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The Foreclosure Trap

How to Save Your Home

Fundamental flaws in the foreclosure process have been exposed, and even the latest options that are designed to help to keep you in your home can work against you. Only if you make the right moves will you have a better shot at saving your home.

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It was January 2010, and Michael Shea of Wood River, Ill., was in a pinch. After spending $350 for an unexpected furnace repair, Shea realized that he didn’t have the money to make the next month’s mortgage payment. So he called his mortgage servicer, PNC Mortgage, to explain his predicament. He’d been a sterling customer up to that point—making his monthly payments on time for nearly 25 years. According to Shea’s attorney, PNC said it would modify the terms of Shea’s loan on one condition: He needed to stop making his monthly payments.

Shea trusted his servicer and did as he was told. A few weeks later, he submitted an application for a loan modification through PNC. You can imagine how flabbergasted Shea was when 3 months later PNC filed to foreclose on him. Shea told PNC he would sell his woodworking equipment to pay off his $2,000 in arrears and get his mortgage status back on track, but PNC rejected his offer. Today, Shea, 65, is stuck in foreclosure limbo as his legal-aid attorney fights PNC’s efforts to foreclose on him. “They act like they don’t even want to work with you,” Shea says. “It’s just one big mess.”

Stories like Shea’s are everywhere today as the foreclosure rate is three times worse than what it was during the Great Depression. In 2010 alone, 3.8 million homes received foreclosure filings, and servicers seized 1 million properties, according to RealtyTrac. What’s worse is that an estimated 10.8 million homeowners, or about 1 in every 4, owe more on their mortgage than what their house is worth, according to real-estate-data firm CoreLogic.

The unfortunate reality is that the cards are clearly stacked against consumers who face foreclosure. You can lose your home even if you take all of the right steps—and there are plenty of opportunities to take a wrong step. Even those who are supposed to be working for you—the White House, Congress and state government officials—do little to protect homeowners from the predators that are part of the foreclosure fiasco.

SHAMEFUL SERVICERS. Mortgage servicers, who are the industry’s underregulated middlemen between consumers and banks, deserve plenty of scorn. They collect your mortgage payments, assess late fees, provide customer service and handle foreclosures. Servicers don’t own your loan, but they make the call on whether you qualify for a loan modification or whether they foreclose on your home. In fact, they sometimes will pursue a loan modification and a foreclosure at the same time—what’s called the dual-track problem for consumers—all because one department that’s inside of the servicer isn’t aware of what another department is doing.

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To put it bluntly, servicers work against consumers’ interests in every way that’s possible, according to 13 foreclosure defense attorneys whom we interviewed. Servicers don’t return phone calls, these attorneys say, and they lose consumers’ paperwork. Or they’ll bombard consumers with conflicting information: One servicer employee will give one set of directions while another will request something different.

And let’s not forget about the unscrupulous attorneys and law firms that servicers hire to execute foreclosures. These so-called foreclosure mills have gotten rich by ramming through foreclosures as fast as possible on behalf of servicers, say defense attorneys, judges and state investigators.

In short, you should expect no help from servicers or foreclosure mills. Servicers often can make more money by foreclosing on your property than by rewriting the terms of your loan to keep you in your home. And foreclosure mills make money only when they foreclose. The more cases that they plow through, the more cash that they collect.

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