With foreclosures and debt levels at historic highs, officials are also reporting related increases in loan-modification scams. Consumers anxious to save their homes can be easily swayed by bogus companies promising lower payments and better loan terms. But, after pocketing victims' fees, scam artists leave homeowners with few options.
How Common Loan-Modification Scams Work
In many loan-modification scams, a seemingly-reputable company claims that, in return for an upfront fee, the company will renegotiate the terms of homeowners' mortgages and secure lower monthly payments. In the meantime, homeowners are instructed to stop making mortgage payments.
However, after months go by and the promised loan modifications never materialize, victims are left without their fees and without changes to their mortgages. Furthermore, after a series of missed payments, victims' credit ratings can be destroyed, and they may even face home foreclosure.
Protective Measures
The high number of homeowners falling victim to foreclosure-rescue and loan-modification scams has caught the attention of federal agencies. The Federal Trade Commission recently enacted a rule that prohibits companies from instructing homeowners to stop making mortgage payments without providing adequate warning that not making payments could impact their credit score or result in the loss of their homes. A related rule also makes it illegal for loan-modification companies to collect upfront fees.
Of course, any company whose day-to-day operations involve swindling people out of their much-needed cash may not be dissuaded by federal regulations; therefore, consumers should take steps to protect themselves. First, investigate the company you may use when contemplating loan modification. State consumer-protection offices maintain lists of legitimate companies and can tell you if any formal complaints have been filed against them.
Loan-Modification Scam Warning Signs
In addition, there are several indicators that raise red flags when dealing with loan-modification companies:
- You are asked to pay a fee in advance.
- You are told to break contact with lenders or financial counselors.
- You are instructed to stop making mortgage payments or to send them to someone who is not your lender.
If you encounter any of these warning signs, or are asked to rely on oral promises or incomplete documents, immediately seek independent legal advice. Keep in mind the old adage that if it seems too good to be true, it probably is.
Real Options to Avoid Foreclosure
Despite their precautions, some people desperate to keep their homes can be taken advantage of. But, if you have been scammed, you may have legal recourse against the disreputable loan-modification company. If the company responsible for your loss is still in operation, you may be able to file a lawsuit asking a judge to order the at-fault company to compensate you.
Perhaps the larger problem for people victimized by loan-modification scams is that, even after paying for help from bogus loan-modification companies, they still have no relief from their oppressive mortgages. Fortunately, there are legitimate options available for homeowners avoid foreclosure. By filing for Chapter 13 bankruptcy, individuals can stop foreclosure proceedings.
Generally, in Chapter 13 bankruptcy, individuals make court-approved plans that provide for repayment of their loans over three to five years. Payments are consolidated, and in most cases lowered, so that they are not unduly burdensome. In addition, payments are made to bankruptcy trustees, so individuals do not have to make direct contact with creditors or deal with further harassment from debt collectors. At the end of the three- to five-year repayment period, most remaining debts are discharged.
While filing for Chapter 13 bankruptcy halts foreclosure proceedings, home mortgages and similar long-term debt obligations may not be eliminated. And, all mortgage payments that come due during the repayment period must be made on time.
Getting Help
If you have been targeted by loan-modification scammers or are worried about losing your home for any reason, consult with an experienced bankruptcy attorney. Unlike so-called loan-modification companies, a lawyer can initiate viable options to help you avoid foreclosure, such as filing for bankruptcy. In addition, attorneys are licensed professionals who must adhere to strict ethical codes and all federal regulations, in addition to state and federal laws.
It is tragic when unscrupulous companies prey on vulnerable individuals already facing financial difficulties. If you are struggling to keep your home, promptly contact a knowledgeable bankruptcy lawyer in your area.
