What You Need to Know Before Hiring a Loan Modification Company

Sep 16, 2014 by Aja F.

If your home is in danger of being foreclosed, a loanmodification may be your best—and only—option. Unfortunately, not only is theprocess time-consuming, difficult to navigate, and far from a guaranteedsuccess, but many independent loan modification firms are scams.


We talked to lead attorney of Amerihope Alliance, Gregory M. Nordt, Esq., about what toconsider when you’re hiring a third party loan modification company:



1. Are they askingfor a fee in advance?


If a company is working with your lender to refinance,modify, or reinstate your mortgage, they shouldn’t be asking for a fee inadvance. Accordingto the Federal Trade Commission, the company can’t collect a fee from youuntil you’ve signed a written agreement with your lender that includes therelief your mortgage assistance company has negotiated for you. So until youand your lender have come to an agreement andyou’ve accepted it, you don’t have to pay a thing.



2. Are they offeringto have an attorney look over your mortgage documents?


Many scammers will, in return for a fee, have a mortgageloan auditor, forensic loan “auditor,” or foreclosure prevention “auditor” lookover your mortgage papers to make sure your lender did everything legally. Thescammers claim this can help you speed up the loan modification proceedings,reduce what you owe, cancel your loan, or avoid foreclosure.

However, “Forensic audits are useless and no value todefending against a foreclosure lawsuit,” says Nordt.




3. Are they askingyou to surrender the title to your home?


This is a common scheme: you’re told to surrender the title,but can stay in your home as a renter and buy it back in the future. Thecompany promises a person with better credit can get new financing so the home isn’tlost. However, “the terms of thesedeals usually are so expensive that buying back your home becomes impossible,”says the FTC. “You lose the house and the scam artist walks off with the moneyyou put into it. Worse, when the new borrower defaults on the loan, you're theone who's evicted.”



4. Are they tellingyou to stop talking to your lender?


Throughout the process, you always have the liberty tocontact your lender, who can tell you if you are eligible for anygovernment-backed modification programs. Encouragingyou to shut down communication with your lender is illegal.


“No reputable firm would ask you not to talk to your lender.In fact, they sometimes need to speak with the homeowner throughout theprocess,” Nordt adds.



5. Did they tell youthese key pieces of information?


Mortgage assistance firms are obligated to make it clearthat:

        They are not associated with the government.

        Their services haven’t been approved by thegovernment or your lender.

        Your request for a loan modification might notbe approved by your lender.


In addition, if the company advises you to stop paying yourmortgage, it also has to tell you that not paying could lead to the loss ofyour home and damage to your credit.



6. Are they tellingyou to send your mortgage payments to them instead of your lender?


“Only send your mortgage company your mortgage payments,never any person or company,” Nordt says. “There is never an instance in whichany third party would collect your mortgage payments.”


7. Are they givingyou enough time to look over any paperwork you’re signing?


Legitimate companies will always give you adequate time tolook over any papers you’re asked to sign. If you’re being pressured to signthings quickly, without fully understanding them, you’re probably beingscammed. Some scam artists will try to trick you into surrendering the title ofyour house to them in exchange for a “rescue” loan.



8. Are they claimingthey can guarantee you’ll get a loan modification?


Watch out for assertions that sound too good to be true. Anauthentic company will never guarantee your case will be successful, and theyalso probably won’t make claims like, “90% of our clients’ loans are modified!”Scam artists know these promises will appeal to vulnerable people who aredesperate for help—easy targets.


“EVERY loan modification is as unique as a person'sfingerprints,” Nordt says. “The terms of each are a byproduct of anindividual's complete financial story, and sometimes property value—and thatmeans that no two modifications will be exactly the same.”


Here are somecommon reasons why loan modifications are denied.



9. Is the companyname similar to a government program?


In an effort to make themselves seem legitimate, many scamartists use deceptive labeling to trick consumers into thinking the company isgovernment-affiliated.

“In one typical example, scammers use a letterhead thatsupposedly indicates the correspondence is from the Obama administration'sMaking Home Affordable plan,” said DianneReichel, a certified credit counselor.



10. Can you verifytheir credentials and/or accreditation?


Contact the attorney general’s office in your state and theFederal Trade Commission and ask whether they have received any consumercomplaints about the firm that you’re considering using. These agencies canalso verify licensing and affiliations.

You should also check the company’s reputation on TrustLink!



“We are witnessing more and more cases where the banks areinitiating foreclosure lawsuit after only three months of a homeowner notpaying their mortgage,” says Nordt. “Our advice is to hire a foreclosureattorney that has expertise in foreclosure defense and performs an ancillary serviceof a loan modification.”


“We believe that to have the most successful outcome anattorney must have a vast experience with numerous mortgage lenders, banks'attorneys, the legal foreclosure process, and offer an on-line system thatpermits clients to review their case. The key to loan modification success is astaff of paralegals to assist with the mechanics of the loan modificationprocess COMBINED with the foreclosure defense.”



Whichever company youhire to help you with the loan modification process, make sure it passes all ofthese tests.

But stay on yourguard—and if you suspect a scam, make sure to report it to the Federal TradeCommission