Loan Modification Scams on the Rise

There will always be those who try to profit from the misfortunes of others and the current housing market woes are no exception. There are many scams and pit falls that a new home owner can fall into, especially one that is having trouble making their monthly mortgage payments. One such scam, which has grown explosively over the last few years, comes in the guise of Loan Modification Companies.

When someone is behind on their mortgage payments or having trouble making each payment, it often causes them to want to look for an easy fix, so they drop their defenses a little bit. This is exactly what a loan modification company counts on, as they specifically target those in foreclosure or who are struggling to make each mortgage payment.

How the Loan Modification Scam Works

The loan modification scam usually starts with a letter, a dishonest website, or a call from a telemarketer, which promises that the company can help refinance the mortgage and secure the homeowner a much lower interest rate. These individuals, who are usually nothing more than snake-oil telemarketers who are adept at social engineering, pray upon the fears and troubles of those facing foreclosure, promising to speak with the mortgage holder and negotiate better turns.

However, before they will do any work, they require a large upfront payment. Often, the telemarketers will encourage the homeowner to stop paying their mortgage payments and instead pay the loan modification company, with the promise that they will be able to get the mortgage refinanced.

What loan modification companies won’t tell you, however, is that they can not stop foreclosure and have no direct association with any reputable lenders. Instead, they take the homeowners money, usually at the expense of paying their actual mortgage, only to cut off communication once they have conned enough money from the homeowner.

How Do Mortgage Modification Services Get Away With It?

It is easy to ask how this is possible and much of it has to do with the mind state of those that are facing foreclosure, who are searching for anything that might help them save their home and credit.

However, the companies also operate in a manner that avoids much regulation, by changing their names frequently and setting up dummy corporations. There are hundreds of websites developed by these loan modification hucksters, which are designed to generate leads for their telemarketers.

Usually, by the time people start reporting these companies to the Better Business Bureau or other regulatory agencies, the loan modification company has already moved on.

How to Avoid the Loan Modification Scam

Today, loan modification firms are more prevalent and profitable than ever, praying off of the large number of foreclosures.

One of the biggest warning signs of a loan modification firm is that they require money up front, before doing any work. This is common amongst most credit fixing scams, so should immediately raise warning flags. Also, if they suggest not paying your mortgage, this is also an indication that they are not operating in your best interests.

It is also very important to research the companies and keep in mind if you can’t find any information on sites like the Better Business Bureau, they could very well be trying to scam you.

This is not to say that all organizations that help fix credit or prevent foreclosure are bad, with there being a number of not-for-profit organizations and several government programs that are designed to do just this. However, it is extremely important to research the company and use good judgment, rather than letting the fear tactics of these scam artist work against you.