A state attorney general is warning consumers to be wary of companies that offer to help save their home from foreclosure.

He says some companies often charge high fees and take the money and run, leaving homeowners twisting in the wind of a worsened financial predicament.

"They prey on highly vulnerable people, people who need to save every penny, and who can least afford to throw their money away on false promises," said California Attorney General Bill Lockyer who recently filed a lawsuit against a southern California company that offers to help homeowners in foreclosure negotiate with mortgage lenders for loan modification or loan forbearance.

Lockyer's suit says the company collected fees of $750 to $1,250 for services, but consumers complained they never received the services or refunds. The suit also charges the company with false and deceptive advertising because ads promised to save homes from foreclosure. The suit, seeking civil penalties of at least $2 million, full restitution for victims and an injunction that permanently bans the company from operating in California as foreclosure consultants, also says the company misled consumers by claiming to provide free services, and by boasting 25 years combined experience in helping homeowners avoid foreclosure.

"Consumers facing foreclosure should be wary of companies that solicit them with offers to help them avoid the loss of their home," said Lockyer.

Soft economic times and increased interest rates -- especially for those who hold adjustable-rate mortgages -- could push more and more consumers into foreclosure.

While the Mortgage Bankers Association reported the first quarter 2004 inventory of existing foreclosures was 1.27 percent, down from 1.29 percent in the fourth-quarter of 2003, the percentage of new foreclosures increased slightly from 0.45 percent to 0.46 percent during the same period.

Lockyer and a U.S. Justice Department, which identified five common foreclosure scams, say there's a better approach to dealing with foreclosing than paying foreclosure assistance companies.

First, if you face foreclosure, heed as red flags an individual or company that

• Says they are a "mortgage consultant," "foreclosure service," or offer a similar unfamiliar name.

• Contacts you only after your home is listed for foreclosure.

• Attempts to collect a fee before providing any services.

• Tells you to make your home mortgage payments directly to the individual or company.

• Tells you to transfer your property deed or title to the individual or company.

Financial experts also say there are numerous steps you can take to avoid reaching the point of foreclosure.

Lenders can begin foreclosure when you miss your first payment, but most don't begin actual proceedings until after several months of consecutively missed payments.

• Sift through your original loan documents to learn what foreclosure procedure you face. Once the clock starts it's up to you to stop it before time runs out.

• Homeowners in default are able to stop the foreclosure process by bringing their mortgage payments current, or by selling their home and paying the mortgage off.

• Assuming you want to keep your home, here are some basic do's and don'ts to help you stop foreclosure.

• First, when you are faced with foreclosure, don't go extreme. Panicking or sticking your head in the sand isn't going to make the problem disappear. Your lender isn't in the real estate business of seizing and selling homes. It would rather you pay the note.

• Communicate with your lender -- in writing -- to establish a paper trail of evidence that you are trying to resolve the problem. Communicate with someone in authority, not the bill collector who is only after the back payments.

• Your first strategy should be to negotiate some workout to pay the arrears and make future monthly payments. Special programs are available for those with FHA, VA loans and others covered by state government programs. Ask your lender what's available for you.

• Consider refinancing the loan. That would both bring your loan current and pay off the lender before it forecloses. Interest rates remain relatively low and you could even wind up with lower monthly payments.

• If you are in the military, you have special rights under the Soldiers and Sailors Civil Relief Act to stop the foreclosure and you may be eligible for a reduction in the interest rate.

• Procedural errors in the lender's foreclosure or lender errors when you acquired the loan could permit you to file a lawsuit to enjoin or stop the procedure. You may have to consult with a real estate attorney to ferret out the details.

• If all else fails, bankruptcy is an option that can stop foreclosure, if only temporarily, and give you some leverage to resolve it.

• Selling the property is an end-game option -- either selling the property outright as quickly as possible or deeding it to the lender in exchange for ending the foreclosure.