Avoiding Loan Modification Scams

Real Estate Agent with Keller Williams Advantage II Realty

In the serious economic downturn, which has hit the housing market especially hard, there is more and more opportunity for the less scrupulous to prey upon the vulnerable. It's not difficult to imagine that a person looking at a foreclosure is willing to try almost anything to avoid losing their home, and while lack of money may be the problem to begin with, it often seems like a worthwhile investment to put down a certain amount of cash in order to ensure that you don't lose your home in the meantime. However, there is absolutely no reason to, and there's a good chance whoever you're sending your money to is attempting to simply take it with nothing in return.

Yesterday the FTC (Federal Trade Commission) settled with several companies involved in loan modification scams. Essentially what they would do is contact people who were in danger of losing their house and offer to negotiate with their lender in order to change the loan so that it would be easier to pay off, at least in the short term. They would be willing to do all of this for a small, up-front fee, usually anywhere from $3,000 to $5,000, and could guarantee that in all or most cases, you'd get a modification, or you would get your money back. Needless to say, nobody, or hardly anybody received either a loan modification or a refund.

While it is unlikely that there will come a time when people don't try to take advantage of the situations of others, there are things that you can do to protect yourself.

First, before working with any company that does loan modifications, check to see if they have any reports on them with the Better Business Bureau, the Consumer Federation of America, your state department of consumer affairs, and your state's attorney general's office. Odds are that you are not the first person to be hit with this scam, and if this company has done this before, there's a good chance there is a record on file indicating whether further action is being taken against them and for what purpose.

Next, don't seek a loan modification from unsolicited sources. Emails, fliers, etc., are generally the sign of people floundering around looking for somebody that will fall for their scam. Also, keep an eye out for spelling and grammar mistakes, which generally indicate the company is less than professional. Also, if the company claims to have access to government resources that only they can get to, then it's a scam. The government is owned by the people, and programs are designed to be accessed by anybody without the need for a third party.

Speaking of third parties, avoid any claim that involves your personal information being given to a third party and “passed on” to somebody else who will contact you later. You're just giving away your personal information at that point. Also, if you encounter pushy sales people using scare tactics ("If your house is foreclosed on tomorrow, we can't help you any more") to try to get you to sign something or send a check immediately, they are not there to help you. In fact, a loan modification service shouldn't ask you to pay a dime, seeing as how there are several free services available that will try to help you, such as makinghomeaffordable.gov.

Ultimately, loan modifications can only do so much to help, and if you succeed in getting one, take that opportunity and time to pursue a short sale. Moving to a less expensive house is the best way to make sure that you can afford it. Talking to a real estate agent can help you better understand what your options are, if your modification can help you or if you're better off with a short sale and finding someplace else to live. Either way, it's important to be vigilant against those who are not there to help you, only take advantage of you. Keeping your eyes out and doing your homework will help incredibly.

Informed decisions lead to brighter outcomes.

Posted by

Ray Lopez

Keller Williams Advantage II Realty

12301 Lake Underhill Rd Ste 111

Orlando, FL  32828



Comments (3)

Charlie Ragonesi
AllMountainRealty.com - Big Canoe, GA
Homes - Big Canoe, Jasper, North Georgia Pros

On our radio show, and to clients we always talk about these scams and tell folks to go to the .gov site. It is so sad to see down and out folks taken advantage of like this.

Jul 30, 2010 10:14 AM
Jean Hanley
Coldwell Banker Kivett Teeters - Hemet, CA
Specializing in Folks Who Want To Buy/Sell Homes

I cannot tell you how many folks have asked me for advice on their loan modification gone bad.  Of course, I cannot offer advice, but I can sure give my opinion.  It is amazing how many people still don't know that you should NOT give money up front to get a modification.

Jul 30, 2010 10:17 AM
Ray Lopez
Keller Williams Advantage II Realty - Orlando, FL

Charlie, you're right, it is sad. It makes me angry sometimes just to think about the people who get away with this stuff, or get caught and move on to something else. At the very least we can try and inform as many people as possible and make it harder for the ones that do these sorts of things.


Jean, I get them a lot too, which is why I wrote this. We live in a society where we're taught that you don't get anything for nothing, so it's sometimes pretty easy to convince people that a "small" outlay of money will pay off in the long run. The worst part is that by the time they ask about these sorts of things, it tends to already be too late.

Aug 06, 2010 05:53 AM