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10 Questions You Should Ask a Loan Modification Company

Services for Real Estate Pros with MFI-Miami

There is a new industry rising from the ashes of America's imploding mortgage industry and it's called Loan Modification.  Loan modifications have become a viable option for many distressed homeowners many of whom are considering abandoning their homes because they are upside down in their mortgages or just simply can't afford their payments. 

What is a loan modification?  A loan modification is as the name suggests a modification of your current loan without going through the process of refinancing our home or property.   The responsibility of a loan modification company is to act as a negotiator for you with your lender.    Because a new loan is not being written, many states have not instituted or modified their mortgage and banking laws to regulate the loan modification industry.    This means anyone can open a loan modification company, even those who have revoked mortgage and real estate licenses revoked or have multiple felony convictions. 

States such as Florida and California, two states still suffering from the fallout of from being at ground zero of the lending implosion, have begun to reign in loan modification companies by requiring licensing and background checks.  Unfortunately, in the rest of the country, it's still caveat emptor or "Buyer beware". 

Below is a list of questions you should ask when considering a loan modification company:

•1.       Have you or any of your employees ever been convicted of a felony? 

You can follow this up with do you do criminal background checks on your employees?  If they have employees with criminal records or they don't do criminal background checks, look for another company.

•2.       Do you have a background in mortgage lending?  If so what is it? 

This is always a good question to ask because it shows the level of their competency and how they operate their business.

•3.       Can you provide references?

Don't be afraid to ask to speak to real people.  Some companies will post questionable testimonials on their site signed by "Homer S.", "Monty B.", "Ned F." or "Moe S." For all you know the owner or of one of his employees could have written these testimonials.

•4.       Is your processing done in house or is it contracted out? 

This is a good question because it will tell you if the company is acting as a "middle man" and simply collecting a referral fee.  Some services are legitimately contracted out such as the loan auditing or fraud investigating.

•5.       Do you have an attorney on staff? 

This is a great question for two reasons.  If they say, yes, then ask for their name and feel free to check them out with the state bar association.  Having an in-house legal staff also gives the loan modification company legitimacy because it means they can handle any legal situations that may arise during the negotiations of the modification.  If the loan modification uses outside attorneys, it's a sign that the loan modification company could be acting as a soliciting agent for a law firm which is illegal in most states.   Consumers also need to keep a watchful eye on attorneys who allow the loan modification company's staff  to use their letter head and fax cover sheets.  In most states this considered unethical behavior by the attorney.  If you suspect this do not hesitate to contact the state bar of where that attorney is a member.

•6.       Do I need to be late in order to make this work?

No.  Although it may help expedite the process in certain cases, it is not mandatory

•7.       How long does this process take?

It can take anywhere between two weeks to six months depending on the lender and the complexity of the file. 

•8.       If I can't get a modification completed - what can be done?

There is a whole menu of resolutions available.  There is litigation (in cases of deceptive practices), short-sale, short-payoff, deed-in-lieu, or forbearance.

•9.       Are there any guarantees?

Be careful of loan modification companies that offer or guarantee specific results because they don't know what the final terms will be.

•10.   What are my costs and can you put this in writing?

There are two ways loan modification companies charge.  They either charge a flat fee or a fee based on a sliding scale depending on the size of renegotiated payoff or by the size of your first payment.   If they are unwilling to spell out the terms to you up front, keep shopping.  Also, don't be afraid to shop around.  New loan modification companies are popping up everyday which means more competition and better pricing.  A loan modification fee should not exceed $2500 and include a forensic mortgage audit.