Loan modification companies now occupy countless blogs on the internet, almost every commercial break on the radio and now even television commercials. Some are lawyers, some are not. Both groups seem to be spouting the same message to the same people.
Is this “boom” caused out of a legitimate need, or is it perhaps overly opportunistic individuals?
First, to preface, I am a licensed California Attorney and Real Estate Broker. I have respect for both professions, though I realize, like any profession, there are bad seeds among us. As an additional disclosure, my practice is geared towards consumer representation, specifically with respect to mortgage issues. I am a partner in a relatively small firm, there are currently six attorneys.
We have several dozen federal and state cases, primarily against lenders. We handle numerous debtor bankruptcy cases, and yes, we also represent borrowers in loan modification/resolution services. Now, with that out of the way, let me say that I think too many people are paying too much money for a service that they may not need.
Let me explain.
It is likely that the single biggest financial transaction a person is involved in is the purchase or refinance of their home. A home is also an extremely personal asset, one that invokes significant emotions. Because of this, homeowners have been a prime target for numerous “predators.”
We are currently living through a housing deflationary period unlike any other in recent history, and at least in part, due to predatory lending practices. Borrowers were, and are, often asked to sign a stack of documents binding them to a long term agreement, filled with conditions and consequences seldom explained properly, if at all. In some cases the borrowers probably knew better, but not all. Regardless, facing the potential loss of their home is cause for a fair amount of desperation.
Seeking a trusted ally to guide them through the troubles ahead, homeowners often jump at the chance to call an 800 number spouted on the radio in hopes of saving them from the perils and loss of something so important. Enter loan modification companies…
One aspect of the housing bust, that does not seem to get enough press, is the displacement of so many industry professionals. There was a time when everyone either was a loan officer, or had a friend that was. People entered the industry en masse with hopes of making it rich, and some did. In a moment, this lucrative profession was stopped cold. The loan modification, at least on its face, provides a means of putting a virtually extinct skill set to use, and make a healthy profit in doing so. A couple nagging problems have surfaced.
First, California, along with many other states, prohibits, or at least strictly regulates, the charging of fees to homeowners in foreclosure [California Civil Code Section 2945]. This law protects the homeowners most susceptible to those of questionable motives. Second, representing a client in a negotiation of a contract sounds an awful lot like practicing law. Most, if not all states prohibit the unauthorized practice of law.
As it turns out, lawyers are not bound by these same restraints. For this reason, lawyers have also jumped into the arena in droves. In some instances, a “partnership” is formed, whereby the non-lawyers engage the services of a licensed attorney creating a seemingly ideal mix. This arrangement however has several serious flaws that are beyond the scope of this article.
Regardless of the intricacies facing the market participants, the consumers must first answer the question: Do I need to hire someone to get a loan modification? The most honest answer I can give, having worked with all major lenders and hundreds of homeowners is, no.
Modifying your loan is something you can do on your own. In fact, in some cases you are better off doing it on your own. Aside from cost associated with hiring someone, no one will care more about your home than you. Additionally, there are some fantastic non-profit agencies that actually provide free assistance. Yes, they are swamped, and therefore not always able to meet the needs of everyone, but for some, it is a fantastic option.
So, why would a practicing mortgage attorney say you may not need an attorney? Because some people do need an attorney and for those people an attorney can be extremely beneficial. I am of the belief that sometimes the best thing an attorney can tell you is that you don’t need legal assistance. In fact, for every client my firm takes, we probably turn away at least two clients. Here’s how I determine whether or not a homeowner needs my service.
First, is the homeowner in a situation, that without a modification, they will not be able to afford their home? If this is true, the homeowner may need counsel on issues pertaining to deficiency judgments, tax consequences and bankruptcy. Although California is a non-judicial state, a foreclosure proceeding is a very real legal problem. The required Notice of Default sent to a homeowner echoes this notion stating that they should talk to an attorney.
Second, has the homeowner considered other options? In many instances, the homeowner needs guidance and counsel. This is a cornerstone of the practice of law; well, at least it is supposed to be.
Can a lawyer give competent and skillful advice that objectively examines the homeowner’s position and counsel the client accordingly? This may also fall under the category of selecting the right attorney, but for the purpose of this point, let’s assume that is the case. Put another way, some people are in situations that are frankly pretty straight forward without a great deal of ambiguity as to the resolution. A borrower with a steady income that has not changed since the inception of their loan, who now faces an increase in their interest rate based on a recent adjustment, probably just needs to have a frank discussion with their lender.
Third, even if an attorney can provide value, does it require more than a one hour consultation? In short, does the homeowner really need to pay thousands of dollars for representation in a loan modification, or do they just need to be steered in the right direction? I submit that to charge for unnecessary services is probably no less egregious than taking on a client that does not need legal services at all.
Now, let me address two of the most persuasive counter points to my position. First, Loan Modification companies (law firms included) can utilize contacts at lenders developed through their numerous clients to expedite the process and increase the likelihood of success. This may be true in many cases. Although lenders often say that they would prefer the homeowner to just call them direct, they are often ill-equipped to deal with individuals.
There are certain efficiencies when a channel is created, whereby a company can act as a conduit to the lender. Still, in order for this point to have effect, the loan modification company must have the structure in place to handle both the volume, and the uniqueness of each client. As stated, previously, no one will care more about your home than you do.
A critical mistake is assuming that you can cast all of your troubles on to a profit based company, and all will be well.
Before allowing this argument, albeit a potentially valid one, to persuade you to hire a loan modification company, call your lender. Find out just how difficult it is, or is not, to reach the appropriate department and discuss your situation.
Second, Loan Modification companies know how to complete the paperwork and navigate the system better than the homeowner. In certain cases, this also may be true. However, great caution should be exercised when considering this point. Do not allow anyone to lie on your behalf. Filling out paperwork “appropriately” (i.e. stated income) is at least one cause as to why we are in this mess. Telling the truth is always the best policy. Still, there are varying perspectives on certain items.
What should I focus on in my hardship letter? Can I include other household member’s contributions, even if they are not on the loan? If I am not paying my credit cards, do I include them in my expenses? These questions and many others, can be asked of a loan modification company, although some of the answers can, or at least should, only be given by a licensed attorney.
If a decision is ultimately made to hire a loan modification company or a law firm, the next question is: How Do I Know which Company or Law Firm to Hire for My Loan Modification? Coincidently, that happens to be the title of my next article…
Nathan Fransen, Esq.
(888) 432-6634 or www.ModifyLoan.net