Can you recommend a “real” loan modification company?  That’s a question I’m asked repeatedly.  Viewers see one of the many I-Team investigations focusing on cheats and frauds in the loan modification business and they want to make sure they don’t end up a victim.

Sadly, people who are already behind on their mortgage and struggling to pay their other bills are too fast to write big checks to loan mod companies, many of which turn out to be completely illegitimate.   If foreclosure is imminent,  the last thing people should do is give away the money they’ll probably need for storage, a moving van, first and last month’s rent and a security deposit for a rental.

The California Department of Real Estate warns that there are “numerous rogue and dishonest operators” in the modification market now, and San Diego is a hot bed!  The D.R.E. has 750 open investigations of loan mod companies.  185 companies have been ordered to “desist and refrain” from business because they’re violating the law. 

Go to this website to read which companies have been told to halt their practices, and of course, don’t use them!

http://www.dre.ca.gov/cons_drs.asp

The D.R.E warns that homeowners should first try to work with their lender on their loan.  Put in a call to the loss mitigation department and keep track of all phone calls and responses. (I’ve heard from several people that banks seem to “lose” the information mailed to them.)

If you feel you can’t do it yourself, then be extra careful about the person you hire.  Big promises are a big red flag.  Avoid companies that tell you that you “must act now”, or “we’ll give you a discount if you pay upfront”.  Some other common tactics include over-promising and pressure selling to “close the deal.”  One company we’re investigating tells clients that they can reduce the interest rate to 2 percent, can reduce the balance of the loan, waive the late fees, waive the legal fees, and protect their credit!  Really?!  Woudn’t every person in America sign up for that if it were true? 

The fact is, many of these companies are boiler rooms with low paid staffers working the phones.   Those workers often read off of an actual script!  They’re trained at “selling” these loan modifications, and I believe some of the workers don’t realize they’re scamming people.  They’re paid less than $10 an hour, but they are told they’ll get commission on every person they sign up.  (Often the companies ripping off homeowners are also ripping off their own employees and never end up paying the “commission.”  Some companies just fire the workers before pay day and keep a steady stream of new hires by posting adds on Craigslist.  Yes, this is breaking the law, but enforcement agencies are swamped right now.)

If you are working with some sort of real estate office doing loan modifications, check the license history of the agent and broker.  Go to the D.R.E. website and just put in the name of the agent/broker and company for that matter.  (This is important, two of the companies I’ve focussed on recently had brokers with big red flags on thier license history!  One of the brokers had his license revoked 27 years previously!)   Click below to check a license history.

 http://www2.dre.ca.gov/PublicASP/pplinfo.asp

Real estate companies must have an approved advance fee agreement before they take upfront money from clients.   Go to this part of the D.R.E website for an updated listing of those companies. 

http://www.dre.ca.gov/mlb_adv_fees_list.html

Also effective July 1, 2009,  so called “foreclosure consultants” will also have to register with the California Attorney General’s Office.  A foreclosure consultant is defined as anyone who claims they can postpone or save a home from forclosure or modify loans.

A link to the Attorney General’s Office website is below.

http://www.ag.ca.gov/register.php

There is a new wave of law offices doing loan modifications.  Even when dealing with an attorney, homeowners should do their homework.  Make sure you check the license history of the attorney with the State Bar of California.  You may find, as I have, that the attorneys are brand new to the field of law.  Also, specifically ask who will be working on your loan packet.  Will the attorney be doing the work, be supervising every correspondence, etc.?  The law on this is a grey area, but I doubt people want to pay thousands of dollars to a “supervising attorney” just to have a low paid staff person make all the phone calls, write all the letters, and negotiate with the bank.   

Click here to check an attorney’s status with the State Bar. 

http://members.calbar.ca.gov/search/member.aspx

The D.R.E also directs people to check the history of the loan modification company with the Better Business Bureau.  This is a good idea.  Just beware, many of these companies change names quickly.  I’ve researched one company that had a decent rating with the BBB for a while before mass complaints poured in. 

This is not a complete list of warnings, just the things that the I -Team producers or I do as we look into complaints about loan modification companies.   To read more warnings,  Go to the D.R.E website for additional fraud warnings related to loan modification scams.

http://www.dre.ca.gov/pdf_docs/FraudWarningsCaDRE03_2009.pdf