Is it me or are “loan modification scam” companies becoming as prevalent as mortgage broker chop shops were a couple years ago?  I don’t mean to be overly critical, and I understand many do good work, but I have heard stories of “former mortgage industry professionals” charging thousands of dollars to negotiate with the bank on behalf of the borrower.

At the risk of sounding like a protectionist, isn’t this something that should be done by a lawyer?

I have so many people come into my office who were victims of “predatory lending” and then victims of this next loan modification craze.

Take for instance just last month, I had a client tell me they paid $15k to a “modification company”.  The company promised her they would reduce her balance and lower her interest rate to 5%.  This truly sickens me. The homeowners struggling with their payments are facing what can be one of the most traumatic experiences of their life.  This vulnerability unfortunately attracts those without regard for others plight.  Laws are in place to prevent this activity, but are not enforced enough.

Anyone else hearing about this stuff?

My law firm has been getting more and more calls recently from homeowners that were victims of predatory lenders who put them into an unaffordable loan and now fell into the hands of those same people who sold the toxic loans but profess to be saviors… DON’T BE A VICTIM TWICE!

Do your homework and THOROUGHLY investigate any firm before hiring them to save your biggest asset and the place you call “home.” These scammers are popping up like dandelions on a freshly mowed lawn. They advertise on the Internet, freeway billboards, radio, television, and print media everywhere.

Make no mistake, in many cases, these are the exact same loan officers and mortgage brokers who fleeced homeowners the first time around. After losing their jobs with the crash of the mortgage industry, they have found a new way to make ill-gotten profits from hard-working homeowners through loan modifications.

In California there are laws prohibiting fees being charged to those in foreclosure (Foreclosure Consultants Act, CCP Sect. 2945).  I know this type of law is also common in other states.  I think we will see this law enforced more and more going forward, but as of now it seems like the wild west.  By the way, I was a mortgage broker before becoming an attorney and I have a great deal of respect for professionals in the industry, I just wonder about the “opportunistic” agents who may be continuing where they left off…

In California, the Department of Real Estate website (www.dre.ca.gov) lists the companies that have DRE “permission” to modify loans… add to this list any licensed California attorney, and that is where you should begin your due diligence when you seek help in California. Other states probably have similar laws, so check with your own state DRE.

In my opinion, the advantage of working with a law firm comes from the “whole picture perspective”.  Many homeowners have collateral issues, such as bankruptcy and deficiency judgments.  Lenders also often require homeowners to sign a release of any and all legal claims based on the origination and servicing of the loan as a condition of the loan modification.  It makes sense to have the loan reviewed to make sure there are not relevant claims being waived.  For this reason, we audit every loan file at the beginning of every loan modification.

Another point for having a law firm involved is the fact that a lawyer may have contacts within the legal department that provide a more expedient process.  Not always, but its at least another avenue to pursue.

Given the advantages, a law firm should probably cost more than a mortgage broker turned loan mod specialist.  Surprisingly i have found this not to be the case.  My suggestion to homeowners is to either do it yourself, or find an attorney that specializes in this area.  Sorry if this steps on anyone’s toes, but i think it just makes good sense.

Here is some advice from my partner, Paul Molinaro…

Do your homework and THOROUGHLY investigate any firm before hiring them to save your biggest asset and the place you call “home.”

These scammers are popping up like dandelions on a freshly mowed lawn. They advertise on the Internet, freeway billboards, radio, television, and print media everywhere. Make no mistake, in many cases, these are the exact same loan officers and mortgage brokers who fleeced homeowners the first time around. After losing their jobs with the crash of the mortgage industry, they have found a new way to make ill-gotten profits from hard-working homeowners through loan modifications.

Here is some important loan modification advice and tips to avoid mortgage scams:

1) Loan modifications are easier when you are late on payments.  That being said, I never recommend someone miss payments unless they truly don’t have the ability to make them.

In other words, if you have to use a credit card to make your mortgage payment, the end maybe near.  At that point, I may advise someone to stop making the payment, since its really just a matter of time.  Other than that, stay current on your mortgage.  It will be harder to get a loan modification but your credit is still important.

2) Guarantees are simply misleading.  No one can really guarantee results.  The truth is, as an attorney, I am prohibited from making guarantees.

3) Hire a lawyer. As to the loan modification process, much of it can be done by non-lawyers.  In fact, it can be done completely by the homeowner himself.  This is also true of wills/trusts/divorces/etc.  But think about this? You are renegotiating a legal contract.

It’s practicing law and that’s my opinion.

Remember when you complete a loan modification, you are signing a new note that typically states you are waiving any and all claims associated with your mortgage up to that point.  What if there was a potential legal claim that would have saved you $100,000?  It’s not worth the risk.

Frankly, if you can afford to hire someone, hire a lawyer.  Otherwise, do it yourself.

4) Communication is one of the biggest complaints in most service businesses.  Law offices can be bad at this as well.  Try to find a law firm that is responsive to your calls in the beginning.  It’s not a guarantee you won’t have problems down the road, but it is at least an indicator.

That being said, let me give some general advise that may be of some use.

1) First, make sure you need a lawyer.  Not everyone does. Second, assuming you need a lawyer, determine what the purpose is.

2) You may be able to communicate directly with your lender and achieve the same results.

3) If you get a loan modification agreement on your own, you could then consult with a lawyer to review the details and make sure the contract is sound.  This may only cost you a few hundred dollars, as opposed to thousands.

4) Have you been scammed? If you think you may have legal claims against your lender or a loan modifications scammer, you will want an attorney that has experience pursuing these claims.  My suggestion is to talk with a couple at least  a few lawyers to get the right fit. Call your states BAR or county legal aid resources which you can Google and research.