Most people who sign a mortgage don’t intend to walk away from it. Still, unforeseen circumstances — huge medical bills, lost jobs, divorce or eroding property values — can overwhelm even the best-intentioned borrower. A simple twist of fate can leave you facing a homeowner’s worst nightmare: foreclosure.

Communicate with your lender
Rest assured, where foreclosure is concerned, you and your lender are on the same side. Lenders want your money and the interest that comes with it, not your house. If you seem to be a good risk, the lender will offer to help keep your mortgage afloat. But be forewarned: If you seem like a bad risk, the lender may cut its losses by taking steps to foreclose and evict you as quickly as possible.

The key is to contact the lender before your debt gets the better of you. The sooner your lender knows of your problem, the more help it can provide.

The foreclosure spiral
The foreclosure spiral begins when your loan payment becomes 16 days overdue. At that point, your mortgage servicer will try to contact you to work out a repayment schedule to bring your loan current.

If your first payment becomes 30 days delinquent and the next month’s payment looks doubtful, collection attempts begin in earnest. If your payments fall 90 days behind, the servicer will likely refer your mortgage to an attorney or other entity that will initiate formal foreclosure proceedings.

Here’s a timeline of the foreclosure spiral:

Foreclosure timeline

Day 1
Mortgage payment due today, the first of the month. Borrower misses it.

Day 16-30

Late charge assessed on payment. Mortgage servicer starts attempting to make contact to find out what happened.

Day 45-60

Servicer sends “demand” or “breach” letter to the borrower pointing out that terms of the mortgage have been violated.

Borrower given 30 days to resolve the situation by paying the delinquent amount.

Day 90-105
Servicer refers loan to foreclosure department. Hires local attorney or other firm to initiate foreclosure proceedings.

Depending on the state where the home is located, the servicer’s representative may record a formal notice of foreclosure at the local courthouse, publish details of the debt in the local newspaper, attend hearings on the case and make appropriate court filings.

Day 150-415
House sold at foreclosure sale or auction. Wide time range due to different state requirements.

Borrowers in states with judicial foreclosures, or those in which lenders have to retake property titles via the court system, can get almost a year to straighten out their affairs before the sale. Those in nonjudicial states have as little as two months.

Day 150-415+
After the sale, some states grant borrowers a “redemption period” in which they can still rebuy the property if they have the money. Others force consumers out immediately following the auction.

Ways to avoid foreclosure
Here are some options your lender may offer you if you miss a payment and want to avoid foreclosure:

• Repayment plan: If you suffer a short-term financial setback (expensive car repairs, a medical emergency), your lender may provide some breathing room by agreeing to let you pay off your missed payment in two installments over the next two months.
• Loan modification: Mortgage servicers can adjust the terms of your loan — most often by lengthening the amortization schedule, lowering the interest rate or rolling the delinquent amount into the loan and reamortizing the new balance — to help you bring the loan current.
• Short sale: The lender allows you to sell the house for less than the outstanding loan amount, takes the proceeds and forgives any remaining debt.
• Short refinance: The lender forgives some of your debt and refinances the rest into a new loan.
• Refinance with a “hard money” loan: You won’t like the high rates and fees of a hard money loan — one from a private lender — but it may buy you time to sell your home and avoid foreclosure.

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This scam comes in several flavors, but the main ingredients never change.

The overpayment scam, also called the counterfeit check scam, is one of the most common and ever-evolving cons.

Typically, con artists find victims through classified ads and auctions, and offer them payment for anything from goods and services to rental deposits, jobs, vehicles and pets, according to the National White Collar Crime Center. Story continues below …

Counterfeit check scam

Mystery shopping scam Bogus job offer A Bankrate staff member’s father received a letter offering him a job as a mystery shopper. It turned out to be an overpayment scam with a job offer cover story. The job? Cash a $4,985 check, keep $850 as compensation and wire the rest to a fake relative in Winnipeg, Manitoba, Canada. Allegedly, this would allow him to evaluate MoneyGram’s customer service in the process.   Source: Bankrate.com   1 | 4

Do’s:   Don’ts: • Insist on getting paid the correct amount.   • Assume a check is valid if it clears. • Report the scam.   • Rely on your own detective work to determine the check’s validity. • Avoid doing business with anyone who insists you wire excess money elsewhere.   • Deposit or cash checks if asked to wire some of the money elsewhere.

The victim is given a counterfeit cashier’s check or money order for more than the cost of the advertised item and instructed to cash the check and send the extra money elsewhere, typically using a wire transfer service.

Reasons for the overpayment vary. Scammers may claim it was a mistake, that the excess cash is compensation for the inconvenience of cashing the check or that the money will go to a third party, such as a shipping company hired to transport the item.

Don’t believe the excuse provided.

“None of the explanations really make sense,” says Susan Grant, vice president for public policy and director of the National Consumers League’s Fraud Center. “Certainly they can send money directly to the person who’s doing the shipping.”

Scammers rely on a cushion of time, as it can take days or weeks before the victim’s bank discovers that the check is counterfeit.

“By that time, the victim has usually completed the transaction, wired the excess funds to the fraudster and is required to pay back the entire amount of the fraudulent check to the bank,” says April Wall, a research associate with the National White Collar Crime Center. “If this transaction involved the purchase of an item, then the victim is usually out of the item that they sold as well.”

According to the National Consumers League, the overpayment scam costs victims $3,000 to $4,000, on average. Victims also risk having their checking accounts closed by their banks and may experience difficulty opening accounts at other banks or credit unions, thanks to ChexSystems, a database that keeps tabs on people who mismanage checking and savings accounts.

A negative ChexSystems report stays in the database for five years and can hurt a person’s ability to open a checking account for that period.

Victims may even find themselves arrested for fraud if law enforcement authorities think they knew the check or money order was fraudulent.

“It may seem to the bank and/or police and prosecutors at least at first blush like they’re trying to pass a bad check,” says Grant.

Because consumers have so much to lose in this scheme, they have everything to gain from prevention.

Here are some common variations of the overpayment scam.

Job offer
How it works: A victim is contacted about an easy work-from-home job — processing checks for an employer’s customers or clients, which is usually foreign. As part of the job, employees are supposed to deduct their pay and then wire the rest of the money back to the employer.

If you take the job, however, you will lose any money you cash or deposit, plus any money you wire elsewhere.

Learn about a twist on the work-from-home scam involving a bogus mystery-shopping opportunity.

Classified ad
How it works: This is the classic form of the overpayment scam. A consumer takes out a classified ad or advertises an item and is then contacted by an interested buyer, who eventually sends a money order, cashier’s check or traveler’s check for much more than the cost of the item and asks the seller to wire the excess amount to someone else.

When the victim’s bank eventually discovers the check is fraudulent, it will hold the victim responsible for the amount. The victim will lose the money deposited or cashed at the bank, plus any funds wired elsewhere — and even the product, if the seller ships it before discovering the con.

Here’s one variation on the classified ad scam that at first caught a Spokane, Wash., resident off-guard.

Ginny Foster had advertised her Olde English Bulldogge puppies in several Washington state newspapers. One night she got a call from an operator who told her the caller would be using relay to communicate with her because he was hard of hearing. When the caller typed a message on his computer, the relay operator would read it to Foster.

The conversation was short — the con man gave her his e-mail address so that she could send him more information about the puppies.

Foster said it was his e-mail response that tipped her off, partly due to the terrible grammar, but also due to the nature of his request. In the e-mail, he told her he would send a certified Visa Traveler’s or cashier’s check, which she was to cash and then use the extra money to pay a shipping company that would come pick up the animal. Luckily, she knew not to send any money.

Foster said the relay call played to her sympathy because she thought the caller was hearing impaired. “If you let that clog your judgment, you’re screwed,” she says.

Roommate rip-off
How it works: The Internet Crime Complaint Center, or IC3, reports that one of the biggest current overpayment scams involves the use of legitimate rental housing and roommate-matching sites, such as Roommates.com. The scammer contacts people who have placed ads on the site looking for roommates and offers them the first month’s rent, the deposit or both in the form of a check or money order.

“Either one is conveniently more than the rent or deposit so the victim is asked to cash the said check or money order and send the difference either back to the would-be renter or to a ‘moving company’ — usually a second partner in the scam,” says Stacey Brown, an Internet fraud analyst with the IC3.

The cover story may vary, but the theme is the same: Scammers simply use fake money to entice you into sending real money. Get fooled by a phony roommate and you could lose some serious rent money. Brown estimates that victims lose $500 to $5,000, on average.

Being clever may cost you
Just because a check clears does not mean it’s a legitimate check. While federal law allows you to access the money within one to five days, depending on the type of money order or check, it can take weeks, or even months, for counterfeits to be discovered, says Grant.

Where to report a scam:

• Local law enforcement.
• Internet Crime Complaint Center (if contacted via Internet).
• National Consumers League’s Fraud Center.
• Federal Trade Commission (FTC).
• Your bank if you’ve been conned.
• The bank on which the counterfeit check is drawn.
• The wire transfer service, if you’ve wired money.

“There is no guarantee that that check won’t come back later,” she says.

Calling the bank on the check may not prove the check is real.

“Checks can be made to look as if they were drawn on actual businesses,” says Grant.

She says that the bank may tell you the company does have an account there or that there is enough in the account to cover the check. Only the business could tell you if they actually wrote the check.

Another problem with calling the bank is that it’s possible the fraudster made copies of a legitimate cashier’s check, she says.

As for checking with your bank, your bank basically advances the money to you before fully processing the check. Because your bank doesn’t know the original source of the check, you’re in the best position to know if it’s real — not the bank.

The best indication of a scam is the request to wire money somewhere. Because you’re sending money that is picked up as cash at the other end, it’s difficult to trace, and therefore favored by con artists.

“There is no legitimate reason why anyone who is paying you with a check or money order would ask you to wire money anywhere in return,” says Grant. She says it’s not a matter of waiting a certain number of days for the check to clear or trying to analyze the authenticity of the check or money order.

“If part of the deal is sending money somewhere else, that’s your confirmation that it’s a scam,” she says.

If you’ve wired money
“If they’ve realized it’s a scam before the bank contacts them, they should contact their bank immediately,” says Grant.

She advises contacting the money transfer service, too. If the other party hasn’t picked up the cash, then you may be able to get your money back. But usually it’s too late because the money is sent so quickly she says. If the cash has been collected, then it’s up to your bank to decide how to treat your dilemma.

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The continuing spike in foreclosures and a glut of unsold homes will suppress housing prices at least through the end of next year, say officials with the biggest mortgage financiers.

U.S. housing prices will continue to decline at least through the end of next year and may not begin creeping upward again until 2010, executives from the nation’s biggest mortgage financiers said Monday.

Officials with government-sponsored mortgage companies Fannie Mae (FNM, news, msgs) and Freddie Mac (FRE, news, msgs) and CEOs from two major mortgage banks told the Mortgage Bankers Association’s annual convention that the continuing spike in foreclosures and a glut of unsold homes will prevent any quick price rebound.

“It’s going to be a long time before we see it bottom out and recover,” said David Lowman, chief executive of JPMorgan Chase’s Global Mortgage unit. “There’s too much inventory already in the marketplace.”

• MSN Real Estate: How to escape a mortgage mess

Lowman and the three other participants in a round-table session before most of the convention’s 4,000 participants differed slightly on the size of price declines still upcoming, but they agreed no price recovery is likely until at least 2009.

“I think this year we will see a 2% decline in national home prices, and we’re projecting about a 4% decline next year,” said Thomas Lund, an executive vice president at Fannie Mae.

Prices likely will flatten in 2009, Lund said, before gradually rising.

Lowman said it might be 2010 before the price decline ends.

In certain coastal markets where speculative investing drove up prices rapidly early this decade, the price correction “could be quite severe,” said Paul Bibb, CEO of National City Mortgage.

In Midwestern housing markets heavily hit by job losses, “the softness in those markets is going to continue to depress home prices,” Bibb said.

Patricia Cook, chief business officer of Freddie Mac, the nation’s No. 2 buyer and guarantor of home loans behind Fannie Mae, said investors in mortgage-backed securities likely will remain wary of committing more money to the cash-hungry market until they see a slowing in foreclosures. But that’s unlikely in the short term, because many at-risk homeowners will see their adjustable mortgages reset to higher interest rates in coming months and years.

The Federal Deposit Insurance Corp. estimates 2.5 million mortgages made to borrowers with weak credit will reset at sharply higher rates by the end of 2008.

“Until we see that, I think it’s going to be hard for investors to come back in a meaningful way,” Cook said. “We’re probably in for a reasonable period of time that we’ll see continued slowing” in the housing investment market.

Cook and Lund expressed support for legislation that aims to infuse more cash into the market and give lenders more leeway to help at-risk homeowners refinance. Some lawmakers, mostly Democrats, have been pressing regulators to allow Freddie and Fannie to increase their holdings of mortgage debt by 10% above the current limit of $735 billion.

The federal regulator of Fannie and Freddie last month increased their investment caps by more than 2% annually but has declined to allow a larger increase. The White House has said it opposes raising the limits further until supervision of the two is tightened.

Higher investment caps could restore investor confidence that’s now lacking, Lund said.

Lowman and Bibb agreed but suggested such expanded authority should be temporary.

“We are in crisis, so we support temporary measures,” Lowman said.

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