If my home went into foreclosure, how could I protect my bank account savings in order to start a new life?

I have heard that creating a living trust might not protect me nor my assetts, particularly if I'm a beneficiary to trust designee, and the one that created the trust. I have 2 kids that I could gift the cash to. Can a lender/creditor come after my kids assetts since they are minors and I'm the custodian of their bank accounts until age 18? I'd really like to find a way to shelter and protect my cash savings (about $35,000) that I have worked all my life for, rather then letting a crappy housing market wipe me out in a span of 2 years. I live in Arizona by the way- if that helps. I have never filed bankruptcy, and I always pay my bills, but if i had to foreclose I do NOT want to lose my last and only means of getting myself back on my feet. I fought so hard for so many years to save. Thank you for any advice.
Additional Details
Thank you all for the great advice. I should elaborate as many are thinking "What's the problem since i have $35K in cash?". I bought in Jan 2006, & opted for an IO loan for 5 yrs to keep my payment low & save cash to complete a divorce settlement, get a new car, and get my life back on track. I got a really cheap used car with 100K miles & settled the divorce favorably. Since then, my home value slid downward over $30k. To refinance & return to 100% loan-to-value, it would eat all my savings; & that's only if someone would lend to me. In hindsight, it was a bad move to buy. I should have probably invested the cash up front to get a fixed loan. Now I'm afraid with all the talk that values will slide another 12%. I dont think I can recover a 30% loss within next 3 years. Thus, when my loan resets, I'll be upside down & unable to afford the new payment, & Foreclosure would be an option on the table. I just want to protect what is left if I can. Thanks again - Great ideas you all have.

They will go back and look at all your transactions for the past couple years. If it appears that assets have been removed, you will have to account for them. You could even be liable for a criminal conviction. You need to be up front about it. If the funds are in an IRA or some other retirement account, you most likely would get to keep them. Maybe there's time to put the funds in such an account now. Ask a lawyer.

Even if you can effectively hide everything, it really won't matter.

If the lender is effective in securing a deficiency judgement against you, then the lender can garnish your future wages. You do intend to continue working, right?

Edit: Actually, Bev is correct. Arizona is one of a handful of states where deficiency judgements are unavailable to the lender, at least for most properties, and it sounds like your property is not an exception.

if you have that much money in the bank-why didn't you just pay your mortage?

I don't believe that a Living Trust is what you are looking for. There is a way to do what you are trying to do. I'm not sure of the Trust's name. BUT, you can put things you own into a trust and become the grantor and the trustee of that trust. What you would do at that point is file a UCC against the trust for an adsorbent amount...putting that lien in first position. You can do this against yourself also...this is not a bad thing to do...I have done this for myself. The UCC lien shows up when I need to finance something, but I can always subordinate my lien I have on myself if I need to.

In terms of money you have for your kids, you should have that money in a trust for them and you would be the Grantor, and the Trustee again...in that case they would be the Grantee.

In most cases...the power in this world is not what you own...it is what you control. You do not want to personally own anything...but you want to be able to control it. That is the idea of a Trust. It protects the asset and you can lien that asset to protect if from additional liens.

My suggestion would be to talk to an Attorney or Lawyer that is familiar with these types of Trusts.

Good luck.

OK, how is it you have that much in SAVINGS but are in foreclosure?? Can't you use that to get caught up on your payments and then sell your home and move into one that you can afford??

I believe that if they can trace the cash from you back to your kids, they can take that money. Especially if it happens while you have been unable to make your payments.

My suggestion is to contact a good attorney to be sure that the lender can't touch that money.

I really feel for you in this housing market it is very tuff out there and in most of the states were feeling the same pressure . you could simply declare bk but the court will want to see previous bank statements i think that won't help. the lender could let you do a short sale and make payments on the balance . I'm not sure your in a sticky situation , but if you have $35,000.00 in savings why don't you just stick it out with the rest of us and subsidies your current income with your savings to make the payment so you don't loose everything . A home is a long term investment generally .

Well I have to assume your house is worth more than your savings of $35,000...so wouldn't it be a smart decision to use that cash to protect your investment?

I think that the first three answers you got do not pass the smell test. They would be considered fraudulent.

I work in the mortgage business. The security of a mortgage is the home only. They cannot take other assets. They can leave a defiency balance on your credit & bug the heck out you but they will not take other assets unless there is/was fraud involved. A foreclosure will RUIN your credit though. I agree with the others, use the money to pay house up to date!

Open the account in someone else's name. You dont' think the bank will just forclose on the house and leave you be, do you? If only it were that simple.

take it out and put it in a safety deposit box, until the tide clears.

A foreclosure by your lender will result in a default judgment. The judge will issue a "Decree of Judgment," a "Decree of Foreclosure", a "Order of Sale" and a "Appointment of Special Master."

The mortgage company will then advertise the sale of your home. The sale of your home is the mortgage company's "Instrument of Loss Mitigation." How much your home sells for along with the amount the lender receives from a mortgage insurance carrier (if there is one) will determine your deficiency judgment coming out of this.

The lender at this point can do a few things.
1. 1099 you for the deficiency. You would be forced to file the mortgage companies loss as income and be responsible for the resultant tax consequences.
2. The mortgage company hold or sells the deficiency and attempts to collect a a later time. ( I have never seen this happen.) Without an Order of of ganishment or a judges order to sieze assets a mortgage company cannot go after you bank accounts. Without fraud on your part in procuring the home it would be hard to imagine a mortgage company or a judge going there.

Creating a trust can work but a judge could still "pierce the veil" (dis-allow part or all) of a trust. If the trust appears to have been created to subvert a previous court ruling a creditor can seek relief from the courts (breaking the trust and going for it's assets). They will look for any unusual transactions. For example did you pay a family member a large sum (call prefered creditor status); or have you sold something for substancially less than it is worth (a 10K race horse for $500.) Protecting your assets can work. You need to talk to an attorney in your area. Again if the lender cannot prove fraud is an issue defending your assets from the mortgage company should not be so great an issue. Mortgage companies tend to treat the foreclosure process like one big assembly line. Going outside their patterned preocess is not the norm even if it would net them a few thousand more dollars.

Another option most people don't like to look at is Bankruptcy. Filing alone would put a hold on your mortgage company's actions and extend your time in the home. You may have too much by way of income to qualify, check with an attorney. Another option is give your mortgage company a "Deed in Lieu" of forclosure. Look at you "Rights of Redemption" these may be saleable and the extra money could help. Depending upon whether or not you have a second or third mortgage the person buying your redemption rights could pick the property up for substantially less then you owe. (Just one reason why redemption rights can hold value.)

Mortgage companies depending on the area are busy dealing with the same issue you are. How do we protect our assets? How do we minimize our losses? They are willing in many instances to "play ball."

You need an experienced real estate attorney to go over your options with you. There should be many non-profit housing or home ownership advocacy groups in you area. Call them just talking to others could help.

I'm sorry my answer is long but I feel like even at this length I could keep going.
Good Luck

Edit: How long ago did you get the loan? The index your loan is tied to should be low right now. Your payment should have gone down. In doing the math are you sure letting you home go is the best option?

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