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Understanding Loan Modification Scams

GeorgetteMillerLaw.com > Practice Areas  > Loan Modification Lawyers > Understanding Loan Modification Scams

It is common for people who are facing foreclosure to receive solicitations from mortgage loan companies offering assistance with helping to save their homes. In many cases, these offers are fraudulent. There are ways to identify and avoid loan modification scams about which people should be aware.

How Loan Modification Scams Work

Most solicitations that are sent from scam loan modification companies are designed to look like they are official. Scammers do this by choosing company names that sound as if the company is affiliated with the government or a law firm. In some instances, the materials will use acronyms such as HAMP or the names of federal programs like the Making Home Affordable initiative in order to entice people to contact the company. Once people do, the primary goal of the company is to convince people to sign up for its services. A company representative will tell callers that they will negotiate on their behalf with the servicer or lender to modify the loans for a fee. These scam artists target homeowners who are desperate, and the representative will often say anything in order to make the sale.

Common statements made by sales representatives of scam loan modification companies include the following:

  • Thousands of homeowners have saved their homes through the company’s negotiations
  • An attorney backs the company
  • The company has been operating for a lengthy period of time
  • The company offers a money-back guarantee

Sales representatives often also tell people to let them take care of everything and for the people to not talk to their lenders. In some cases, they may tell people to pay the company’s fee and forgo their mortgage payments.

Offers of securitization or forensic loan audits

Another common tactic used by fraudulent loan modification companies is trying to convince homeowners that they need to pay for securitization or forensic loan audits in order to increase their chances of being approved for loan modifications and avoiding foreclosure.

In these audits, a purported forensic auditor supposedly reviews the borrower’s mortgage loan documents in order to determine whether or not the lender followed the law. If legal violations are found, people are told that they can use that information to force the lenders to offer loan modifications. These so-called audits are normally completed by data processors who plug in information from the loan origination information into a computer program that looks for loan compliance. In many cases, no errors are found. Federal law allows people to sue lenders if errors are found in some cases, but even if people win, their lenders are not obligated to extend loan modification offers to make the payments more affordable.

Similarly, securitization audits are touted as reviewing whether the homeowner’s loan was securitized or bundled with other mortgages into securities. If it was, the audit will supposedly tell whether or not the bundling process was done legally. These audits usually just use information that is publicly available, and the company then makes unsupported legal claims that have no value.

What happens after a scammer collects a fee

Scam loan modification companies work to collect fees rather than to help people with modifying their mortgages. After the company has been paid, it is common for the scammer to put in no effort and vanish, do almost nothing and then refuse to refund the fee or secure a loan modification offer that is simply unaffordable and pressure the borrower to accept it.

Avoiding loan modification scams: What to look for

1. Guarantees and dubious claims

People should be very skeptical of companies that claim success rates of 90 percent or that guarantee that they can stop foreclosures from happening. There are no guarantees that foreclosures can be stopped by loan modification companies. People can check with the Better Business Bureau or with the state’s consumer protection officer in order to discover whether or not any complaints have been filed against the company.

2. Upfront fee requirements

A majority of states forbid companies from charging upfront fees for loan modification services before performing any work. People should avoid entering into agreements with companies that charge these upfront fees.

3. Pay the lender before paying the loan modification company

People should not listen to sales representatives who advise them to pay their fees instead of paying the mortgage company. The loan modification company could simply disappear with the money it receives, leaving the homeowners even more delinquent with their payments.

4. Companies that advise ceasing communication should be avoided

It is a major red flag when a loan modification company advises a person to stop communicating with his or her servicer or lender. People should never ignore the phone calls and letters from their lenders. If people want to save their homes, keeping the communication lines open is vital.

Contact lenders about loan modification programs

People can simply talk to their lenders about loan modification programs. Lenders will review submitted applications and let the borrowers know if they qualify or not. If people feel that they need help, they can seek counseling from a HUD-approved housing counselor. People who believe that they have been victims of scams may make reports to their local Better Business Bureaus and the state’s Attorney General’s Office and the Federal Trade Commission. To learn more about your rights and your options if you are facing foreclosure or have been a scam victim, schedule your free appointment today by calling 1-866-96-GMLAW.

Update March 22, 2020: We are fully operational at this time as we are able to continue working remotely and filing electronically. Contact us today to schedule a meeting or consultation via video chat.