3 Steps to Avoid Loan Modification Scams

It’s an unfortunate truth: Right at the moment homeowners are searching for hope as they face foreclosure, some loan modification companies and law firms are waiting in the wings to deceive them.  No Scam

Just look at this documentation from the Washington State Office of the Attorney General on dishonest lawyers doing dishonest things to homeowners. Or this report on the massive mortgage modification scam that allegedly stole “$18.5 million from more than 8,000 financially struggling homeowners in all 50 states by falsely promising them pre-approval for lower payments through the Home Affordable Modification Program (HAMP) and aggressive legal representation, among other things.”

The truth is, even though there are laws in place, the government can only do so much to prevent scams. That means, a great deal of power lies in the hands of the homeowner to do his or her due diligence to weed out the bad companies that are promising them the world.

In this post, we’ll look at three simple ways you can conduct research to evaluate the companies you come across for your loan modification needs.

Step 1: Check on Licenses and Operations

There are a few places you want to begin your research. The first is the Office of the Attorney General. Each state has its own office (note, there is an attorney general at the federal level, too), and you can find a lot of useful information there, like checking to see if a complaint has been filed, as well as filing a complaint if you feel you’ve been wronged by a loan mod scam.

You may need to call the office directly for the information you need. Keep in mind that some complaints may be exclusively maintained and governed by their respective state real estate or mortgage agencies.

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Because the laws in each state vary, the Office of the Attorney General may also be able to help you determine if a company should be licensed to provide the services they are selling in that state. You might consider explaining the type of services you are looking for, and inquire on what type of licenses are required.

Here at The Homeowner Defense Network, for example, we are not a loan modification company, law firm or foreclosure consultant, so we’re not required to have any of those types of licenses.

If you think you’ll be working with attorneys, check out the American Bar Association or your local bar association to ensure the attorney is licensed to provide legal service. Here’s The National List of Attorneys, which lists most state bar websites.

This should help weed out companies that say they are law firms, but don’t actually have attorneys in their office. And keep in mind that while some attorneys are licensed in multiple states to handle state legal matters, they must also be licensed in yours, unless they are offering you Federal legal services.

It’s also worth noting that upfront fees were banned for loan mods in 2010, except for attorneys, so it’s perfectly legal and OK to pay an attorney for help. In fact, charging upfront fees was never the problem — it was the scammers — so when upfront fees were banned, it forced legitimate loan mod companies to close, meanwhile scammers are still out there in full force.

Step 2: Search for Reviews

Performing a search online such as “Company X reviews” is one of the most common ways homeowners investigate companies. However, this is not always the most reliable source of information.

It’s not easy to know just by reading if the complaints are accurate (remember, there’s always two sides to every story), or if a company’s competitor has fabricated the complaint in attempt to slander the competition.

There are ways to help size up the reviews you’re seeing, though. First, take a closer look … are there more than one or two complaints? Are there dozens? Hundreds? Also, is there a pattern to the complaints that seem fabricated and spammy?

Next, look at how the company has handled the complaint. Not every customer is going to be happy, but if a company is unresponsive to those complaints, that’s a “red flag.” If the company takes measures to resolve the issue or at least respond to it, this is a more reputable approach.

You want to look for a company that will work hard to resolve any issue that might arise, not get upset over it.

Step 3: Connect with Consumer Advocates

Consumer advocates represent the interests of the consumers (aka homeowners in this scenario). They work to curb abusive and unfair business practices, and to protect the homeowner.

Consumer advocates in the mortgage space evaluate and test companies and law firms so illegitimate and dishonest businesses don’t scam homeowners. This can be useful when most deceitful companies will not provide you with what you need to evaluate them, or allow you to speak with their past or current clients.

There are professionals who make it their mission to volunteer as consumer advocates, and there are also organizations containing a network of advocates. The National Association of Consumer Advocates (NACA) is a non-profit organization that specializes in key issues like predatory lending, foreclosure prevention and fair credit reporting, to name a few. Not to be confused with Neighborhood Assistance Corporation of America (“NACA”).

There, you can gain access to resources and information that may help you along your way when investigating loan modification programs.

In sum, the majority of homeowners don’t know how to properly evaluate a loan modification program, because they are simply not equipped with the information needed to do so.

Add to that the fact that their banks are probably telling them one thing, while an attorney or loan mod company is telling them another, and it causes much confusion.

You’re not alone. But taking these simple steps to research companies and programs is a great starting point to getting the information you need to make a more informed decision.

And if you have a minute, check out this post on 5 things to watch for in a loan modification company.

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