will often send very well crafted personal looking letters to desperate homeowners. Other foreclosure firms cast a wide net and use Internet advertising, TV spots, newspaper ads and even fliers. No matter the method used the advertising typically features a simple message like “Stop Foreclosure” or “Save Your Home” and will be rather spotty on the details. Legitimate financial counselors don’t advertise this way in most cases.

Some will tell you that they can guarantee you that they can stop your foreclosure. Well, they can’t. This is entirely up to the lender, especially once the foreclosure legal procedure has begun. No legit housing counselor will make such a guarantee to you. Some of these foreclosure rescue firms tout that they have special business relationships with banks and mortgage lenders that will allow them to ‘fast track’ mortgage loan modification. Often, this isn’t true and, anyway, lenders will refuse to negotiate with third parties unless they’re a practicing attorney or a HUD certified housing counselor. Remember negotiating a loan modification or a short sale is a long and complex process and anyone who’s promising quick results isn’t being truthful with you.

One thing that these foreclosure rescue scammers will tell you to do is to not contact your lawyer and not to speak with the lender. This is a classic con job tactic that’s meant to keep you from communicating with people who might expose the scam to you. You should be suspicious of firms who request a fee before providing you with services. Even worse are those who ask for wire transfer payments or tell you to send your house payments to them rather than to the lender. Those who operate in person will try to pressure you into signing paperwork without explaining it. As we’ll see in a moment, this is particularly dangerous.

Perhaps the most common con is that of a fake housing counselor. These tricksters will tell you that they can save your house from foreclosure if you’ll only pay them an upfront fee roughly the same as your mortgage payment. They’ll pass themselves off as having great negotiation skills and special connections with your lender. They’ll also tell you not to contact anyone else about this special deal in order to keep it secret. As you can guess, the conman runs off with your money.

Another foreclosure rescue con that they’ll pull is to offer to get you into a new home loan that will pay off your existing mortgage loan or simply bring it current. In this case, the unwitting homeowner signs a document that turns over the house title to the scammer. They do this by pressuring you into signing quickly or by presenting you with overwhelming paperwork. The really sad part is that many victims don’t realize they’ve been conned until the sheriff shows up with an eviction notice.

Another trick that foreclosure rescue scammers pull that’s more legal but still very sneaky is a rental scheme. In this scamming technique they offer to buy your home and then allow you to stay in it as a renter and buy it back over time. They’ll say that once you’re released from the burden of the original mortgage it will be easy for you to get a new loan to repurchase the home. Unfortunately, it doesn’t work this way. Sometimes the conman just cashes out the equity and defaults on the loan, resulting in the mortgage company evicting the renter, the previous homeowner. Another way this works is for the scammer to keep raising the rent until the original homeowner can’t pay and is evicted. Sadly, this process, although highly unethical, is legal in most states.

A similar ‘sign over the deed’ trick is a buy out-move out con. In this scam the homeowner is told that a ‘white knight’ financier will buy the house from them and hold it until it sells for a profit. They’ll tell the owner to transfer the title to the house and that they will need to move out so that they can ‘flip’ the house easier. When the house sells at a profit, they promise to share the profits with the original homeowner. But, what usually happens is that the scammer simply rents out the home and pockets the money, letting the house fall into to foreclosure under the owner’s name. This creates an ugly surprise for the homeowner, because they’re still responsible for the mortgage, and for the unsuspecting renter as well.

The last foreclosure rescue scam we’ll look at is the unauthorized bankruptcy. In this paperwork shuffle con, the homeowner signs a document allowing the scammer to file bankruptcy on them. This is usually done in the guise of an offer to renegotiate the home loan with the lender or to get refinancing. This is always accompanied by an upfront fee. While bankruptcy will stop the foreclosure, at least temporarily, it does have considerable legal and financial repercussions that can be quite difficult to deal with.

Be wary of these foreclosure rescue scams and protect your financial future.

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Current economic conditions have many people finding it difficult to hang on to their home since both their household income and home value have declined. Others, who bought at the peak of the real estate boom, have ended up owing a lot more than their houses is actually worth. Therefore, it’s no surprise that people just want out of bad circumstances. But, just walking away is a terrible choice and one that could cause regret and stress for many years to come. Let’s look into why this is the case.

You may assume that if you just walk away from your home and let foreclosure happen that you will be free and clear. Unfortunately, this isn’t the case.

In most states, the bank can sue you and get a deficiency judgment. This is the difference between what you owed on the house and what the mortgage lender made from the house when they sold it. Naturally, it is quite rare for a foreclosure sale to pay off the total amount owed on a mortgage loan. This may leave a former homeowner with a deficiency of $10,000 or more. In areas where home prices were very inflated it’s not unusual to see deficiencies of more than $100,000. Some states also allow for punitive damages as well under some circumstances.

Once a deficiency judgment is entered the lender can seek to garnish wages and seize or place liens on personal property and bank accounts. Some states, such as Florida, give lenders a lot of power. Others, such as California, are nonrecourse states where laws restrict the ability of mortgage lenders to obtain judgments against borrowers. Exactly what they can do will vary from state to state and from mortgage loan contract to contract so it’s best to consult an attorney if you need to know the exact implications in your case.

Also, foreclosure will destroy your credit score for up to 10 years. Typically a foreclosure being filed will drop a borrower’s credit score by 100 points and it will drop another 100 points when the foreclosure sale takes place. This can make it difficult for you to get credit for important things such as renting a place to stay or purchasing a car. It can even affect your ability to get a job.

If you’re in a position where you know you cannot afford to stay in your current home you need to be proactive. Many banks are willing to work with a cooperative borrower when it is clear that there’s no hope of them continuing to pay the mortgage. Just bear in mind that lenders will have to be convinced that you’ve tried every reasonable possibility to keep your home first. There are also government programs and HUD approved housing counselors that can help you seek foreclosure alternatives such as a short sale or deed in lieu of foreclosure. While these alternatives will cause a drop in your credit score they’re no where near as devastating as a foreclosure. Plus, most lenders will choose to not pursue a deficiency judgment if an agreement is worked out beforehand.

If saving your home is proving impossible, get expert mortgage loan and foreclosure alternative advice from a local attorney, credit counselor or HUD approved housing counselor. They can help you navigate the laws that apply to your loan and help you discover the best foreclosure alternative for your particular situation.

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First of all, you will want to gather up your financial documents. This should include your mortgage statements, both your primary mortgage and secondary mortgage if you have one. You will also need information that documents your income such as your current pay stubs and most recent income tax return. Additionally, you will want your recent bank statements and investment statements. Lastly, you will need to have other financial information such as amount owed on car loans, credit cards and any other consumer debt.

Now that you have all of your financial information together, go to the Making Home Affordable website and click on the “Find Out If You Are Eligible” link. Next, select the program type that best fits your situation, either loan modification or refinancing. You may want to review both your options to see which you’re most qualified for. If you don’t qualify for either program based on their web application and still feel that you need assistance with your home loan, don’t get discouraged. You may still qualify for other programs or for lender based loan modifications.

After you’ve determined your qualifications for the Making Home Affordable you will want to get in contact with a HUD-certified housing counselor. You can find one by calling the HUD information line at 1-888-995-4673 or going to the Department of Housing and Urban Development Foreclosure Avoidence Web site. You should be prepared to take notes when you speak with a housing counselor on the phone. Jot down the names of the people you talk to, the date and time as well as the basics of the conversation such as promises that were made or if your were denied. You should also receive a case number. I recommend keeping a notepad handy for this purpose because staying organized is quite important in this effort.

If your current lender gives you a hard time in your refinancing efforts, a new rule change may help you. This new rule allows homeowners who have a mortgage that is guaranteed by Freddie Mac to refinance with any Freddie Mac affiliated lender. You will also be able to roll a larger percentage of you closing costs into the refinancing as well. This additional flexibility in the program should help those who’ve had frustration in obtaining a home loan modification under the current rules from certain lenders.

It is important to remember that you must be current on your mortgage loan to qualify for a government-sponsored refinancing plan. Should you be behind on your home loan you may still qualify for a loan modification under the Making Home Affordable program.

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If the foreclosure process has been handled properly many of the typical problems with buying a foreclosure at the courthouse steps are taken of prior to the home going into a REO inventory. Major banks generally hire a foreclosure property management company to insure that the house is officially vacated by the prior owner and not vandalized by them. This also should prevent you from being caught up in lawsuits brought by delinquent borrowers and having to evict them. One of the first things to check is if the mortgage lender who’s listing the REO property has taken care of these important details. If the home in question is still occupied or in obviously poor condition it’s best to pass on it in most cases. However, it is important to note, that foreclosure property management services do not include a proper home inspection or guarantee against other potential problems.

As with any primary home purchase it is essential that you have the property inspected. Even if you’re buying for investment purposes an inspection may save you thousands of dollars. Many people get caught up in the competition and quite often the novice REO buyer ends up purchasing a money pit. Sometimes REOs are sold at auction where you can’t get a full inspection report ahead of time. In this case, leave the buying to the pros with a lot of cash on hand who can take a loss if the property turns out to be a dud. Don’t bet the farm on an uninspected REO home unless you’re willing and financially able to take the risk.

One thing that you have to consider is that a REO home might have structural issues that led the prior owner to the tough decision of letting it go into foreclosure. For example, some homes in foreclosure in Florida right now have defective Chinese made drywall that will cost thousands of dollars to correct. Other homes might have serious termite damage. Others may have dangerous mold issues. There have been reports of expensive homes built during the housing boom that were so poorly constructed that they’re essentially worthless because they’re falling apart.

Beyond the serious problems, you can expect the REO home to have some damage simply from someone living there and general wear and tear. You should budget for at least new carpet and new paint in any REO home you buy. You will probably also need to make drywall, hardware and other general minor repairs. Also, it is quite likely that the HVAC system will need maintenance and, if the home is more than a few years old, a new roof.

The bottom line is that you should have cash reserves equal to about 10-15% of the purchase price for repairs. Do not count on credit for these repairs since today it is quite common for banks to refuse equity loans on previously foreclosed properties. Using credit cards or lines of credit for these repairs is also risky in today’s financial climate. In today’s real estate market cash is king.

It is also quite important to make sure that any outstanding liens and back taxes have been resolved. Depending on the state laws, you may be responsible for these items as the buyer of the foreclosed property. You do not want this to come as a surprise to you after the fact. If you don’t know what you’re getting into this could significantly increase the cost of the home, making a great deal into a nightmare. For your own protection you should always consult with a local real estate attorney before buying a foreclosed REO property so that you understand your potential legal liability.

Most banks make a list of REO properties for sale available online or go through a real estate broker or management firm who handles this for them. My recommendation for the novice buyer is to go through a real estate agent who specializes in selling foreclosures and REOs or a REO specialist. While the savvy real estate investor can save money with a do-it-yourself approach the risk to the beginner is quite significant. That’s why it’s best to work with seasoned real estate professionals when buying a REO property.

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Often the companies in these ads will misrepresent themselves as being a government agency or being officially sponsored by a government agency. They’re kind of like the old regular mail letters that look like a bill, legal notice or a tax refund. While their offer may be legitimate and they may have fine print disclosure statements that disassociate them from any government affiliation, any company using such marketing tactics should immediately raise red flags.

The most common scam is asking for money upfront for a service that’s offered free by the government or that is essentially nonexistent and/or useless. Of course, there are legitimate reasons why some money might be required upfront, such as hiring a lawyer on retainer, but you should know in these cases exactly what service your hard earned money is paying for. Always use caution and due diligence when contracting for such services. Make sure that you aren’t being sold something that’s available for free elsewhere. Also make sure that the services offered will be of value to you and are legitimate.

The worse mortgage reduction scam is a variation of an old investment con technique. While this con was previously used with the elderly on a fixed income, the bad housing market has shifted this down the age bracket to middle age people looking for mortgage relief. In this ripoff, the homeowner signs up for a payment reduction service and, instead of sending money to their bank, their ‘reduced’ monthly payment is sent to the scammer. The con artists pocket this money and the hapless homeowner may not even know they’ve been tricked until the sheriff shows up at their door with an eviction notice.

While there are legitimate companies that can help a troubled homeowner negotiate payment plans and help them manage payments, I have to strongly caution you against using any such plans. One of the keys to improving your financial condition is taking charge of your money yourself. Don’t let others, especially those who may have a profit motive, control your money. In my opinion, the only reason why you should ever lose this control is a bankruptcy or a serious long term illness. But, if you do decide to give this power to someone else, use extreme caution and carefully review the company and their track record.

Lastly, don’t assume that just because you see an ad on Google or another search engine, Facebook or another social site, a news site like MSNBC or Yahoo News or a simple blog like mine that it’s been completely checked out. These con artists are almost as good at fooling advertising space providers as they are consumers. While there is probably more that content providers could do to avoid showing ads for bogus mortgage modifications, remember, when all is said and done, it’s up to you to avoid falling for these scams. Don’t let your desperation lead you into worse financial problems.

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