Foreclosure prevention: Judges getting involved.

The truth is that, in most cases, foreclosure prevention activity fails. The loan servicing company doing the foreclosure has no skin in the game. They do not care how much of the debt is recovered. Someone else owns the debt. They get paid only if they foreclose. So they refuse to negotiate, even when this could mean less money for the ultimate debt holder.

Fortunately, in some states, judges are stepping in. About half of all states do not require judicial approval for foreclosures, but among those that do, some judges have been exercising their power to delay or even deny the process. And federal bankruptcy court judges are also getting involved. They operate in all states.

These judges are giving special scrutiny to the question of who owns the debt and how well the company applying for the foreclosure has followed the law. Often the ownership of the debt is unclear or poorly established and the loan servicing company has been cutting corners in its filing. In these cases, the judges can dismiss the filing or delay it.

This dismissal or delay usually allows the loan servicing company to return to court later, but it gets their attention. Suddenly they are more interested in negotiating a reduction of principle. And the new law we discussed in our last entry gives the owner of the debt one more reason to reduce principle because if done correctly it brings in loan guarantee insurance form the FHA.

If you are in the midst of foreclosure, or about to be, contact a bankruptcy lawyer or one of the foreclosure prevention counselors sponsored by HUD. The HUD list of counselors is available, by state:

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