Surviving Debt (& Foreclosure) - Take Control

Avoid "Rescue" Scams - and Be Careful of Short Sales

Keeping your home should be a number 1 priority. For the benefit of your family and your financial future.

In almost all cases, you can keep your home if you can make the regular monthly payments.

In some cases, you need more time to catch up on missed payments. More time that what your lender is suggesting. You can make up your missed payments over many months, not just the 4 to 6 months that you lender is asking

You need a plan to deal with all of your bills and get back on track. Whether or not you keep your home. You need information to fight back.

I have prepared a good summary of the more important issues in Colorado foreclosure. (the pdf file size is about 135kb, which is about 1 minute on a dial-up.) If you download it and read it, I am sure you will learn quite a lot.

Get the Straight Facts - Even if You Don't Keep Your Home - Don't be Scammed

Some of the major problems and mistakes that I hear about almost every day include:

1. "I am waiting on a short sale - hoping that all of my loan problems will go away."
Well the truth is if you have a 2nd mortgage, you will almost never get permission to do a short sale. Because in most cases, the 1st mortgage lender can foreclose and get paid 100%. And the 2nd mortgage lender can and will sue you for the unpaid loan, just like a credit card bill. Neither lender has any incentive to do a short sale (in most cases.)

And worse, any debt not paid in a short sale will be taxed to you just as if you had earned the money. For many homeowners, a short sale is a tax disaster. See example 1 below. You may pay on this mistake for years to come. (The only exceptions to having to pay tax on the IRS form 1099-C is if you discharge the debt in bankruptcy or you are insolvent - including exempt assets - at the time of the discharge of debt.)

For more on short sales, see Sections 5 and 6 on the summary of important issues in Colorado foreclosure.

A short sale is s a big mistake for almost all Colorado homeowners.

2. "I am going to let my home through a Colorado foreclosure, so that my loans are wiped out."
Well that might work if you have only 1 loan. However, if you have a 2nd mortgage, almost always the 2nd mortgage lender will get nothing. Then the 2nd mortgage lender will sue you for the unpaid loan. Your 2nd mortgage will not go away by itself. Neither will your other bills.

3. You are being scammed by foreclosure "consultants" and bill consolidation companies.
I see this almost every day. They make false promises that they are going to rescue you from foreclosure and negotiate lower bills. They take your money and leave you worse off. Since these people complicate everything, it is hard for you to understand what they are doing. Sometimes they deed your property to a trust or other middle man. You should never deed your property to a trust, LLC or middle man. Never contract to sell your home to a trust, LLC, or middle man, either. Because of new Colorado laws in 2006 and 2007, most of these "rescue" activities are now illegal. However, they still continue. Don't fall for them.

4. "I tried to modify my loan, but my lender will not call me back."
I find that if you can make your regular monthly payments, your lender will agree to a loan modification so that you can avoid foreclosure and your payments will be lowered. Sometimes this can be done within a week of the foreclosure sale.

5. "I don't know what to do - I have too many bills and my luck has run out"
First, you may have a legal defense to bill collectors and foreclosure. Such as misrepresentation, harassment, and illegal conduct. And you may have a defense to foreclosure, such are a Truth in Lending Violation. This will stop your foreclosure. And all of your payments of interest must be credited to principal and no interest can be charged since the loan was made. I will always review your loan package to check for a Truth in Lending violation without any charge to you. Next, you can often use either a Chapter 7 or Chapter 13 bankruptcy filing to save your home and get rid of bills. A primary purpose of a Chapter 13 filing is to save a home from foreclosure.

6. "I am worried about the effect on my credit report."
If you have been late 30 days at twice in the past year on your mortgage payment, the effect on your credit report is about the same. Whether you do a short sale, go through foreclosure, save your home with a bankruptcy filing, or do a loan modification or workout. In any of these cases, you will not be able to get another prime rate loan for about 2 years. Make sure that whatever you do, you can get back on track and get good credit as soon as possible.

Getting More Information

You can get additional information by attending our Saturday seminar. Or call for an appointment for a free initial attorney consultation. Or stop in for a free copy of our 65 page Colorado Guide to Surviving Debt and Foreclosure. Or just call with your questions. Or use email to ask a question or two. I will always review you loan package for a Truth in Lending violation, without charge.

Actual Examples

There are several examples on this site. One of the important ones is the problem of having to pay income tax on most bills that you do not pay. Avoid this big problem or your "fresh start" may be delayed for years.

	Example #1: Income Tax on Debt Forgiveness; Short Sale (or Deed in Lieu): Foreclosure; Other Bills Mortgage Balance: $190,000 You have a buyer who is willing to pay $160,000. If the lender agrees to this short sale, then you will have taxable income of $30,000 because the lender has forgiven $30,000 of your debt. You must pay income tax as though you earned the $30,000. Your will receive an IRS Form 1099-C. This is bad news. You must work to avoid this income tax. If you were insolvent to the extent of $5,000, then your taxable income would be reduced to $25,000. Exempt assets are considered in the insolvency calculation. However, if you get rid of the debt in a bankruptcy filing, then you have $0 taxable income. A big trap to avoid is the discharge of debt prior to filing bankruptcy. Then your income tax obligation cannot be reduced or eliminated. This would be a big mistake because you did not do proper planning. Instead, discharge your debt in bankruptcy. This example is the same for any other forgiveness of debt. Such as credit cards, 2nd mortgages, car loans, and medical bills. This example may apply to you whether you end up in foreclosure, do a short sale, give a deed in lieu of foreclosure, or any other circumstance where you are relieved of debt. Your lender does not want you to know this, so that you will do what the lender (or bill collector) wants you to do.

This second example shows the problem of having a court judgment against you, which can be expected if your 1st mortgage goes into foreclosure when it has a 2nd mortgage on it.

	Example #2: Example of Potential Court Judgments, Including Mortgage Deficiency Judgments: Home 1st Mortgage: $200,000 Home 2nd Mortgage: $40,000 Credit Card Bills: $50,000 Student Loan: $30,000 Usually you will not get a court judgment against you on an unpaid 1st mortgage if the lender bids the amount owed on the 1st mortgage plus its foreclosure costs. However, if the lender decides to bid less at the foreclosure sale, then you can get sued on the amount remaining on the 1st mortgage balance. This is called a deficiency judgment. And you will almost always get sued for a court judgment on the 2nd mortgage when the 1st mortgage is foreclosed. Because nothing is paid on the 2nd mortgage when the 1st mortgage is foreclosures. This is common. This also applies to unpaid student loans, credit card bills, and car loans and leases. Then your wages may be garnished, your bank account levied, and liens recorded against you for future collection. WARNING: If you settle for less than what is owed, you will likely have to pay income tax on the difference. See example #1 above.

Congress has designated us as a debt relief agency. We help individuals obtain relief from their debts though work-out negotiations or file for relief under the bankruptcy code.