Learn how to avoid mortgage and loan modification scams

nathan-fransenIs it me or are “loan modification scam” companies becoming as prevalent as mortgage broker chop shops were a couple years ago?  I don’t mean to be overly critical, and I understand many do good work, but I have heard stories of “former mortgage industry professionals” charging thousands of dollars to negotiate with the bank on behalf of the borrower. 

At the risk of sounding like a protectionist, isn’t this something that should be done by a lawyer? 

I have so many people come into my office who were victims of “predatory lending” and then victims of this next loan modification craze. 

Take for instance just last month, I had a client tell me they paid $15k to a “modification company”.  The company promised her they would reduce her balance and lower her interest rate to 5%.  This truly sickens me.  The homeowners struggling with their payments are facing what can be one of the most traumatic experiences of their life.  This vulnerability unfortunately attracts those without regard for others plight.  Laws are in place to prevent this activity, but are not enforced enough. 

Anyone else hearing about this stuff?

My law firm has been getting more and more calls recently from homeowners that were victims of predatory lenders who put them into an unaffordable loan and now fell into the hands of those same people who sold the toxic loans but profess to be saviors… DON’T BE A VICTIM TWICE!

Do your homework and THOROUGHLY investigate any firm before hiring them to save your biggest asset and the place you call “home.” These scammers are popping up like dandelions on a freshly mowed lawn. They advertise on the Internet, freeway billboards, radio, television, and print media everywhere.

Make no mistake, in many cases, these are the exact same loan officers and mortgage brokers who fleeced homeowners the first time around. After losing their jobs with the crash of the mortgage industry, they have found a new way to make ill-gotten profits from hard-working homeowners through loan modifications.

In California there are laws prohibiting fees being charged to those in foreclosure (Foreclosure Consultants Act, CCP Sect. 2945).  I know this type of law is also common in other states.  I think we will see this law enforced more and more going forward, but as of now it seems like the wild west.  By the way, I was a mortgage broker before becoming an attorney and I have a great deal of respect for professionals in the industry, I just wonder about the “opportunistic” agents who may be continuing where they left off…

In California, the Department of Real Estate website (www.dre.ca.gov) lists the companies that have DRE “permission” to modify loans… add to this list any licensed California attorney, and that is where you should begin your due diligence when you seek help in California. Other states probably have similar laws, so check with your own state DRE. 

In my opinion, the advantage of working with a law firm comes from the “whole picture perspective”.  Many homeowners have collateral issues, such as bankruptcy and deficiency judgments.  Lenders also often require homeowners to sign a release of any and all legal claims based on the origination and servicing of the loan as a condition of the loan modification.  It makes sense to have the loan reviewed to make sure there are not relevant claims being waived.  For this reason, we audit every loan file at the beginning of every loan modification.

Another point for having a law firm involved is the fact that a lawyer may have contacts within the legal department that provide a more expedient process.  Not always, but its at least another avenue to pursue.

Given the advantages, a law firm should probably cost more than a mortgage broker turned loan mod specialist.  Surprisingly i have found this not to be the case.  My suggestion to homeowners is to either do it yourself, or find an attorney that specializes in this area.  Sorry if this steps on anyone’s toes, but i think it just makes good sense.

Here is some advice from my partner, Paul Molinaro…

paul-molinaro-1Do your homework and THOROUGHLY investigate any firm before hiring them to save your biggest asset and the place you call “home.”

These scammers are popping up like dandelions on a freshly mowed lawn. They advertise on the Internet, freeway billboards, radio, television, and print media everywhere. Make no mistake, in many cases, these are the exact same loan officers and mortgage brokers who fleeced homeowners the first time around. After losing their jobs with the crash of the mortgage industry, they have found a new way to make ill-gotten profits from hard-working homeowners through loan modifications.

Here is some important loan modification advice and tips to avoid mortgage scams:

1) Loan modifications are easier when you are late on payments.  That being said, I never recommend someone miss payments unless they truly don’t have the ability to make them. 

In other words, if you have to use a credit card to make your mortgage payment, the end maybe near.  At that point, I may advise someone to stop making the payment, since its really just a matter of time.  Other than that, stay current on your mortgage.  It will be harder to get a loan modification but your credit is still important.

2) Guarantees are simply misleading.  No one can really guarantee results.  The truth is, as an attorney, I am prohibited from making guarantees.

3) Hire a lawyer. As to the loan modification process, much of it can be done by non-lawyers.  In fact, it can be done completely by the homeowner himself.  This is also true of wills/trusts/divorces/etc.  But think about this? You are renegotiating a legal contract. 

It’s practicing law and that’s my opinion. 

Remember when you complete a loan modification, you are signing a new note that typically states you are waiving any and all claims associated with your mortgage up to that point.  What if there was a potential legal claim that would have saved you $100,000?  It’s not worth the risk. 

Frankly, if you can afford to hire someone, hire a lawyer.  Otherwise, do it yourself.

4) Communication is one of the biggest complaints in most service businesses.  Law offices can be bad at this as well.  Try to find a law firm that is responsive to your calls in the beginning.  It’s not a guarantee you won’t have problems down the road, but it is at least an indicator.

That being said, let me give some general advise that may be of some use. 

1) First, make sure you need a lawyer.  Not everyone does. Second, assuming you need a lawyer, determine what the purpose is.

2) You may be able to communicate directly with your lender and achieve the same results. 

3) If you get a loan modification agreement on your own, you could then consult with a lawyer to review the details and make sure the contract is sound.  This may only cost you a few hundred dollars, as opposed to thousands.

4) Have you been scammed? If you think you may have legal claims against your lender or a loan modifications scammer, you will want an attorney that has experience pursuing these claims.  My suggestion is to talk with a couple at least  a few lawyers to get the right fit. Call your states BAR or county legal aid resources which you can Google and research.

Resources:

If anyone else hearing about this stuff, please leave your comment below. We would love to hear your story or thoughts about this new area of law and business that is taking the nation by storm.


32 Comments

32 Responses to “Learn how to avoid mortgage and loan modification scams”

  1. manita daniel says:

    why do you have to pay first? and how much is legal to pay? should i ask for a money back guarantee letter?

  2. [...] See more here: Mortgage Scams, bLoan Modification/b Scam, Attorney Help | bLoan/b b…/b [...]

  3. [...] Mortgage Scams, Loan Modification Scam, Attorney Help | Loan … Read [...]

  4. Mike Loosness says:

    The scammers are out like cockroaches and they are in every nook and cranny in the country. Fortunately there are blogs like this that can help homeowners like myself avoid these scams and crooks.

    Thanks Paul & Nathan!

  5. Karen Hixson says:

    How do you know if a company is legit?

  6. RE: “why do you have to pay first? and how much is legal to pay? should i ask for a money back guarantee letter?”
    To be very upfront, my law firm is a for-profit law firm. We fully understand the dire financial situation our clients face. EVERY one of our loan resolution or Bankruptcy clients is having money problems (or they would not need us). Thus, we have made our pricing affordable to people with very limited funds. That said, we need to make sure we are paid, and we do not want to be just one more creditor of the many seeking to collect from our clients. We ask for full payment up front.
    As to guarantees. Lawyers do not guaranty the outcomes of their cases or matters. We are lawyers and zealously represent our clients. That is how we earn our fee… through the actual work we do. If a loan modification does not work out (it happens), that is when we are of even more value to our clients. That is when they need help with a short sale, deed in lieu, advice on the foreclosure process, or bankruptcy. We are paid to provide legal services, not to “shoot for a loan mod, and see what happens.”
    - Paul J. Molinaro, Esq.
    (888) 432-6634

  7. Ellen Jones says:

    Is the Better Business Bureau and good reference to check the legitimacy of one of these loan modification companies?

  8. TJ Roberts says:

    Well said Paul,Im in a fix myself,and Ive been a REALTOR for 17yrs.There are a lot of angels,on the loan mods,some want money up front,? and there is no guarantee a loan mod will be approved even with a rep co.and you’ve loss 2 months to find out a no
    The problem is when most of these people dont have any equity,so I have a different mindset,on chap 13 or sell

  9. Re: “Better Business Bureau”
    Well, the BBB seems to be giving all loan mod companies lower than expected ratings due to the fact that the field is getting filled with corrupt businesses. The legitimate companies are being spoiled by being in a bunch of rotten apples. That said, it is one of the sources you should examine, but not the only source.
    - Paul J. Molinaro, Esq.
    (888) 432-6634

  10. Guarantees of Outcome: No way around it, many potential clients who call my office want to hear that we guarantee their loan modification. They have read promises of balance reductions and super low fixed rates on the websites sites of loan modification companies, heard the radio commercials, and opened their junk mail (both email and U.S. Mail). We know what people have heard. But when one thinks it through, a guarantee is just plain ridiculous. Each loan modification is unique. Some of the factors at play are the borrower’s ability to pay, the hardship, the location of the property, the amount of equity to loan balance, the lender’s financial situation, the attitude of the negotiator at the lender, the timing (whether the month was bad for real estate sales or really bad for real estate sales). So many things affect the outcome. One of the hardest parts of advising people on loan modifications is making sure that a person really wants to stay in their home. Sometimes, the home is just unaffordable, no matter how low the rate. When someone makes $3k a month and they bought a $700k home with no money down, it might be time to face the facts. Letting the house go through short sale or otherwise and then renting might really be the best choice. This is a discussion I have with my clients, and I make sure they get an education on all their options. The decision is left to the client, but I make sure it is an informed decision.
    - Paul J. Molinaro

  11. Mike says:

    My neighbor had a guy call him about a loan modification and said he was a laywer. He said it would cost 3,000 dollars for his fee and he would take the cost of his house from 310,000 to 233,000 and bring his interest rate from 6.5 to 5, plus 3 months off from paying his mortgage. Now this sounds too good to be true. Is there anyway this could be for real?

  12. Well, I guess it could possibly under some special set of circumstances if the stars and planets are all in alignment… be true… but… how the heck would someone know exactly what interest rate and exactly what balance a person would get. Any such claims should be examined for misleadingness very carefully and then? Examined again.
    - Paul
    Paul J. Molinaro, Esq.

  13. Marvin Opiyo says:

    If a scammer has already taken my money, then failed to modify my mortgage, can your firm sue them? How much?
    2. Is there a statuete of limitation when suing my lender for predatory lending? That is, if it has been more than three years since the loan closed, do I still have a case?

  14. In general, California law prohibits a non-licensed attorney or a non-DRE approved company from taking money up front to handle a loan modification IF THE BORROWER IS IN DEFAULT. Violating California law on this matter might result in the illegal act-doer being hit with THREE times the charge for the service as a penalty. As to statutes of limitations, each statute sets its own limit and the same holds true for non-statutory laws.
    - Paul J. Molinaro
    (All my posts are for general information purposes only, and are in no way providing specific legal advice for any person or entity.)

  15. [...] Is it me or are “advance modification swindle” companies right as prevalent as credit broker chop shops were a combine time ago? I don’t mean to be overly important, and I understand many do good work, but I have heard stories of “earlier credit industry professionals” charging thousands of dollars to negotiate with the rank on behalf of the borrower. At the stake of sounding like a protectionist, isn’t this something that should be done by a lawyer? I have so many people come into my ..next. [...]

  16. shontelle says:

    If you file a bankruptcy what exactly does that mean? You won’t have any mortgage payment and your credit will be mess up for life?

  17. My firm handles Chapter 7, Chapter 11, and Chapter 11 bankruptcies. Bankruptcy is a very powerful tool when facing overwhelming debt, but as with all powerful tools, it is best used only when appropiate. In some cases a bankruptcy provides what is needed without other services. In some cases a loan modification along with a bankruptcy is the best approach. Consulting with an attorney should be able to find out what is right for as particular person.
    - Paul

  18. Looking for the answer says:

    I’ve already been scammed by loan Mod. co. I have a pro bono attorney already going after scum. My problem is’nt over. According to my mortgage audit I’ve come to the conculsion that I have a predatory loan. Have’nt recieved responses from lawyer inquiries. Concerned lawyers that do respond are placing hold on foreclosures while collecting monthly fees from victums. Seeking all alternatives as to filing my own suit.

  19. Catherine says:

    We paid somebody, who is not a lawyer upfront ($3,000) for what they called “short refinance,” and then told us that we were not qualified bec we were late for a month with our mortgage payment. For 5 months, they haven’t given us any result. So, then we decided that they don’t continue representing us. Do you think we can get our money or a part of it back? Thanks.

  20. crystalk says:

    All money collected is put into a trustee account and 100% is given back, should their modification get declined. However, if they try to do it themselves and disclose information that get them declined, you can’t expect an Accredited Loan Modification Company to work miracles. My advice is not to start on your own, but to start with the loan modification company first. You stand a better chance. If they are scammers, the BBB will let you know.

  21. Rachelle says:

    My husband and I began the process of a loan mod with an attorney about 6 months ago. We still have yet to see results. I feel like we have been scammed possibly. We paid $2500 upfront and have been told now to “trust them” and not contact our lender at all; it could result in decline. Our financial situation has gotten worse to the point of us needing to look at filing BK. If we file BK with another attorney, will it and how will it effect the process we have already started on the mod? The mod attorney says it will hurt their process and lengthen it even longer but the bk attorney said it would actually help. Can someone give me a straight answer please?

  22. Tina says:

    We are 9 months into the loan modification process. We have been scammed by an attorney who took our money, didn’t follow up on the modification process and now our lender stated that the file was closed 5 months ago. Now I trust no one. Next will be a complaint on both the State level and the California State Bar Association.
    I’ve been calling this scum every 2 weeks telling him that our situation is getting worse, and now, by investigating myself, I found that the file has long been closed. How can I get my money back and sue for punitive damages?

  23. david SProuse says:

    can i file a claim against a firm for statutory damages associated with mod fraud?

  24. Letty says:

    We already paid a fee upfront for $1995 for mod and the company asked for another $1000 for down payment. The processor told me that I should be getting a packet from the mail on the mod result but until now I didn’t receive anything yet. Everytime I call the office they have their voicemail on and I can’t leave a message because is full. I also checked the company’s website it show’s ‘out of business’. What should I do now? We received a notice of default and the mod company that suppose to represent for us is possibly a scam. Can someone give us some advice on what to do next?

  25. David Sherwood says:

    I simply am a victim of a home modification scam by a company in Utah named Fortified Financial! They did not deliver on their promise of a loan modification. After over 9 months I had to bail from them to pursue a short sale to stave off a foreclosure. I paid them $3000.00 to get my home modified. After my checks were cashed they totally went silent with me and did not perform as promised. They did not offer a refund as their policy guarantees. They have been extremely fraudulent in every aspect of their communication with me.
    Any help will be greatly appreciated!!!

    David P. Sherwood

  26. Betty Kelley says:

    I recently conversed with a representative (John Towers Financial Services). He stated I would pay $2,000 and this could be divided into three payments. I am seeking a Loan Modification. This is the second time I have tried this but did not send any money because the deal felt unsafe. Should I continue this process?
    Thank you

  27. craig thatcher says:

    No problem for them to take extra money,butt it is a problem to return.That is John Towers Financial service. They said they would over night the money back ,5 days and no money back.Only A smart mouth worker on the phone.Do not use them or your money is in the trash.They want your card # first and then want you to do more.

  28. Gerald Guvers says:

    I used John Towers and they seems to work good for me.

  29. Mr. Ripped Off says:

    I used John Towers and they ripped me off. No modification, no paperwork, they just got my bank information and took out money that wasn’t theirs. I’m filing a complaint with the Attorney General, these people need to be shut down.

  30. dontmesswithtexas says:

    John Towers Financial is BAD NEWS!!! They are crooks to the core!!! I am a single mother with a 14 yr old. They took my $2000 and threw my file in the trash. My house has foreclosed, and they laughed all the way to the bank. They must be stopped!

  31. Beware, of Central Mortgage Company. They have wronged me at every turn. They loose paper work, transfer you to someone else after you start preparing and sending your documents. They will try anyway to mess up your loan modification and unknowingly lure you into thinking everything is just fine. They tell you to stop making payments, untill your loan modification comes thru. Then they will tell you a document is missing. You can register mail it, fax it, email it, then say oh we will check call back in three days, they will never find the document. They will stall you. They will say they are under staffed they lie lie lie. They want you to fail so they can collect fees. They should be investigated by the highest authority and stopped, and stripped of their right to do bussiness in th USA.

  32. This Firm is mailing out notices to your home then working from there after you call them and start their process, They state they have had a 95% success at modification. If modification doesnt work then they will file a law suit against your loan company.. Does this sound right? Is this another Scamming company that needs to be shut down? Or is this a good law firm to hire?