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Learn How to Avoid Loan Modification Scams

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With the state of the economy forcing many homeowners to reconsider their mortgages, the market is rife with loan modification scams that prey on the people most in need of help: average homeowners who are caught between a rock and a hard place by cutbacks and layoffs, desperate to restore their credit and rescue their homes.

Loan Modification Scams

As is the case with any quickly growing business, scams abound in the mortgage loan modification industry. According to loan experts, most of the scams involve demanding upfront money for work that is never done. Below are some of the common scenarios:

  • Bogus loan modification companies will charge fees up to $7500, and then disappear before any work is done.
  • Some disreputable companies charge you to contact your credit card companies, banks, or lenders, and then refund only half, or none, of customer payments if they are unable to negotiate changes to a loan.
  • Other dishonest loan modification companies charge up front for negotiations, and then accept the bank's first offer, securing a modified loan that does not suit the customer's financial situation, leaving them in much the same position as before.

How to Protect Yourself from Scams

The best thing you can do to protect yourself from loan modification scams is to educate yourself about all of the different industry options. This knowledge will help you determine which companies are more likely to be legitimate and which may be untrustworthy. Below are some additional tips to consider:

  1. Seek referrals from a friend or someone you know who has used a loan negotiation company. If this isn't possible, ask to speak to real customers who have been helped rather than blindly trusting a firm's marketing claims.
  2. Be very skeptical of companies that ask for money before providing any services. Only an attorney is legally allowed to ask for money in advance; a foreclosure agent or non-lawyer loan modification officer should never request upfront fees.
  3. If a loan modification officer's promises sound too good to be true, they probably are. No one can predict the rates or the specific agreement they'll be able to negotiate in advance - if they claim to be able to, they are probably not legitimate.
  4. Seek a loan modification company that asks smart questions and seems to genuinely care about the details of your circumstances, your loan, and your financial needs. If they don't ask for details, they probably won't deliver a settlement that is right for you, if they deliver at all.
  5. Read all documents very carefully before signing. Some loan modification scammers trick homeowners into signing homes over to them, under the guise of securing a new mortgage contract or other agreement. Don't be fooled!

Victims of Loan Modification Scams

Victims of scams can find themselves in a difficult position, with no guarantee that they will ever track down the culprit - or their money. But if you're the victim of a loan modification scam, there are a couple of steps you can take that may help mitigate the impact:

  • Report your situation, including all details of the scam, to your bank or mortgage lender. This may not have an impact on late payment fines, but in some cases banks may be willing to waive penalties if you can prove that you were making a sincere effort to pay back your loan.
  • Report the scam to government authorities, such as the Federal Trade Commission, who are tasked with cracking down on illicit companies and preventing these scams from hurting other people. They may even be able to help you recoup some of your money.

If you're considering mortgage loan modification as a solution to financial troubles, it's important to learn as much as you can about the industry. Education and foresight are your most effective defenses against the many scams out there.