Variations on the Common Loan Modification Scam

One of the types of scams that the government is attempting to crack down on is foreclosure consultants offering bogus loan modification services to homeowners facing the loss of their homes. While the government is providing its own modification programs, it is also going after a number of fraudulent schemes that have been used to trick borrowers.

There are a large number of scams that target foreclosure victims, but the loan modification one may be the easiest for the criminals to engage in. The general way it works is that borrowers pay hundreds or thousands of dollars for the services of a loss mitigation company. After signing the agreement and taking the payment, however, the company provides almost no services, resulting in the homeowners losing the property.

Many mortgage modification scams are almost entirely made up of borrowers paying money to a company which then sits on the cash, performs almost no services, and simply disappears or denies giving a refund after the house is auctioned. There are hundreds of complaints about such companies, and it seems as if the attorney general of one state or another shuts down a new one every week.

However, there are some variations on the theme, as well. For instance, some loss mitigation companies will take homeowner money and obtain an unaffordable modification program, even if there is a chance to negotiate with the lender for a more beneficial arrangement. The company obtains the first, easiest modification possible, presents it to the borrowers, and declares its work done. Unfortunately, though, an unaffordable plan will not help homeowners remain in their houses.

Another variation on the scheme is simply to charge homeowners to attend loan modification seminars. This may be as part of a larger program to help them negotiate for better loan terms, although the seminars can cost upwards of several thousand dollars. If the borrowers do not attend the seminar, they will not receive help from the foreclosure scam company, which will blame the failure on the homeowners.

A final scam related to loan modifications that is being discovered more often is companies charging for loan audits that are performed by someone other than an attorney. Information provided in these audits is also often useless, as the claims that the homeowners are encouraged to raise are barred by the expiration of the statute of limitations for that particular argument. For thousands of dollars, borrowers are told what will not work in defending their properties.

Unfortunately, many homeowners are taken in by these and similar scams every day. States are most often behind in prosecuting and shutting down these companies because there are simply so many of them, and the dollar amounts they steal from borrowers are relatively small. Thus, it is up to the homeowners themselves to make sure they are dealing with a trustworthy company or individual who is offering them foreclosure help or negotiation services in the pursuit of a loan modification or other workout option.