Mortgage Modification Scams
The Scam: Homeowners should be wary of scams that charge an upfront fee in order to start a mortgage modification program. They have become very common during the economic crisis.
With this type of scam, companies contact stressed homeowners offering assistance in modifying their home loan. They charge a significant fee and many times promise lower interest rates or lower monthly payments. In reality, this work can usually be done for free by the homeowner themselves or through approved non-profit mortgage counselors for little or no cost.
These modification scams are essentially charging homeowners thousands of dollars for a paperwork service. These companies do not conduct any negotiations on the homeowner's behalf and do not guarantee any results. They merely ask you to compile the documents that the mortgage company requires for modifications and send them off to the company.
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Six Tips on Avoiding Foreclosure Rescue/Mortgage Modification Scams:
- Always ask to see the company’s Credit Services Organization license.
- In Kansas, any company or person that negotiates debts or offers to negotiate debt must be licensed with the Kansas State Bank Commissioner’s office. A list of all companies that are licensed for the activity in Kansas can be found on the Kansas State Bank Commissioner’s Website at www.osbckansas.org.
- Check with your lender.
- Check with your lender if the company claims to be affiliated with your lender or mortgage servicer. Many of these companies claim that they have been hired to handle the overflow of modification requests received by your lender. Before agreeing to anything with this company, check with your lender to make sure they are being truthful. Chances are; they’re not.
- Ask for everything in writing.
- If it is a legitimate company, the representatives will agree to send you everything in the mail. You should always have an opportunity to review the fine print before agreeing to anything. In many cases, you will find that the company offers nothing more than a paperwork shuffling service – something you can do on your own for almost no cost.
- Never pay for anything over the phone.
- Most of these transactions occur over the phone, and that is when you are most likely to get scammed. Kansas law requires, in most cases, that you sign a receipt before your credit card can be charged. Hold them to this and demand a form you can read, fill out and sign before your card is charged.
- Never believe anyone that guarantees success.
- Most of these scammers guarantee that they can modify your loan. They typically claim to be able to lower your payment or lower your interest rates. Don’t believe them. The Federal Government has strict guidelines that govern how much your payment can be lowered (usually to 31% of income) under the federally managed Home Affordable Modification Program, or HAMP. If your lender or servicer is going to give you an offer better than what the federal government has set up, they will give it to you directly. They will usually give it to you free of charge.
- NEVER pay ANY upfront fees greater than $50.00 for this service.
- Legitimate CSO companies are only allowed to charge $50.00 upfront for these services. From that $50.00 they have to pay for any normal charges affiliated with negotiating a debt like the cost of a credit report. The scammers charge $500 and up, sometimes $2,500.00 or more UP FRONT. This is illegal in Kansas.
A good rule of thumb for this scam is: if you are eligible for a modification on your home loan, your lender or servicer will provide it to you for no cost. In fact, the federal government is working right now to make it easier for you to get a loan modification if you find yourself in a stressed financial position. If you are having trouble with your home loan, free or low-cost help is available. Talk to a HUD certified credit/housing counselor. www.HUD.gov
If you think you are the victim of this scam contact file a complaint online or call 1 (800) 432-2310.