Keeping Banks Honest: Protect Yourself During Foreclosure

For many people, the American dream of homeownership has turned into a nightmare. Nearly 1.3 million households were in foreclosure at the end of 2010, according to a federal report, and another 350,000 homes slid into foreclosure in just the last four months of the year.

Are you worried your house might be next? Maybe your house has already been foreclosed upon, and you’re looking for the best possible exit?

We have some tips for what to do. They come from Todd Allen, the Florida attorney who recently made national headlines by foreclosing on a Bank of America branch after the mega-bank illegally foreclosed on two of Allen’s clients.

But first, a disclaimer. A few judges in a handful of states, notably New York, Ohio and Massachusetts, have grown so outraged at lenders and mortgage servicers trying to foreclose on homeowners using fraudulent or missing paperwork that they now require attorneys for the companies to vouch for the documents’ legitimacy. In a small number of cases, judges got so angry they actually threw cases out of court, giving the homes to the borrowers free-and-clear.

Such cases are the exception, Allen says. And in rare instances, banks do get confused and foreclose on the wrong person. (In the case that made Allen famous, Bank of America foreclosed on a couple who never had a mortgage from the bank, and who in fact owned the house outright.) Most people facing foreclosure will not be able to keep their house. The best they can hope for is to delay the inevitable and make sure the case being presented by the bank is in good order, with all documents accounted for properly.

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“At some time they’re going to fix their documentation and then they’re going to foreclose on you,” Allen says.

Delay might actually be a good policy, says Gerri Detweiler, Credit.com’s expert on credit and debt issues.

“A lot of times you can stay for several months, even as long as two years, and during that time you can save money for your next move,” says Detweiler.

Tips to help you protect yourself »