Following the 2008 housing collapse, thousands of homeowners found themselves with mortgages they could no longer afford.
Many tried to stave off the inevitable foreclosure through loan modifications. Then they found out their desperation had led to them to fall hook, line, and sinker into a scam.
The housing market has since improved since those dreadful years following the collapse. However, there are homeowners who are still finding it difficult to pay their mortgages.
Therefore, scammers still have a breeding ground to use their unsavory practices. They take advantage of some of the most vulnerable people trying to keep their homes.
Here we’ll examine the loan modification scams that seem to be the most tempting, snagging homeowners time and time again.
We’ll also give tips that homeowners should use as their guide to avoid these scams in the first place.
What’s loan modification, anyway?
Before we go into the loan modification scams that plague homeowners, or the tips to avoid them, let’s first go over what exactly loan modification is.
Homeowners who fall behind on their mortgages have several options to avoid losing their homes. One of those options is loan modification.
A loan modification plan permanently restructures a mortgage by changing its terms. Those terms include a reduction of the interest rate and/or monthly payment.
Loan modifications can also entail conversion of the interest rate to one that is more financially feasible for the homeowner. For example, the modification might convert the rate from fixed to variable.
Some modification plans may also extend the length of the term of the loan.
Homeowners should be clear on whether or not they qualify for loan modifications. Seeking the help of a counselor is the first step.
Eligibility requirements include showing proving financial hardship. Homeowners may have to provide their lender with documentation of that hardship.
For example, if the hardship is the result of a job loss, the homeowner may have to furnish the severance letter. They may also require proof of income, recent tax returns and bank statements.
They want a fee? Run.
Now that you understand what loan modifications are, let’s look at some of the most common scams run by these low-lifes.
Perhaps the most prevalent scam entails a so-called agency. It promises to help the homeowner obtain a loan modification for an upfront fee. This, in itself, is ridiculous, because homeowners can receive such counseling for free by simply contacting the U.S. Department of Housing and Urban Development.
So, homeowners who encounter people who say they can help them, as long as they pay, should run for the hills. These people are notorious for taking your money and then running off.
Red flags about these scammers include them insisting the homeowner not contact anyone about the agreement they are trying to reach with the homeowner. Also, these scammers can be so egregious as to ask the homeowner to pay whatever mortgage payment they can muster up directly to them instead of to the lender.
Ding, ding, ding, ding, ding. Homeowners in debt to their lender should pay the lender, not some stranger.
Useless, fancy titles
Then there are so-called forensic loan auditors mortgage loan auditors, or foreclosure prevention auditors. They say they are supported by forensic attorneys.
That’s so professional-sounding, it’s no wonder they are often able to dupe even the most astute homeowner.
Regardless, they are as crooked as they come. They may offer to review a homeowner’s mortgage loan documents. They claim this determines whether their lender complied with state and federal mortgage lending laws.
The Federal Trade Commission explains that these “auditors” may tell the homeowner that they can use the audit report to avoid foreclosure, accelerate the loan modification process, reduce loan principal, or even cancel the loan.
The best way to spot and avoid these fraudsters is to understand their false narrative.
First, homeowners should know that there is no evidence that forensic loan audits will help them get a loan modification. This is even if they’re conducted by a licensed, legitimate, and trained auditor, mortgage professional or lawyer, according to the FTC.
These so-called forensic auditors are known to tell homeowners that they can sue their lender based on errors in their loan documents. Then they’ll tell the homeowner that if they win, the lender must modify the loan to make the payments more affordable.
That is not true, warns the FTC. There is no such requirement.
“Well, they kinda sound like a legitimate agency”
“Hi, I’m with the Federal Homeowners Assistance Bureau and I was told by your lender to contact you regarding your delinquent mortgage.”
Well, that sounds official, right? This is where Google could be a homeowner’s best friend.
Scammers are becoming very savvy in seeking out their victims and using official-sounding names like the one used in the quote above. Some are even becoming bold enough to use federal emblems or logos on fake websites they build to reel in unsuspecting homeowners.
Homeowners can quickly learn the legitimacy of a company by doing a quick internet search, and/or by contacting their lenders.
The Office of the Comptroller of Currency (OCC) points out that these scam artists may use such terms as “federal,” “TARP,” or other words or acronyms related to official U.S. government programs.
The agency goes on to note that “these tactics are designed to fool homeowners into thinking the scam artist is somehow approved by, or affiliated with, the government.”
Homeowners can avoid the fraudsters who claim to be offering plans that are “government-approved” or “official government” by contacting their lenders. Again, lenders are readied to inform homeowners on whether, or not, they qualify for any government initiatives to prevent foreclosure.
Losing a home due to foreclosure can be one of the most devastating events to impact a homeowner. In desperation, homeowners may seek out or go for whatever offer they can to save their homes.
Unfortunately, scammers are waiting in the wings to swoop in with some offer that homeowners may be more than tempted to accept. The loan modification offer is one of the offers that scammers notoriously use to prey on unsuspecting homeowners.
Legitimate loan modifications can happen for eligible homeowners, but they often come with wording like this:
- “To get everything started, we just require a small, upfront fee.”
- “Our loan modification program is approved by HUD.”
- “Sign over your deed to our company and we’ll begin the process.”
- “Don’t pay your lender directly anymore; just pay us and we’ll handle it for you.”
- “We provide a 100% guarantee that you will get that loan modification.”
Homeowners facing foreclosure should keep in mind the old adage of “if it sounds too good to be true, it is.”