LOAN MODIFICATION – Beware of Scam-Artists

Seemingly after every disaster, natural or otherwise, the first people that show up onto the scene are the scam-artists. After Hurricane Katrina, before FEMA arrived (OK, it took FEMA a long time to arrive), scam-artists showed up on the streets of New Orleans selling water bottles for $5 each. Shortly after the destruction of the housing market in Florida (and throughout the U.S.), Loan Modification companies started popping up in California and Miami. Pretty much without exception, all of these companies turned out to be scam-artists. Criminals of the lowest common denominator. Consumers reported paying thousands and thousands of dollars each month for the loan modification services of these scam-artists. In many cases, these companies made millions and millions of dollars and then disappeared into the night. Finally, the State of Florida passed laws making it illegal for Loan Modification companies to charge upfront fees for loan modification. Unfortunately, many of these loan modification companies are still thriving without the threat of enforcement from our cash strapped local and state government. At the very least, the passage of the new law drew a line in the sand. The Florida Attorney General ruled that the new loan modification law did not apply to attorneys. Thus, attorneys now represent the only honest option (besides doing it yourself) to obtaining loan modifications. And although doing it yourself is in theory possible, time has proven the loan modification process to be very difficult, if not impossible (or impractical), for consumers to complete on their own. The added stress of this process, to already stressed out homes and families, present many unique challenges. Rather then focusing their time and efforts on finding work, increasing income, and managing their relationships, and the stress of the current economic situation people find themselves banging their heads against the wall tyring to workout the loan modification with the bank. The banks have fed this machine of inefficiency by inviting consumers to apply for loan modifications themselves. The, the banks turned around and set up a loan modification system that remains so pitifully inadequate that the dream of saving your home soon turns into another program like ‘cash for keys’ (here’s $1,000 see ya and good luck). Another part of the problem are a lack of skilled and experienced loan modification attorneys that have the vision and know-how to get the job done in an honest manner.

Am I a candidate for a loan modification? MAYBE. Simply being behind on your mortgage does not make you a candidate for loan modification. A Loan Modification requires enough income to afford the house, at the new rate. Banks only consider loan modifications for homeowners that have enough income to be deemed low risk. Part of the loan modification challenge is the time needed for families to raise income to the required levels. As part of our foreclosure defense program our primary goal is to provide our clients with the time necessary to get their finances in a position to afford a loan modification. Time and affordability are two factors that can level the playing field for homeowners and make loan modifications possible. Our law firm offers both.

Do I have to be late on my mortgage to qualify for a loan modification? YES. Well, behind on your mortgage or within a couple of months of falling behind to qualify for a loan modification.

What documents are required for a loan modification? Pretty much everything plus the kitchen sink. Before reveiwing you for a loan modification. banks are looking for an idea of your assets and income. Income statements, proof of income, bank statements, tax returns, and hardship letters are the standard in the loan modification business. Anybody who has tried to get their bank to confirm receipt of all of these papers knows that is virtually impossible. No matter how many times you try, the bank will always make you feel like every time you talk to them about your loan modification is the very first time.

How long does the loan modification process take? Anywhere from 3-6 months (or longer) from the day you meet the loan modification paperwork requirements.

What are the terms of the loan modification? Usually, the goal of a loan modification is to get your mortgage payment reduced to 31% of your gross monthly income. Your mortgage payment consists of the principal, interest, taxes, and insurance. This doesn’t leave much wiggle room, especially if you have a second mortgage (you will need a second loan modification).

What happens to the past due balance? Most of the time, after a loan modification, your past due balances are simply added to the back of the loan, which in turn adds to the principal of the loan (not an ideal scenario for consumers who own houses that are already underwater). Unfortunately, consumers ave not been left with many choices. But, a successful and affordable loan modification makes this an easier pill to swallow.

Will the bank reduce the principal value on my mortgage? Don’t bank on it. There have been reported instances where loanmodifications have reduced balances, we have even seen some ourselves. Unfortunately, there has not been any consistent patter or momentum developing behind these loan modification reductions. Thus, homeowners should not get their hopes up, but that does not mean they should not pursue a loan modification.

What re the signs of a scam? Here are a few: Paying fees in exchange for a counseling service or modification of a delinquent loan. These scam artists often target homeowners who are struggling to meet their mortgage commitment or anxious to sell their homes. Beware of people who pressure you to sign papers immediately, or who try to convince you that they can “save” your home if you sign or transfer over the deed to your house. Do not sign over the deed to your property to any organization or individual unless you are working directly with your mortgage company to forgive your debt. Never make a mortgage payment to anyone other than your mortgage company without their approval.

The Federal Government offers FREE assistance from HUD-approved housing counselors. For more from the Federal Government visit Makinghomesaffordable.gov.