Facing Foreclosure? Walk Away From the House - on YOUR Terms

I'm not an attorney, tax professional, realtor, or accountant. However, I have dealt with foreclosure situations - on four different occasions. Think I'm immoral? So be it - please visit this link first before reading further. Also, for everyone who thinks becoming a homeowner is a worthy goal, check out this article by Patrick Killelea. Probably the most detailed argument against homeownership I've ever read.

If you are behind on your mortgage, contemplating walking away from your home, or live in a house that is hopelessly underwater - read on. I'm not going to try to sell you anything, steer you in one direction or another, or give you bullshit - you've heard or read plenty of that already. What I will share are a few things that I've learned after being in your shoes - not once or twice - but four times, my friends.

You'll probably have more time to stay than you think. Every state has different laws regarding foreclosures, and I don't know what the laws are in your state. However, I've experienced foreclosure situations in two different states (I "walked away" from an investment property before walking away was cool). In every situation, a year elapsed before it was clear that I needed to vacate the property I happened to be inhabiting. Do I recommend this? No. But it helps to know that you probably have a little time to get your ducks in a row legally and financially before you have to find a new place to live. Use this time wisely.

Pay off your other debts. If you are gainfully employed, then pay off your cars (or sell them), pay down your student loans, and pay off your credit cards. Better yet, get rid of the credit cards altogether and swear them off for good. Start banking some cash - you'll need it for the inevitable security deposits and/or first and last month's rent at your next residence. Face it: chances are, you'll be renting. This isn't a step backward - you might be better off.

Assume that anyone who approaches your door is a scam artist. If anyone knocks on your door, or is on your property for any reason that has to do with your property being "distressed", odds are they are trespassing. Anyone who is on your property and/or is knocking on your door had better show some identification*. If they do not, insist that they leave; call the police if you feel threatened. For the purposes of this post, let's assume that the property you inhabit is your property, as possession is 9/10ths of the law. I mention this because scam artists know that you are feeling desperate and vulnerable. They will use this against you. They know that you can be manipulated into being put on the defensive, and this can be very dangerous for you, the inhabitant of a property in foreclosure. Do not be on the defensive. Yes, this is easier said than done, but trust me - deal with a handful of scumbags at your door (I have) and you'll lose that feeling of defensiveness pretty quickly, as you should. Bonus tips: if you've had a number of scumbags approach your house - keep a camera at the ready near the door. Click a snapshot of the next potential scammer that you're suspicious of; maybe get one of his license plate while you're at it.

* Keep in mind that today's scumbags have pretty good tools at their disposal. Laser printers and laminating machines allow for the creation of rather convincing IDs. I have heard of scammers getting bank business cards, then using computer tools to change names and/or phone numbers on these cards. Technology allows a scammer to have a bona-fide looking bank business card with any name. Don't assume that the person at your door is an employee of your bank. Most bank communications should be by mail anyway, preferably certified (though this isn't necessarily required).

You don't need to pay anyone to "walk away" from a mortgage. Any more than you would pay someone to doctor up your credit report or pay your debts for you via loan consolidation. Don't be ridiculous - have some balls and realize you don't need someone to hold your hand for every little thing. Just stop paying the mortgage, if you've decided that's the best choice for your financial future. You sure as hell aren't the only one. Which leads us to the fact that...

You aren't alone. Foreclosure is epidemic in this country. If it's any consolation, there are plenty of families in the same boat that you are. Guess what? They probably are muddling through it just as you are, too. Since noone is going to start a "I'm living in a foreclosed house" club anytime soon, it's best to know that misery loves company, for lack of a better sentiment. Which means that when things start to pick up as they are starting to as I write this, you won't be the only one worrying about qualifying for a mortgage loan in a couple of years or so. Since banks aren't going to last long if they say no to everyone who has been living in a distressed property, credit will have to loosen up at some point, even for you.

Friends, relatives, or co-workers are probably not good sources of information. You're probably not going to run around and ask people close to you what you should do in a foreclosure situation due to the "shame factor". It's just as well: most of these people probably don't know any more about the ins and outs of foreclosures than you do. Don't rely on "bar expertise" (you know - everyone in a bar is an "expert" on whatever - usually sex, business, sports, or useless trivia). Obviously the web may not be completely reliable either - don't even take what I'm writing here as gospel. I'm only sharing my own experiences. As stated above, I'm not a professional in the real estate business.

Most stuff that you'll get in the mail from this point on should be thrown out. Count on several pieces of mail per week from this clown or that offering to "help you". Bullshit. These people will likely "help you" lighten your bank account. Now, I'm sure there are competent, honest (?) attorneys out there that can probably do better at getting you agreeable loan modification terms than you can get yourself. Are you sure you want a loan modification? Think long and hard about this one.

When you default on your mortgage, get ready to encounter three groups of lovely folks (two of these groups I mentioned above):

1. Scam artists who might show up at your doorstep
2. People or companies who send mail offering to "help you", and
3. The "real estate investors"

Let's deal with all three.

Scams. I noted above that scammers will try to use intimidation tactics on you. They count on you to take the defensive when they show up at your door. They're aware that you might feel vulnerable and prey on that. The best defense, then, is a good offense: don't take any of their shit. Demand identification and legal documents. The bozos that I've encountered (or heard about) have never produced any. Who knows, though - they might be working on fake docs as I write this, so be warned. Assume that anyone who knocks on your door is trying to run a scam - especially if you haven't seen any mail informing you that a trustee's sale will take place involving your house.

Here are some clues that you're dealing with a scammer:

• Can't (or won't) produce identification or legal documents (ask for both).
• They produce an obviously homemade business card. I've seen these with just a name (most likely fake), a phone number, and nothing else.
• You return home from being away, and find "business cards" taped to your front windows and/or doors. We've had these taped to our windows with duct tape. The last time I checked, banks don't go around taping business cards to windows using duct tape. The back of one had this, in handwriting: "...your house was sold at the auction. (really? what auction?) Call us to reveiw (sic) your opions (sic)." Which leads us to...
• The business cards you see have mispellings (see above). You're not dealing with nuclear physicists here.
• One person stays in the vehicle in front of your house (to allow for a quick getaway?)
• The dog (if you have one) is going nuts. This is our "alarm". Dogs can sense scum.
• You received notice of a trustee's sale, but the scheduled date is still off in the future.
• They have an "attitude". This is part of the intimidation strategy.

Call the police, take their picture(s), unleash the dog - get rid of them. They'll move on to the next target, and probably won't bug you again. If they do return, call 911. I've called non-emergency police numbers in these situations, and been brushed off.

"Real Estate Investors". These are the poor, deluded souls driving unfamiliar cars slowly past your house. These folks bought into the latest Carlton Sheets (or whoever) get-rich-quick investment infomercial**. They're looking for foreclosure properties that they can flip. Yep - that means yours, unfortunately. I once was a "real estate investor" (for an extremely short period), so I'm allowed to take shots at this group. Sure, some investors are knowledgeable, responsible folks who find no joy in someone else's misfortune, and probably steer clear of foreclosure properties anyway. But too many folks have been sold into believing that becoming a "real estate investor" is easy and/or lucrative. As a result, you're most likely seeing the amateurs patrolling around your house. Not much you can do about them, except:

• Let 'em know you're home. Drive-by "real estate investors" are looking for a quick buck. They want as little hassle in getting that quick buck as possible. Because most of them are going to lose money on their foolish experiment with real estate anyway, you should try to help them at least a little. Let the "investors" see that your house is indeed occupied. This means that they'll have to deal with you, the occupants, if and when they decide to "invest" in your foreclosed property once it comes up for the trustee's sale. It's much less hassle for an "investor" to deal with a vacant property. They can sneak around a vacant house and check it out before a trustee's sale, and they won't have to deal with any occupants. Otherwise, they'll have to pony up some money for a "cash for keys" deal with you, or have you evicted. Eviction can be a tedious legal process that isn't much fun for anyone involved. Side note: I had to evict a bad tenant once during my days as an "investor". Pain. In. The. Ass. The tenant stuck it out for three months after I started eviction proceedings. The lawyer I hired made out, though. Yeah, the lawyer was a dick, in fact - thanks for asking.

**If you are thinking about investing in real estate, then visit John T. Reed's website before doing anything else. There is a wealth of information here that will dispel any investing myths that you have and also shine light on the guru-of-the-moment whose spell you may be falling under.

Mail Solicitations. Every freaking realtor, ambulance chaser, mortgage company, and Joe Blow who fancies him/herself a loan modification "expert" will be sending you mail. Look for quasi-official looking envelopes that are designed to get you to open them. I now find entertainment in what this group sends me - each one trying to outdo the other by sending you an "official" document. It's all crap. Some mailings are out-and-out scams, some are trying to make a quick buck but could potentially help you in some way - most of it is dubious at best. I simply make the garbage dumpster my first stop immediately following my mailbox.

What is causing all of this activity? Simply put, you're on public record. When a house goes into foreclosure, a legal process commences which means that the goings on surrounding your house are now visible to all in the public domain. This means that anyone with a computer and a little knowledge can find out which houses are in foreclosure and where they are. However, there's a trade-off here: you're getting a substantial (ok, free) discount on your mortgage payment.

Here's another tip: don't damage the house. Your neighbors never forced you to sign that horseshit mortgage agreement that you roped yourself into. Yet, they will see their own property values decline if your house is vacant for very long after you move on. So, help them out a little - leave the house in at least semi-reasonable shape. Noone expects you to maintain a beautiful lawn or a stellar outdoor deck with an in-ground pool. At least keep the weeds at bay, the trash in the proper containers, and the windows semi-clean. Have a little bit of pride as you get your financial house in order.