You had a job yesterday, but don't today. Your wife got sick. Your car gave up the ghost. And paying your mortgage just got a whole lot harder, maybe even impossible. So what's next? Do you go hat-in-hand to your lender and beg for help? That's been the advice of most columnists and bloggers, including this one--speak to your lender as soon as possible, come up with reams of paperwork, and you will get the help you need. Except that method hasn't been working very well.

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Why? Your original lender is probably out of business, the funders got their money back, and the investor who bought the loan was insured. The tax payers bailed out the insurers. That leaves the servicer holding the bag. This company buys the right to collect your payments and keep a small percentage of what they collect, plus all the late fees and other charges. And that's why they like to drag out the process, tacking numerous fees onto your loan and making you jump through a gazillion hoops before ultimately informing you that they can't or won't modify your loan. While they don't really want to take your home, they do want every spare cent they can steamroll out of you. And they don't care if they squish you flat in the process.

So, what should you do then, if having a conversation with your servicer is out of the question?

You want to slow them down first. Maybe a little time can solve your problem--you may find a new job, save money, get well--and get back on your feet. Then, decide what you want to accomplish and how you want to go about it. First, do you want to keep your home or just drag out the foreclosure? If you are underwater and have no way of making payments, dragging it out may be the best outcome you can hope for.

Next, find out if your loan was sold as part of a securitized pool of mortgage backed investments. This means that the lender that underwrote and funded your loan no longer owns it--a source of frustration for those looking for modifications, but which could mean opportunity for you. Fannie Mae and Freddie Mac have been doing it for years, but so do others--that's how sub-prime loans ended up being packaged and sold as high-quality investments. Oops.

The cool thing is that the very thing that makes it so hard to get these loans modified also makes them very hard to foreclose on--if you know how to fight it. If you want to keep your home and you live in a state that does not require the foreclosing entity to take you to court, a non-judicial foreclosure state, you have to sue. Yes, it's intimidating and possibly expensive, but unless the lender has followed legal foreclosure procedure to the letter, you could wind up owning your home without a mortgage. Ask a lawyer. Even if you've already lost your home, you might get it back.

Do you have a MERS loan?

No, it's not a respiratory disease. MERS stands for Mortgage Electronic Registration Systems. It was developed by the real estate finance industry and sold as a way to "eliminate the need to prepare and record assignments when trading residential and commercial mortgages." But now it's biting a lot of servicers on the butt--a MERS filing means that your loan has been securitized in a way that could make foreclosure impossible. Go to your County Recorder's Office or look up your filings online and see if MERS is recorded on your deed. If your loan has been assigned through MERS, your note and the trust deed may have been separated, or the lender may not be able to produce the note at all. Oops.

In a judicial foreclosure state, , the lender has to sue you. So demand to see the original note (not a copy). You may be able to find a TIL or RESPA violation and stop the foreclosure in its tracks. Keep in mind that lenders have been known to try and manufacture evidence--get a good real estate lawyer, not the guy who did your will ten years ago.

Are there RESPA and/or TILA violations in your loan documents?

In a non-judicial foreclosure state, this is your best shot at winning. Loan paperwork can be sloppy and not unlikely to have one or more violations of the Real Estate Settlement Procedures Act (RESPA) or Truth in Lending Act (TILA). You will need a legitimate Forensic Loan Audit to see if there are violations and what your compensation should be. This should cost between $350 and $1,500.

So, to recap:

  1. Decide if you want to keep your home or just drag out the foreclosure while you try to save money and find another place to live.
  2. See who owns your loan by checking with your county recorder. If your loan is being held by your original lender and not sold, call its workout department and try for a modification.
  3. If your loan has been securitized, check to see how foreclosure is handled in your state. Then, call in a good real estate lawyer.

Who knows? You could end up living rent-free for a long time or even getting your home with no mortgage.