After investigating thousands of scams last year, the Better Business Bureau divided them into categories and picked the top scam in each category. They put these loan modification scams under their Top Financial Scam category. There were many variations of loan modification scams, but they all took advantage of people who were desperate to hold onto their homes after a job loss or when the value of their homes decreased.
There’s been a lot of talk in the media about government programs to help homeowners reduce their monthly mortgage payments, such as the Home Affordable Modification Program (HAMP). Scammers take advantage of this by creating official-looking websites or pamphlets, or producing television commercials that make it seem like they’re legitimate companies. Some of these scammers will even say they are affiliated with a government agency or consumer organization.
A red flag should go up when they ask you for a fee upfront, or ask for credit card information, your social security number, or any other personal information. You should only give this type of information to companies that you know and trust, like your mortgage lender, a HUD-approved counseling agency, or a qualified lawyer.
What Are Some of The Most Common Loan Modification Scams?
Foreclosure Rescue Scam
A person who calls himself a counselor tells you that for a “processing fee” he can negotiate a deal with your mortgage lender to get a loan modification. He may even advise you not to contact your lender and have you send your mortgage payments directly to him. He takes your money and you never hear from him again.
Short Sale Scam
There are scammers out there who claim to be “short sale negotiators” or “short sale processors,” and they will promise to speed up the process of a short sale—for a fee. In many states this is illegal.
A short sale is a legitimate option for homeowners who owe more on their home than it’s worth, and should only be handled by a licensed real estate agent. There are no upfront fees and you do not need to pay a commission to do a short sale on your home.
There is no way to speed up the process, but the short sale process will be smoother when you hire an experienced and licensed short sale agent.
Fake “Government” Modification Programs
There are scammers who claim to be affiliated with the government, or they may ask you to pay high, up-front fees to “qualify” for government mortgage modification programs. You may also see terms like “federal,” “HAMP,” “MHA,” “HARP” or other words related to official U.S. government programs.
Information about legitimate government loan modification programs can be found at the Making Home Affordable website, run by the Departments of the Treasury & Housing and Urban Development.
What You Can Do to Avoid Scams
A few things to remember about mortgage loan modifications:
- Applying for a Loan Modification is Free.
- Only Your Loan Servicer Can Grant a Loan Modification.
Read more from this Consumer Fraud Alert released by the Treasury Department, the Financial Protection Bureau, and the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP)
