Watch Out for Deceptive Home Loan Modification Practices

Small businesses claiming the ability to help homeowners with mortgage relief services are popping up all over the country. With many homes underwater (owing more money to the bank than the home is worth) homeowners are jumping at the chance to reduce mortgage payments. So what is the problem with these companies? Many of them are scams.

These dishonest businesses and individuals may charge an up-front fee, perhaps for thousands of dollars, and claim they will negotiate with the banks. Instead, they pocket the money and may not even contact the bank. If they do negotiate, it can be half-hearted. Many of these companies claim to have inside information which they do not. In order to entice homeowners, they will make extravagant promises and claim they know insider secrets "banks don't want you to know" - all untrue.

At best, these companies give no help. At worst, they make a homeowner's situation actively worse. Some give bad advice, such as telling their customers to not communicate with the bank or pay the mortgage because the company or individual offering the service will handle it. When months later the homeowners are behind on their payments and have not heard anything from the company, they are surprised to learn they are facing foreclosure.

In 2010, the Federal Trade Commission reported 16,584 loan modification fraud claims. Recognizing the danger these loan modification deceptions pose, the FTC recently outlawed a few common loan modification fraudulent practices:

• A ban on advanced fees
• A ban on falsely claiming an association with the government or the consumer's lender
• Prohibited exaggerated claims, such as a 100 percent guarantee of getting the results they seek

Working With an Attorney

Many attorneys provide loan modification services if appropriate. However, another common deceptive practice is for a non-attorney to claim they are working with a lawyer or law firm to provide legal representation. This may be because attorneys are exempted from the FTC's rule banning up-front fees and because it lends credibility to the company. Instead of relying on a third-party company, contact an attorney directly. You can always verify an attorney's status by checking with your state's bar association.

Loan modification is not the only option you should discuss with your attorney. Chapter 13 bankruptcy may be appropriate and is a reliable way to save your home. Another option may be a deed-in-lieu of foreclosure. Speak with an attorney in your area to discuss your options.

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