Foreclosure rates continue to climb, and we don't see any end in site.

Many foreclosures involve sub-prime loans that never should have been issued to begin with, but increasing numbers of "prime" mortgages are also failing and that's an alarming sign. 

One of the things we try to do here on Dolans.com is to help you handle difficult money dilemmas.  So today, let's talk about what to do if you or someone you know is facing foreclosure.

First things first: Set your priorities when paying bills. After you make sure your healthcare is taken care of, your next priority should be protecting your home - even if it means letting a credit card payment slide. They can't come and grab anything from you on a credit card balance that's overdue, but they can certainly take your home.

Now, this next step is not fun to do but it's absolutely imperative. Contact your lender as soon as you begin having trouble making payments. Don't wait until three months in, because that could be three months too late.

Ask your lender if you are a candidate for loan modification.

Open up every piece of information you receive from your lender. Don't ignore it and stick it in a drawer just because you don't want to hear what they have to say. Respond to every piece of mail, because early letters often include options to help you avoid foreclosure.

Dolan Straight Talk Tip: One piece of mail you're actually better off ignoring is a letter promising mortgage rescue assistance. These are sent by foreclosure prevention firms and we strongly urge you to use caution with these types of companies. They have 'scam' written all over them. Remember, you do not and should not pay money to anyone to stay out of foreclosure.

Also, be sure to know your rights. Before you make any major steps, check the loan agreement you signed and find out what your rights in foreclosure are.

If your problem has escalated and you're considering sticking the key in the mailbox and walking away - DON'T! It's called "deed in lieu of foreclosure" and you could have a major tax liability on your hands if you take this action. Generally you would owe taxes because the foreclosed debt exceeds the value of the home. Or if the lender forgives you an x amount of your mortgage, that becomes income in the eyes on the IRS. Granted it's phantom income and you don't see a nickel of that, but it's still considered income nonetheless.

Congress is working with the IRS to be easier on taxpayers who owe money in these situations, but it isn't going to take the liability completely away. Bottom line: Walking away from the home does not let you off all the hooks. You could be paying money on a house you don't live in for years.

If you or anyone you know is in trouble or may be approaching trouble, we suggest you go to the Department of Housing and Urban Development at www.fha.gov. They have very helpful foreclosure prevention information.

Our last piece of advice: Don't be proud. We know it's not easy, but if things are getting bad then it's important to step up to the plate and take action. Ignoring these problems will only make them worse.