Recently, the state of California announced that loan modification firms that promise to help struggling borrowers get their mortgages rewritten have been banned immediately from asking for cash upfront. Believe it or not, this also includes attorneys!!
In addition, the Federal Trade Commission (FTC) is proposing a nationwide ban on the charging of upfront fees by guaranteed approval emergency loans modification companies. Whether or not that will also include attorneys is yet to be seen. The theory behind the proposed ban is in part to eliminate unethical loan modification companies who are providing no useful services. In effect, attempting to eliminate those that are "scamming" innocent desperate homeowners.
Now I don't want to insinuate that all companies that charge upfront fees are scams. There are certainly many legitimate companies out there that choose to charge upfront fees. However, there are many companies that are taking advantage of folks and they need to be put out of business. Here are 10 warning signs of scams to watch out for:
1. "Pay us $3,000, and we'll save your home." Some bonafide housing advisors may charge small fees, but charges that amount to thousands of bucks are likely an indication of potential crime -- particularly if they're charged up front, before the "counselor" has done any work for you. Be careful of corporations that need you to supply an cashier's check or wire transfer before they take any action for you.
2. "I guarantee I'm going to save your home - trust me." watch out for guarantees that an individual or company can stop foreclosure and let you remain in your place. Impractical guarantees are a sign the person making them won't think about your particular circumstances and is improbable to provide services which will essentially help you.
3. "Sign over your house, and we'll let you stay in it." Be really suspicious if somebody offers to pay your mortgage and lease your house back to you in return for transferring title to your house. Signing over the deed to someone else gives that person the power to eject you, raise the rent, or sell the house. Though you will not own your house, you will be legally in charge of paying the mortgage on it.
4. "Stop paying your mortgage." Don't trust anyone that tells you to stop making payments to your bank and servicer, even if that person tells you it'll be done for you.
5. "If your bank calls, don't talk to them." Your bank should be your first contact point for arranging a repayment plan, alteration, or short sale. It's essential to your interests to remain in close communication with your bank and servicer, so they know your situation.
6. "Your lender never had the legal authority to make a loan." Don't hear anyone that claims that "secret laws" or "secret information" will be used to get rid of your debt and have your home loan contract announced invalid. These scammers use sham legal debates to make claims that you aren't obliged to pay your mortgage. These debates do not work.
7. "Just sign this now; we'll fill in the blanks later." Bother to read and understand anything you sign. Never let anybody else fill out forms for you. Do not let any one pressure you into signing anything that you do not agree with or understand.
8. "Call 1-800-Fed-guaranteed approval loan lenders." this is going to be a con. Some corporations trick borrowers into believing that they're associated with or are authorized by a governing body or tell you that you have to pay them high costs to qualify for government loan modification programs. Bear in mind that you don't have to pay to take part in legitimized federal programs. All that you need to do is to get in touch with your bank to discover if you qualify.
9. "File for bankruptcy and keep your home." Filing bankruptcy only briefly stops foreclosure. If your home loan payments aren't made, the bankruptcy court will finally permit your bank to foreclose on your house. Bear in mind that some scam artists will file bankruptcy in your name, without your understanding, to briefly stop foreclosure and make it appear as if they have arranged a new payment agreement with your bank.
10. "Why haven't you answered to our offer? Are you wanting to live on the streets?" High pressure strategies signal difficulty. If somebody ceaselessly contacts you and pressures you to work with them to stop foreclosure, don't work with that person. Legit housing advisors don't conduct business thatway.
The point that needs to be driven home is that it appears this is the beginning of the end for the for-profit loan modification industry (at least those who charge upfront fees). Those attorneys that had been performing loan modification services in exchange for upfront fees, are sure to stop doing so, for fear of potential loss or suspension of their right to practice law. This is certainly a good thing from the standpoint that it is going to help eliminate the "scammers." But if this does indeed pan out, then what is a desperate homeowner-- who is behind on mortgage payments--to do?
If they are unfamiliar with the install loan modification process, the thought of negotiating with their lender on their own can be daunting at best. Unfortunately, that is going to be reality. It will be sink or swim, and they had better get themselves informed on the processes, programs, qualifications and know how to negotiate on their own, as they might just find themselves unable to pay anyone to help--even if they had to the money to do so in the first place!