The combination of a complex service, desperation of those who need the service and a new, wide open market with little regulation leave the possibility for scammers to take advantage of a situation that can provide a quick score. The biggest issue for the victims of loan modification scams usually isn’t the money; it’s the ramifications of wasted time and missed payments that can lead to a foreclosure.
In terms of sheer numbers, the frequency of loan modification scams is relatively low. Still, as home loan modifications solidify their status as the best option for struggling home owners trying to avoid foreclosure, staying away from the “bad actors” has never been more important. One reaction to the issue has been homeowners choosing to take on the loan modification process by themselves, which is proving out to be a mistake. Cheered on by politicians and some members of the media, the do it yourselfers have run into a brick wall of complex mortgage contracts, untrained customer service reps at the lenders, and a process that requires the time equivalent of a part/full time job. The horribly slow start of the Obama Administration’s Homeowners Affordability and Stability Plan (HASP) is being blamed both on the lenders for not being prepared for the onslaught of calls and paperwork and on homeowners trying to negotiate loan modifications on mortgages they never understood in the first place.
The vast majority of scams have originated at loan modification shops which are commonly staffed by mortgage brokers that at one time were peddling the toxic mortgages responsible for starting the mortgage meltdown. These are shops that typically have no licensing, legal wherewithal, or ability to modify a loan. There are usually several telltale signs that the shop could be running a scam:
* No office – Without a legitimate stream of income, many scammers have no interest in signing office lease contracts, equipping a space, or investing the capital required to run a serious business.
* An office but… - There might be an office but it’s not much of one. Almost all the square footage is dedicated to phone jockeys and the atmosphere screams “boiler room”. The reason behind no or minimal office space is that most scammers understand that what they’re doing is going to have a short shelf life which will require moving on at some time in the near future. Requests to visit a scammer’s office are often deal killers themselves, as the scammers won’t want to meet directly with you. If a visit to an office is discouraged, take it as a big warning sign.
* No track record – A legitimate firm which has been in business long enough to know the ropes will have hundreds of completed modifications. Most of the mod shops running scams will not have any completed modifications to speak of. After all, they’re not in it to modify loans.
* Marketing materials that look like they’re government issued – Mortgages are part of the public record and can be accessed by anyone that desires to do so. There are no government agencies soliciting for loan modification business.
* Connections with lenders - If a loan mod shop tells you that they are working, affiliated, or in partnership with your lender the red lights and sirens should start exploding in your head. If you’re still interested, confirm the mod shop’s statements with your lender.
* The hard “now or never” sell – If you’re getting pressured to start the process because the mod shop has been told by the lender that foreclosure is imminent, walk away. That kind of communication between parties doesn’t happen.
* Promises or guarantees of principle reductions – It’s impossible to know whether a principle reduction is going to happen before opening the negotiation. There are too many variables, like who owns the mortgage, to make a guarantee like that. Q1/09 statistics showed that 1.8% of all loan modifications included a principle reduction so, at industry standard, you have a 1 in 50 shot.
The third choice is to modify your mortgage using an attorney driven process, which is proving out to be the best route to optimal results in a loan modification. Check out the following:
* Get the attorney’s state bar number and check it out on the appropriate state bar website.
* See how long the firm has been negotiating home loan modifications.
* Ask for a track record. An experienced firm will have hundreds of completed modifications.
* Visit the office, or have someone you trust do it.
* If you are struggling with credit card and/or consumer debt, find out if the firm pairs home loan modifications with debt negotiations. The results from combining the two processes can be very beneficial and powerful.
Performing a little due diligence will go a long way toward making sure that you’re comfortable with the firm that’s going to represent your interests and provide assurance that you are going to get what you paid for.
