If you’re facing a foreclosure, be on the lookout for foreclosure rescue companies—specifically, mortgage modification companies—that falsely claim they can help you save your home.
If you’re a homeowner struggling to make your mortgage payments and facing a possible foreclosure, a scammer might try to contact you. Scammer people and companies say that they help homeowners save their home—usually through a mortgage modification—but often leave homeowners in worse shape than before.
Mortgage Modification Scams
Borrowers who’re struggling to make their mortgage payments might have a number of options to get caught up on the payments, including a modification, forbearance agreement, or repayment plan. You can apply for any of these options, including a modification, on your own without paying for assistance. But scammers might send you mailings trying to convince you that you’re better off hiring their company to help you with the process. (To learn what to do—and what not do—in the modification process, read Do’s and Don’ts for Getting a Loan Modification.)
Solicitations and mailings that you get from a modification company tend to look official, even though they aren’t. The name of the company might sound like the government has endorsed the program or the mailing might refer to official U.S. government programs. Typically, scammer mailings claim you can “Stop foreclosure now!” or “Over 90% of our customers get a loan modification.” These statements are ploys to get you to call the company. Once you do, the main goal of a scammer modification company is to separate you from your money by getting you to pay for the company to—supposedly—help you get a modification.
Forensic Loan Audits and Securitization Audits
A modification company might try to convince you to pay for a “forensic loan audit” or a “securitization audit” to improve your chances of getting a mortgage modification.
What’s a Forensic Loan Audit?
In a forensic loan audit, in theory, a loan auditor reviews paperwork from when you took out your mortgage to see if the lender complied with the law. If the audit reveals legal violations, you can supposedly then use the results to strong-arm the lender into giving you a modification. But the way most companies conduct the audit is that a processor enters your information into a compliance software program, and the program prepares a very basic report. In most cases, no errors or only minor errors are found. The sales person might say that the results of such an audit will force the servicer into giving you a modification, but this is rarely true.
What’s a Securitization Audit?
In a process called securitization, multiple loans with similar characteristics are pooled and then sold in the secondary market, often to a trust. A securitization audit will supposedly reveal whether your loan was securitized and, if so, whether the securitization was done correctly. But securitization audit reports usually just give you publicly available information and make unsupported conclusions of law that aren’t useful when trying to get your loan modified.
Modification Companies: High Fees for Little or No Services
Most foreclosure scammers, including modification companies, exploit a homeowner’s trust and desperate situation by:
- charging very high fees for services the homeowner could easily do without assistance, like sending in documentation to the servicer
- charging money for certain services and then not doing anything to earn the fees, or
- taking steps that actually hurt the homeowner, like missing deadlines or allowing a foreclosure sale to happen.
There’s nothing that a modification company can do that you can’t do yourself. In fact, the company might even hurt your chances of getting a modification, like if it:
- neglects to send in your paperwork to the servicer (the company you make your payments to, which also handles modification applications)
- sends the wrong documents to the servicer, or
- fails to return the servicer’s phone calls.
By the time you realize the company is just running a scam, there might not be enough time to reinstate the loan, work out an alternative to foreclosure, sell the home, or find effective assistance. In almost all cases, you’re better off applying for a modification directly with the servicer yourself or—if you find the servicer is unhelpful or is dual tracking your application—hiring a reputable attorney to help you.
Some States Have Laws to Prevent Foreclosure Rescue Scams
To protect homeowners in financial difficulty from losing their homes to foreclosure rescue scams, the Florida legislature enacted the Foreclosure Rescue Fraud Prevention Act. This law imposes tight restrictions on anyone offering services purporting to help you save your residential property from foreclosure. New Jersey also has a law designed to prevent foreclosure consultants from taking advantage of distressed homeowners.
Tips to Help You Avoid Becoming the Victim of a Modification Scam
Here’s how you can make sure that you don’t become a victim of a modification scam.
- Don’t pay upfront fees. If a modification company demands a large upfront fee from you, beware. Many states have laws prohibiting modification companies from collecting money before performing services, as well as other restrictions on foreclosure rescue activities.
- Don’t pay a modification company rather than your servicer. Sometimes, modification companies advise people to pay the company’s fee instead of making their mortgage payments. This is a red flag. The company might take your money, fail to get you a modification (or not even try), and then you’ll be even further behind on your payments.
- Don’t ignore your servicer or lender. Modification companies often tell people to stop communicating with their servicer and let the company do all negotiating. But that’s not a good idea. You should continue to talk (and listen) to your loan servicer. There’s no magic trick or secret skills involved in “negotiating” a modification. You submit an application and the servicer will let you know if you qualify. Plus, if you keep the lines of communication open, you might learn about a workout option you hadn’t previously considered.
- Do work with a HUD-approved housing counselor. If you need help working out a modification, you can get free help from a HUD-approved housing counseling agency.
Reporting Scams
If you suspect you’re a victim of a modification scam, contact:
- the Federal Trade Commission (877-FTC-HELP)
- your state Attorney General’s Office, and/or
- your local Better Business Bureau.
By reporting a modification or other foreclosure rescue scheme, you might be able to help someone else avoid becoming a victim.