Foreclosures and Short Sales, Equal Ills

A foreclosure and short sale do equal damage to your credit score, according to Fair Isaac. (By Marcio Jose Sanchez -- Associated Press)

Former lender George Hunter Omilan of Vienna, for example, advocates short sales via a two-hour online course on his Web site, http://TheNegotiatedSolution.com. He charges $249 for advice on getting your lender to approve a short sale and $995 to handle the details on your behalf. "Your credit will be less damaged with a short sale versus a foreclosure," he writes on the site, and he claims he knows a way to get customers' credit repaired well enough to qualify for a new mortgage within 12 to 24 months.

But, as noted earlier, the FHA, Bank of America and FICO scores treat foreclosures and short sales the same. And most borrowers will not qualify for a new loan in such a short time.

Then there's the unfortunately named YouWalkAway.com. "Unshackle yourself today from a losing investment and use our proven method to Walk Away," the site says. If you unshackle yourself from $995, they'll advise you on repairing your credit and give you a phone consultation with a lawyer and an accountant.

"We absolutely don't believe in jingle-mail," YouWalkAway.com co-founder Jon Maddux said, referring to a flippant term for deed-in-lieu-of-foreclosure, in which homeowners simply abandon the home. "We think jingle-mail is one of the worst things you can do." Instead, his company recommends that owners stay in the property, without paying, for as long as possible. The company also recommends paying credit card bills and other debts to minimize the number of dings on the borrower's credit profile. Maddux noted that his fee, broken into three monthly installments, "is not a hard payment to make when you're not making a mortgage payment."

In August, the company plans to start selling another service, for an additional fee, to help borrowers negotiate loan modifications. But you don't need to pay for that type of help. It's already available for free from a number of reputable nonprofits.

Take advantage of their help. Loan modifications aren't an easy sell to lenders. Lenders have been rightly criticized for being stingy about the number and effectiveness of the loan modifications they have approved. But a good loan modification is the borrower's best shot at relief. And now there's heavy pressure on lenders from consumer advocates, legislators and federal regulators to shrink the number of foreclosures by offering more -- and better -- loan modifications. Push for one if you're in trouble and you want to keep your home and preserve your credit rating.

You'll have to convince your lender that, if it forgives some of the outstanding debt, lowers the interest rate or stretches out the time you have to pay back the debt, you'll be able to handle it. Be aware, though, that lenders will continue foreclosure proceedings even while they try to work out a restructuring.

Here are a few nonprofit groups that offer free help and counseling:

· ACORN Housing, 866-672-2676, http://www.acorn.org

· HomeFree-USA, 866-696-2369, http://www.homefreeusa.org

· Hope Now, 888-995-4673, http://www.hopenow.com

· Neighborhood Assistance Corp., 888-302-6222, http://www.naca.com

E-mail Elizabeth Razzi atrazzie@washpost.com