Five Ways to Identify Loan Modification Scams

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Hiring someone to negotiate a mortgage loan modification on your behalf is similar to blindly feeling your way through an unknown, pitch black room, with nothing to steer you in the right direction.  The stress increases with the wide-spread emergence of scams designed to yank what little money you have left right out of your wallet.  

The good news is that recognizing these scams isn't that difficult, if you take the time to do your homework before you do your hiring. 

Here are several red flags that scream, "Scam!"  

1. Paying Up Front
Unless you are hiring a duly licensed attorney to represent you, it is illegal for a loan modification company to charge for their services before providing them.  Attempting to side-step this law, many loan modification companies claim to be "attorney backed" or "associating" with a law firm.  Don't fall for these phrases  -or these practices.

2. Promises or Guarantees
Obtaining a loan modification depends on a variety of factors, ranging from your individual financial situation to your loan's investor.  It is impossible for anyone to know for certain how your particular lender is going to process your particular application.  Any modification company willing to make specific promises or guarantees about their results, without regard to these factors, is willing to lie to get your money. 

3.Advising You to Stop Paying on Your Mortgage
Giving this advice should be criminal and taking it is nothing short of foolish.  Shady modification companies dole out this advice to free up your bank account so you can pay their fee.  What they don't tell you is that failing to pay your mortgage payments increases the potential for foreclosure and they don't carry the risk of losing anything, while you could lose your home. Mortgage servicing companies have been dispensing this same bad advice! Don't skip payments!

4. Instructing You to Stop Talking to Your Lender
This means the loan modification company is hiding something.  The modification company may tell you that anything you say to your lender could hamper their negotiation efforts.  But, if your file is being handled properly and honestly, what could you possibly say to complicate things?  In fact, you should contact your lender occasionally to confirm the loan modification company is diligently working your case.

5.  Signing Blank Documents
This is a no-brainer, right?  Unfortunately, it's quite common.  Questionable companies often ask stressed and desperate consumers to sign blank documents, claiming it will expedite the process.  More often than not, these documents are later filled out with fudged numbers that are inconsistent with your pay stubs and bank statements, causing your lender to deny your modification request.  Scam artists use this smoke screen to cut corners, and prevent you from finding out anything is wrong before it's too late.

When in doubt about any company who claims they can help you, do your homework. Check for prior complaints lodged against the company with by visiting the the  Better Business Bureau, your State Attorney General's office or checking them out online. Armed with a little knowledge, you can determine which ones can be trusted to honor their commitment to help and which ones are just out to profit from your hardship.
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Denise, great post on loan modification watch outs. This is still such a new and unregulated industry that there have been swarms of people jumping in as experts. Excellent insights and thanks so much for sharing.

There’s so much misinformation out there that people don’t really know what is and is not. It’s refreshing to see people that know what they’re talking about. You have an Informed commentary seems to be a rare commodity these days. Keep it coming.

After seeking loan modification advice this article hits the nail on the head. What a great article. Share this information with anyone that needs
it. It’s valuable and useful.

This is a very good list, Denise. So many people are losing the money they can't afford to lose. What we need is information and education to homeowners.

Great list Denise, I agree with everything, but you should change number 4. I've been working on loan mods for 18 months now and there is PLENTY a person could say to their lender that could damage their ability to qualify for a loan mod. For instance, someone could easily disqualify themselves by providing too much expense information, because without residual income at the end of the month you probably won't get a loan mod. It's best to have 3 way conference calls with your lender and your loan mod company/attorney/accountant, that way you can listen in and hear what's going on, but not damage you chances of qualifying.

I could go on for days....

Good luck out there everyone and be safe....

Not only that, but most people are getting calls from their lenders collection departments and most of the time those agents will say anything (like you don't qualify for a loan mod) just to extract any money they can. If your going to call you lender during the modifcation process it's best to only speak with their loss mitigation/home retention department or customer service department as that's usually the only place to get accurate information.

Good points, Patrick. And have you read the recent report published NCLC last week here;

Will definitely share this with my readers, glad you posted this.

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