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Common Loan Modification Scams

Loan modifications are changing every day. Here are some of the most common loan modification scams out there today.

Phony Counseling or Foreclosure Rescue Scams
The scam artist poses as a counselor and tells you he can negotiate a deal with your lender to modify your loan or save your house—if you pay him a fee first. The fee may be called a processing fee or administrative fee. He may even tell you not to contact your lender, lawyer or housing counselor—that he'll handle all details. He may even insist that you make all mortgage payments directly to him while he negotiates with the lender. Once you pay the fee, or a few mortgage payments, the scammer disappears with your money.

Fake "Government" Modification Programs
Some scammers may claim to be affiliated with, or approved by, the government, or they may ask you to pay high, up-front fees to "qualify" for government mortgage modification programs. The scammer's company name and Website may sound like a real government agency, but the Website may end with .com or .net instead of .gov. You may also see terms like "federal," "HAMP," "HARP" or other words related to official U.S. government programs. 

Contact your lender first. Your lender will be able to tell you if you qualify for any government programs to prevent foreclosure or modify your loans. And you do not have to pay to benefit from these programs.

Common Types of Scams
Examples of scams related to mortgage modification and foreclosure prevention include:

Foreclosure Rescue And Refinance Fraud.
Scam artists offer to act as intermediaries between homeowners and lenders and to negotiate repayment plans or loan modifications. They may even “guarantee” to save your home from foreclosure. They tell you to make mortgage payments directly to them so they can forward payments to your lender. In reality, they may pocket your money and leave you in worse shape on your loan.

Fake “Government” Modification Programs.
Scam artists create Web sites that mimic federal Web sites and use business names similar to those used by government agencies. They may use “federal,” “TARP,” or other words, acronyms, and abbreviations commonly associated with official government programs. These tactics are designed to fool you into thinking they are approved by, or affiliated with, the federal government.

Leaseback And Rent-to-Buy Schemes.
Con artists entice you to transfer the title of your home to them with promises of new and better financing. They say you can rent your home and eventually buy it back. But, if you do not comply with the terms of the rent-to-buy agreement, you can lose your money and your home. The agreement may be written in a way that makes it very hard to comply. In fact, the con artists have no intention of ever selling your home back to you. They want your home and your money.

Bankruptcy Scams.
Scam artists may claim bankruptcy will solve your problems. But filing for bankruptcy is rarely a permanent solution to prevent foreclosure. Filing for bankruptcy brings an “automatic stay” into effect that stops any collection and foreclosure action while the bankruptcy court administers the case. Eventually, you must make payments on your mortgage, or the lender has the right to foreclose. In addition, bankruptcy lowers your credit score and remains on your credit report for 10 years.

Debt-Elimination Schemes.
Scam artists use illegitimate legal arguments to persuade you that they can “eliminate” your debt and that you are not obligated to pay back your mortgage. They make inaccurate claims about applicable laws and finance, such as “secret laws” that allow you to erase your debts or that imply that banks do not have the authority to lend money.