Avoid Loan Modification Scams

Many homeowners that need a loan modification are worried about “loan modification scams”, especially in California. And they should. According to the new National Loan Modification Scam Database, reported losses of “fee payments” to scam artists between May and September of 2010 totaled nearly $17.7 million. While this is a nationwide database of scam complaints, the largest percentage comes from California.  So let me share with you a little information about this new database. And let me help you with some ways to avoid loan mod scams.

The Loan Modification Scam Prevention Network (LMSPN) was launched on April 26, 2010 and is led by Fannie Mae, Freddie Mac, , the Homeownership Preservation Foundation (1-888-995-HOPE), NeighborWorks America (LoanScamAlert.org) and the Lawyers’ Committee for Civil Rights Under Law (PreventLoanScams.org). This group publishes a monthly “Scam Database Report” and also maintains  a “list” of reported scam artists in most states. Their June 2010 Report shows that for homeowners over 50 years of age, almost half of the complaints nationwide came from California. And sadly, 33% of those reported some attorney involvement. More on that below.

According to a loan service industry news report, the most common type of loan modification scam begins with finding folks who are getting notices of default. Then–

“Fraudsters contact and then deliberately confuse these borrowers about their lender affiliation. A common impersonation is pretending to represent Countrywide, or simply avoid talking about their affiliation or lack thereof, offer to do a loan modification for a fee, start collecting payments and eventually disappear. To appear convincing they may even go so far as to mail fraudulent documentation so borrowers continue to pay and get further into default.”

"...have a legal framework for comparing" your options.

So how do you avoid a loan modification scam? Remember the report (above) that showed frequent “attorney involvement”? Let’s start right there. Avoid any lawyer that is not a long-time bankruptcy specialist. Begin by finding and meeting with a very qualified bankruptcy specialist with a good reputation in your area.

Why? Because all homeowners in trouble need to begin by understanding whether bankruptcy, Chapter 7 or Chapter 13, is a viable option. If the answer to this question is “yes”, then you will be able to fairly and honestly evaluate any loan modification “offer” from your lender. And you will also be considering your other debts and financial issues as part of your thought process.

In other words, you will have a legal framework for comparing any loan modification offers or claims (including an actual offer from your bank) to your honest legal rights. And if the answer to this question is “no” you don’t qualify for bankruptcy relief, then you will also have a qualified lawyer to give you some advice about how to avoid a scam.

Here are some other tips for avoiding a loan modification scam:

• Don’t pay any money or fees up front! In California, it is a violation of law for “foreclosure consultants” to collect any money before they actually provide services. But regardless of where you live, don’t pay up front.

• If you speak with a lender or someone that claims to be your bank or “loan servicer” by telephone, verify their name, the company they work for, their job title and phone number. Don’t give them any information about your situation over the phone. If you are speaking to your lender, they already have your information. But scammers can get some information from a Notice of Default and they can sound pretty convincing. So if you aren’t certain, ask them to send you a letter.

• Don’t pay your mortgage payments to anyone other than your lender! If a foreclosure consultant offers to “hold” payments for you (in order to negotiate with your lender), don’t do it! They might keep your payments and disappear.

• Don’t transfer title to your home or sign any documents without speaking to a lawyer! Some loan modification scammers will get you to sign fraudulent documents or even cause you to file fraudulent bankruptcy documents in order to stall a foreclosure and benefit themselves, not you.

Loan modification scams often work because homeowners in trouble are stressed and not thinking clearly. Fear of the unknown lies behind many such frauds. So the best advice for folks that might qualify for a loan modification is to start by meeting with an experienced bankruptcy attorney. These attorneys know how to analyze your financial situation quickly and efficiently and they will clear you head and calm your unreasonable fears.