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Loan Modification Scams – Protecting You and Your Clients

Loan modification scams are becoming increasingly common, preying on vulnerable homeowners.

This article will help you identify these scams and provide tips on protecting yourself and your clients.

1. Phony Counselors

One of the most prevalent scams involves phony counselors who pose as legitimate advisors. They promise to negotiate a deal with your lender but demand an upfront fee. Sometimes, they even require all mortgage payments to be made directly to them while they supposedly negotiate on your behalf.

  • Warning Signs:
    • Upfront fees for counseling services.
    • Request to redirect mortgage payments to them.
  • How to Protect Yourself:
    • Verify the legitimacy of any counselor by checking their credentials.
    • Always make mortgage payments directly to your lender.
    • Contact the Department of Housing and Urban Development (HUD) for a list of approved counselors.

2. Fake Government Modifications

Scammers often claim to be affiliated with the government, using official-sounding terms and convincing websites to appear credible. They ask for a fee to access their modification program.

  • Warning Signs:
    • Requests for fees to access government programs.
    • Unsolicited offers of assistance.
  • How to Protect Yourself:
    • Contact your lender directly to confirm eligibility for government programs.
    • Never trust unsolicited offers without thorough research.
    • Visit official government websites for accurate information.

3. Bait and Switch

In the bait and switch scam, the scammer convinces borrowers that by signing loan modification documents, their existing mortgage will become current. However, what the borrowers are actually signing is a document that surrenders their home’s title to the scammer in exchange for a so-called rescue loan.

  • Warning Signs:
    • Urgency to sign documents without full explanation.
    • Promises of immediate mortgage status updates.
  • How to Protect Yourself:
    • Always read and understand any documents before signing.
    • Consult with a trusted advisor if something seems off.
    • Never sign documents under pressure or without legal consultation.

4. Rent-to-Own or Lease-Back Scams

These scams involve scammers telling borrowers to surrender their home’s title with the promise that they can stay as renters and eventually buy back the home. The scammer then raises the rent to unaffordable levels, eventually evicting the borrower and selling the home for a profit.

  • Warning Signs:
    • Promises of rent-to-own or lease-back arrangements.
    • Urgency to sign over the title of the home.
  • How to Protect Yourself:
    • Be wary of offers that seem too good to be true.
    • Consult a real estate professional before making any decisions.
    • Ensure all agreements are reviewed by a lawyer.

5. Bankruptcy to Avoid Foreclosure Scam

In this scam, the scammer promises to negotiate a refinance with your lender for a fee. They take your money and, without your knowledge, file for bankruptcy in your name to temporarily halt the foreclosure process. This can lead to a legal mess, despite an initial halt in collection calls.

  • Warning Signs:
    • Offers to stop foreclosure through bankruptcy without your full understanding.
    • Requests for fees to negotiate with your lender.
  • How to Protect Yourself:
    • Understand all implications of filing for bankruptcy.
    • Ensure any negotiation with lenders is conducted by a legitimate professional.
    • Regularly check your credit report for any unauthorized activity.

General Tips to Avoid Loan Modification Scams

  • Verify Legitimacy:
    • Always verify the legitimacy of anyone offering assistance with your mortgage.
    • Contact your lender directly for information and verification.
    • Use trusted and verified sources for information and help.
  • Consult Professionals:
    • Always consult with a trusted real estate professional or lawyer before making decisions.
    • Seek advice from HUD-approved counselors for genuine help.
  • Stay Informed and Vigilant:
    • Stay updated on common scams and warning signs.
    • Educate yourself and others about the dangers of loan modification scams.
    • Report any suspicious activity to the Federal Trade Commission (FTC) or other relevant authorities.

FAQ: Protecting Yourself from Loan Modification Scams

1. What are loan modification scams?

Loan modification scams are fraudulent schemes where scammers prey on homeowners struggling with mortgage payments or facing foreclosure. They offer false promises of loan modifications, often demanding upfront fees or personal information, ultimately leaving the victims in a worse financial situation.

2. How can I identify a phony counselor?

Phony counselors often:

  • Demand upfront fees for their services.
  • Require mortgage payments to be made directly to them.
  • Promise quick fixes or guaranteed results.

Tip: Always verify the counselor’s credentials and make mortgage payments directly to your lender.

3. What are fake government modifications?

Fake government modifications are scams where fraudsters pose as government officials or affiliated agents, using convincing websites and official-sounding terms to appear legitimate. They ask for fees to access non-existent government loan modification programs.

Tip: Contact your lender directly to confirm any government programs and avoid unsolicited offers.

4. What is the bait and switch scam?

In the bait and switch scam, scammers trick borrowers into signing documents that they believe will modify their mortgage. Instead, these documents transfer the home’s title to the scammer, leaving the homeowner without their property.

Tip: Always read and understand all documents before signing and consult a trusted advisor if something seems off.

5. What are rent-to-own or lease-back scams?

These scams involve scammers persuading homeowners to surrender their home’s title with the promise of staying as renters and eventually buying back the home. The scammer then raises the rent to unaffordable levels or rents out the home, leading to the homeowner’s eviction and loss of property.

Tip: Be wary of offers that seem too good to be true and always consult a real estate professional.

6. How does the bankruptcy to avoid foreclosure scam work?

In this scam, fraudsters promise to negotiate a refinance with your lender for a fee but instead file for bankruptcy in your name without your knowledge. This temporarily halts the foreclosure process but creates a legal mess for you.

Tip: Understand all implications of bankruptcy and ensure negotiations with lenders are handled by legitimate professionals.

7. How can I verify the legitimacy of someone offering loan modification help?

  • Check Credentials: Verify their credentials through reliable sources.
  • Contact Your Lender: Reach out to your lender directly to confirm any offers or programs.
  • Consult HUD: Use the Department of Housing and Urban Development (HUD) for approved counselors.

8. What steps should I take to protect myself from loan modification scams?

  • Verify Legitimacy: Always verify anyone offering assistance.
  • Consult Professionals: Seek advice from trusted real estate professionals or lawyers.
  • Stay Informed: Educate yourself about common scams and report suspicious activity to relevant authorities.

9. Who can I contact if I suspect a scam?

If you suspect a loan modification scam, you can contact:

  • Federal Trade Commission (FTC): Report the scam and get advice.
  • Your Lender: Notify them of any suspicious offers.
  • HUD: For a list of approved counselors and additional support.

10. Are there any legitimate loan modification programs?

Yes, legitimate loan modification programs are often available through your lender or government-sponsored programs. Always contact your lender directly to explore your options and avoid unsolicited offers that require upfront fees.

By staying vigilant and informed, you can protect yourself and your clients from falling victim to loan modification scams. Always verify the legitimacy of any assistance offered and consult trusted professionals for advice.

I'm Wade Betz, your go-to mortgage broker in Dallas, Texas, with a focus on VA loans. My goal is to make home financing seamless and worry-free for our veterans. If you're looking for dependable and knowledgeable support with VA loans, I'm here to help.

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