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Beware Of Loan Modification Scam

Recently I have a client who was referred by her friend to a loan modification company that already modified her friend's loan. My client is trying to modify her option arm loan of $460,000. The modification company charges a flat fee of $4500 and requests $1500 up front.

Reading the contract of the loan modification company, it states:

"Service provided by the company are not guaranteed,

no particular result has been promised,

no prediction of result has been made,

other than that the company will modify or restructure the current mortgage to some unspecified degree.

No promise or guarantee implied or directly made by the independent contractor is the company obligated to maintain."

Any homeowner who is interested in modify the loan can call and talk to the lender's "Loss Mitigation" department and work with the lender directly FREE OF CHARGE!

From my current experience, lenders are very open and willing to work with homeowners to make sure that homeownser keeps the property. They already learned it the hard way knowing that they stand to suffer more lost if they take the property back. They know if they help the distressed owners now, they are helping themselves in return.

When you talk to the lender's Loss Mitigation department, just tell them the truth about your financial situation and they will help you determine your eligibility and guide you through the loan modification process.

It really does not make any sense for distress owners to pay a large sum of money to a loan modification company. Owners are better off keeping the money in their pockets and work with the friendly lenders themselves.

The more we talk about it, the more homeowners will be aware of their options and not fall into this type of loan scam.

Posted by Caroline Tsou Chai on 10/27/2008 09:22 PM

Comments (16)

homeowners, sellers

This post has been included in California Information Los Angeles County, CA Information Diamond Bar, CA Information

16 Comments on Beware Of Loan Modification Scam

OCT

2008

I'm surprised that a lender in this environment is willing to take that kind of risk

people want the easy way out, let someone else do the work for them. How can someone in trouble afford to pay them $6000. Shouldn't they use that money to get current on their loan.

Hi Caroline,

I agree with your premise. Although all banks aren't so friendly, most lenders that I know of would rather work out something with you than foreclose on you, as long as you are honestly representing your financial situation and if they can see that a modification will allow you to retain possession and make the new payments. And to pay someone to talk to them for you seems a waste of money for most people, especially if they don't even promise that their fee will accomplish anything at all. I interpret "no guarantee" to mean that you owe the fee even if they do nothing for you. Why not try for yourself first?

I get a call like your post a least once a week.. and and over and over I tell them they can do it them self for FREE or use the up front free to pay down past due balance then start your FREE loan modification

Great blog, Caroline! There is FREE help. Homeowners can contact their lender and there are also free consumer services that cities offer to assist in loan modification. People should call their local town hall to inquire about such services.

Ann Sabbagh

www.annsabbagh.com

OCT

2008

From my prior experience of working with lenders on negotiating short sales, I found that bank negotiators actually follow a very strict guidelines in dealing with short sales or loan modification that was occasionally recommended to my sellers. Lenders offer forms for the borrowers to fill out. Loan Modification Company offer the same form in different format for the distress owner to fill out as well.

If a borrower is honestly in distress and has nothing to hide, he or she shall be able to simply fill out the loan modification form provided by the bank and submitting to the lender free of charge.

If so, what's the point of filling out the same type of forms and pay a huge sum of money to have a loan modification company redo the same paper work on lender's form and mailing it to the lender???

I really think distress owners shall not be afraid of telling their lenders about their financial situation. Just be honest and upfront so the lenders can help them out if they are truly in distress.

The same program a loan modification company can get for the distress owner is also available to the distress owner if they negotiate it directly with their lenders since bank operates on very strict guidelines. I do not know of any benefit of paying a large sum of money by hiring a loan modification company for those who are honestly in distress.

Honesty is always the best policy. I truely feel that it is not fair to prey on distress owners ignorance about this matter or their fear. It is best for the owner to talk to the lender's "LOSS MITIGATION" department and work with lender directly free of charge.

Caroline

Caroline,

Thanks for you response. You obviously feel very strongly that paying someone to negotiate for you is a waste of money, and yet you get paid quite a bit by negotiating for people in your profession.

The reason I responded to your Blog is because it is a very good topic to discuss. Doing a loan modification with a Professional does not imply the borrower is not upfront and honest and you also assume there is little negotiation, just forms, and you also assume all borrowers know what to do and what to negotiate and how to do it.

Filing out the forms is not the negotiation process. Caroline, what is done with the information on that form is the negotiation. leaving it to the lender, you're absolutely right there is no negotiating since they call the shots.

A loan modification is not simply reducing the loan amount as in a short sale, it is negotiating a favorable rate for a customized duration of the loan as well, and also an agreed new reduced principal and adequate documentation supporting the new negotiated loan will be able to be paid back.

Interestingly, you comment on the strict guidelines you encountered with the banks when you have negotiated short sales, which supports my claims an attorney is necessary. and then you comment forms just need to be fill out and the borrower should just do it on their own and get the same results. If negotiating a short sale with a bank requires the fee of a Real Estate professional then why do you feel a loan modification professional negotiating to KEEP someones home is a SCAM not warrant of a fee for services? Why is negotiating a short sale different from negotiating a new loan?

There are reputable company available to orchestrate a loan modification service at a reasonable price. The service does provide a function and should not be referred to as a "scam", although there are perhaps scams among us. That's where a referral from a professional such as yourself would protect your client and earn their trust. Unless of course you negotiated a modified loan for them for free since it just includes filling out a few forms, no big deal.

I enjoy our conversation and as you can tell, I strongly feel people need an advocate, even if it includes a fee. I am sorry for my long winded response, but I guess thats why it's a great topic to dicsuss. Thanks for introducing it.

OCT

2008

Loan modification is a scam if the charge is excessive with a large up front fee and the loan modification company's rep purposely misleading the borrower about potential outcome while indicates otherwise on the paper.

Loan modification is a simple process that requires filling out forms and supporting the claim with documents. Final result will depend on the bank's strict guidelines. Since, loan Modification Company does not have ability to go beyond bank's guild lines, I do not know why a distressed homeowner shall incur additional financial obligation to hire someone to perform such a simple task that they can do themselves.

Whether a house is a short sale or not, real estate professionals get paid to sell the house not the short sale. Short sale is only part of the services provided towards the larger goal of getting the house sold.

Please also read this new article "FBI, Beware of Loan modification scam" by Paul Kiesel who is an atterney published on Oct 28, 2009. Here's the link:

http://losangeles.injuryboard.com/miscellaneous/fbi-beware-of-foreclosure-modification-scams.aspx?googleid=250258

NOV

2008

Exactly, with a fair fee for services, loan modification is not a scam. Electing to not acknowledge the effort to prove repayment ( similar to orginating a loan), and the appropriate hardships to state, and the fact banks negotiate better with attorneys, and knowing the strict guidelines, and knowing a strong advocate is necessary. Keep in mind, not all modications are equal. Not all people has easy answers to their problems or questions on the forms. If they did everyone would be filling out the forms and getting loan modifications. The Wall Street Journal says IndyMac has done 3500 modifications, and they are proud of that, yet they have 70,000 more to consider. Caroline, some loans were sold for 22 cents on the dollar, meaning they paid 1/5th of the original loan amount for those notes, believe me there is room for negotiation with the proper negotiation, the borrow has no clue what to ask for. The upfront money paid to a professional to negotiate can save literally Thousands of dollars. I'm sorry that you feel all these professionals are SCAMMERS. But your right loans can be modified with out a professional,(just like anything..I could represent myself and not have an attorney.... but I wonder how many end up successfully modified and if it was the best the lender could do, my guess, is no. Those in a true state of affairs know who they are and they need a professional, and those that do not a professional, such as yourself, know , either way they have a choice. No one is twisting anyones arm to pay for a service. I restate my claim, loan modification fees are not all SCAMS. I agree high excessive charges with no money back guarantees are defined as SCAMS. Well like I said you chose a GREAT topic Caroline and you beat the Wall Street Journal to it. Loan Modification made front page news today! You and I are right on.....

NOV

2008

Here's an article to walk you through on how to do loan modification yourself called "Loan Modification on your own". Here's the link:

http://blownmortgage.com/2008/02/04/loan-modifications-on-your-own/

NOV

2008

the banks do not work with people they treat us like if we where a bad person they will tell you thigs that will benifit them not the customer the best thing is to go to a company that has a attorny that will help them mod there loan thats the best way , why make a payment if the bank is not going to help you ,at the end you will loss your home anyways

MAY

I went to www.editmyloan.com and the specialist helped me understand the process of loan modification and then tailored a plan for me. They also negotiated with the bank to cut interest rate to 5.15% from the original 7%! Thanks to them, I am free from loan burden now.

MAY

Caroline,

I do not agree with your statement..Lenders dont want to work with people. And the forms are just that forms..when they deny your modifiction they dont explain why you dont fit the rules. they simply tell you "you dont qualify". I agree there are a lot fo scam companies out there..But there are also some that really do the work. An attorney makes the lenders listen..just the same way a seller can sell there own home you as a realtor charge a fee for the same thing they can do themselves. i dotn find a charge for loan modifcation worng just depends on the fee and the expectations. Same as HR Block doing your taxes, or hiring a landscaper..I bet you dont liek the $299 MLS Realtors.

AUG

Caroline:

You are right on the money! How many friends does any of us have that were able to modify their own mortgage without getting denied? We appear to be advising our friends to try to do something they know nothing about. Go to the BBB! If your loan modification company is Accredited and rated A+, for God Sakes, pay them! Fees should be put into a trustee account for reimbursement should the modification fail. About 2% of ours do not go through, but look at the odds! And most of my customers are ones that were denied by their own lenders! If you give your lender information to get yourself declined, don't expect miracles, after all, you tried to do this yourself, just as you were advised! Now you are losing your home! This task is too important to fail! Call the BBB or go online www.bbb .org.

AUG

I disagree and don't believe you can say loan modification companies are a scam. I tried to modify my loan myself and I was turned down. My home had a sale date in June and 4 days before my home was to be sold I talked to a friend that refered me to Provident Realty in Newport Beach 800-455-1999. Anthony was able to postpone my sale date and ultimately get my loan modified. I went from a 6.9% to a step up program. My first year is at 2%, second year 3%, third year 4% and I get locked in for 36 years at 5.0%

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