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Credit counseling could give you breathing room

Some lenders may let you stay your foreclosed home for nominal 'rent.'

Some lenders may let you stay in your foreclosed home for a nominal "rent."

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Updated: May 3, 2013 12:14PM

On a daily basis, I share the pain of so many of you

who write to me asking for help in forestalling a foreclosure or dealing

with creditors.

Today's column is dedicated to J.B., who contacted me through my blog, ( and

J.B. worked diligently with his lender to try to secure a

modification, but in the end simply didn't have the income or resources

to make it work.

Last week he had to tell his family that they must leave their home

of 25 years, which was compromised when he fell victim to a refinancing

scam. That scam was investigated by the Illinois attorney general's

office. The scamsters were found, but they themselves were in

foreclosure and bankruptcy, so no recovery was possible.

What I want to say to you, J.B., is: Don't give up your belief in the

future or in America. If you did it once -- built a home and security

-- you can do it again.

And for those of you seeking help in these tough times, here's some general advice -- but no guarantee of a successful outcome.

First steps

The first response to this serious situation is often a kind of

paralysis -- disbelief, followed by fear, followed by a sense of

inevitability. But there are steps you can take to confront the issues

-- and perhaps even delay the process, giving you some breathing room,

if only to make alternative arrangements.

First, there is helpful, trusted, individualized advice available

through the national, nonprofit Consumer Credit Counseling Services. If

you call their toll-free number, (800) 388-2227, you will automatically

be connected to the nearest local affiliated agency. They have trained

counselors, with resources to help you sort things out, or help you

create a debt repayment plan. They can even recommend bankruptcy

attorneys as a last resort.

New debt-settlement rules

Last week, the Federal Trade Commission set up new rules for

so-called debt negotiation companies, which I've written about in this

space. Under the new FTC regulations, which take effect Oct. 27, these

debt settlement companies are going to be on a much tighter leash.

A debt settlement company will only be able to earn fees when it

reaches a settlement on at least one of the consumer's debts -- an

agreement that the consumer approves in writing. Fees cannot be

collected until the consumer has made at least one payment to the

creditor as a result of the negotiated agreement.

And these debt settlement companies will be required to make certain

pre-contract disclosures, including how long it will take to get results

and how much it will cost.

But the new FTC rules do not limit the amount of fees that can be

charged, so those who enter into these agreements must still decide if

it is worth the ultimate cost -- not only in dollars, but in the hit to

their credit report when an account is reported "settled" and not paid

in full.

Remember, in order to even offer a "settlement" in negotiation, you

must have some cash. Many of these companies suggest you divert your

monthly card payments to an escrow account to build up negotiating

power. In the meantime, your credit is further ruined. Consider debt

negotiation as an alternative only if you already have a sum to offer.

Then a settlement might look attractive to the lender, or the collector,

instead of a write-off in bankruptcy. And remember that debt

negotiation is only for unsecured debts -- not for mortgages or car


Delaying foreclosure

Yes, the banks have obviously decided that loan modifications are not

working. Fewer than 300,000 modifications have been made under the

federal program -- and according to latest statistics more than half

have been abandoned.

If counseling determines that a foreclosure is inevitable, you can

either get legal help or appear in court to face your adversary.

Remember, every month you can delay the procedure is a time when you

could save on rent you would be paying elsewhere. That might give you

time to accumulate money for moving expenses and a deposit on your next

living space. That's a sad commentary on the state of our housing market

-- but someone has to be last in line for foreclosure, and you'll be

better off if it's you.

Ask the lender whether you can give up title but stay in the home and

pay a nominal "rent." They may recognize that this type of arrangement

will maintain the property and minimize chances of vandalism. But you

can make this kind of deal only if you submit an offer in writing to the

appropriate person at the bank. The lawyers they hire to manage the

process don't want to make exceptions, since the extra paperwork costs

them time and money. The company assigned to sell the property has

similar disincentives to keep you in the home, making it more difficult

to sell the property.

A final thought

You're not alone. It's estimated there could be as many as 4 million

mortgage foreclosures in America this year. And we're on track to record

1.5 million personal bankruptcies. Of course, many people hit both

categories. And there's no end in sight as unemployment remains high.

They say that misery loves company. But America was based on second

chances. We have no debtors' prisons here. Sometimes the best way out is

to simply face up to the reality, take the consequences -- and then

start thinking about what you will do differently in the future. You can start over. The only sin is giving up. And that's The Savage Truth.

Terry Savage is a registered investment adviser and a co-host of

"Monsters and Money in the Morning" on WBBM-Channel 2 from 5 to 7 a.m.

weekdays. Post questions on Terry's blog: terry and blogs.

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