Loan Modification Scams

Finances are confusing and emotional. When we get into financial trouble, we tend to look for any lifeline that could be thrown in our direction. Unfortunately, these are some of the ideal characteristics of a financial scam. Scammers love targeting people who are in trouble and are looking for a way out.

Loan modification can be one of the most effective ways to prevent foreclosure and save a mortgage from complete collapse. Knowing this, scammers also use it as a way to trick unsuspecting people. It can seem convincing when someone knows your situation and offers help. Here are some things you should look out for in loan modification schemes:

Loan Modification Scam Techniques

None of these elements alone mean that you’re being scammed, but they should be huge red flags along the way.

Unsolicited Help

Notices of default and notices of trustee’s sales are often published or made available through certain channels. People can pull your credit score and notice missed housing payments as well. Access to this information can give scammers a way of generating contact lists of people that they suspect are behind on mortgage payments. It can seem really convincing when someone reaches out and says I know that you’re having trouble paying your mortgage, would you like a loan modification plan? After all, if they know about your situation it would seem at a glance that they must be working with your lending company or bank! But that’s not always the case. The longer that you’ve been behind on payments, the more likely that someone has gotten unauthorized access to your information and is using it to phish you.

Upfront Fees or Information

Some legitimate banks may have upfront application fees to apply for a loan modification. But if you’re paying a fee, make sure it’s going through the bank or lending source itself that you trust. Outside sources should not be collecting application fees or credit card information to check whether or not you qualify for a loan modification.

Guaranteeing Success

Loan modifications are difficult to get and not everyone who applies gets one. If you find a loan modification company that seems to promise that you’re definitely going to be approved, then you’re definitely going to want to steer clear of that company! You shouldn’t be guaranteed approval or a modification.

Signing over the Title Deed

Definitely never sign your house over to a loan modification company. They could use this as a way to lay claim to your house or simply to charge you ridiculous sums of money until you give up your house.

Making Payments to Someone Who is Not Your Lender

Loan modification companies shouldn’t be offering to take your payments directly and pay your lender on your behalf. You should only be making payments to your current lender. The only time that you would make payments to a different source is if you fully refinance your mortgage so that the old mortgage is paid off. But that would be refinancing, not loan modification.

Legitimate Loan Modification Sources

The U.S. Government

At times, the U.S. government offers loan modification programs that consumers can get access to. These loan modification programs work in tandem with your current lender to provide payment or interest related relief to an existing mortgage. A couple programs ended in 2017 and 2019, but there are still some programs available for people who have gotten mortgages through the FHA or VA.

In the future, there may be additional programs. You should always check government websites to see if you can get loan modification. Government loan modification programs sometimes offer additional forgiveness and assistance, which can be a huge help during a time of financial hardship.

Your Current Lender

If you have a mortgage with a bank, credit union, or mortgage company, they probably offer a variety of loan modification programs that are designed to help you avoid foreclosure during a financial hardship. Contact your lender and look on their website for information. Your lender may also offer loan modification sources if you miss a payment, so this would be the only exception to the advice that you should avoid unsolicited offers.

What if I Fall for a Loan Modification Scam?

You can file complaints with your state attorneys general, the consumer finance protection bureau, and an attorney. If you’ve fallen victim to a scam and need to recover money and resources, you should talk to your lender and also consult with an attorney. An attorney can walk you through your options and might be able to help you avoid foreclosure while you try to recover your money.