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Scams and How to Avoid Them

Owning a home is a great investment, but sometimes it can get a little overwhelming. During those rough patches, it's nice to have options when it comes to your mortgage payment. One of those options is a loan modification. A loan modification is an agreement between you and your mortgage company to permanently alter one or more of the terms of your original mortgage. If you're behind on your payments, this allows you to catch up and avoid foreclosure.

However, loan modification scams exist, and they're growing at a rapid rate. Every day, scam artists find new ways of tricking people out of money, but stressed homeowners facing foreclosure are particularly vulnerable. When you're worried about losing your home, you might not look too closely at the service you're paying for; you just want someone to help you out. These con artists often do more harm than good though, so you should know what you're getting into before you sign on the dotted line.

There are six red flags to be aware of it when it comes to loan modification scams. If you come across any of these, you need to reconsider the offer being made, no matter how good it sounds.

1. They Ask for Personal or Financial Information

This is a new twist on a classic phishing scam. The person or company contacts you about a loan modification, and they promise to help you. When they've got your attention, they will attempt to get personal information from you, such as your social security number and bank account information.

If a scam artist gets this information from you, he or she will likely use it to steal your identity. If you give them your bank account information, they will clear out all the money they can before disappearing. If you give them your social security number, they will attempt to open credit accounts in your name with the intention of running them up and leaving you with the bill.

You can avoid the unnecessary frustration of dealing with identity theft by not giving your information to anyone you don't know. Your mortgage lender will never call you and ask for your account or banking information. They also won't use threats or harassment to coerce you, either. If the caller is aggressive, it could be a scam and you should discontinue the conversation with them immediately.

2. They Ask for a Fee

In most cases, a company or person asking you to pay them to help you with a loan modification is a scam. These are people or companies with no legal background charging you a fee for something you can get free, and to top it off, they don't even help you with the loan modification.

As a homeowner, you have a couple of options for help with a loan modification. First, there are HUD-approved counselors who can walk you through filling out the application and offer you tips on how to negotiate with your mortgage company. Legitimate housing counselors never charge a fee for their services.

The second resource you have is an attorney. There are some situations where it's necessary to seek legal advice, such as when you're a victim of illegal lending practices or mortgage fraud. In those cases, if you retain the attorney's services to bring legal action against your mortgage company, you may be expected to pay a fee.

With a scam artist, they charge a fee to fill out the paperwork and work with the mortgage company on your behalf to secure the loan modification, when in reality they're pocketing your money and not doing much beyond filling out the application. These are things you can do yourself for free. Scam artists may also promise legal service, but if the need arises, they often disappear because they do not have the ability to help you.

If you have doubts about the legitimacy of a company or person contacting you, call your mortgage lender first. Then, if you need more assistance, reach out to a HUD-approved counselor or an attorney.

3. They Make Promises They Can't Keep

It's easy to believe empty promises when we feel as though our backs are against the wall, but you have to be careful when a person or company starts making promises about loan modifications. It is possible to apply for a loan modification and be denied, so no one who is legitimate will ever promise you the modification at the start of a conversation. If they do, it's a scam.

HUD-approved counselors will explain the process and offer you their opinion on your chances, based on your situation, but they can't promise you will be approved for the loan modification. Even an attorney, who knows your rights and is familiar with the process, can't promise your lender will agree to a modification.

You also have to watch out for scam artists who promise to stop a foreclosure. The only way to stop a foreclosure for sure is to pay the past due balance in full, and that's assuming it's paid before the home goes to auction and is sold off. After that, it's difficult to get your home back. Now, there are federal laws in place to help protect homeowners from foreclosure proceedings while a lender evaluates a completed application, but even then, some mortgage lenders may push a foreclosure through.

When that happens, it's known as dual tracking, and it's against the law. An attorney can help you determine whether you were a victim of illegal lending practices, and file suit against your mortgage lender if you were. The lawsuit is meant to be a way for you to keep your home and prevent foreclosure, so it's important to seek out a consultation as soon as possible if you believe your mortgage company engaged in dual tracking with you.

However, scam artists prey on the anxiety of homeowners facing foreclosure and promise to get the loan modification or prevent the foreclosure in exchange for a fee. Decline the offer and reach out to your free resources instead.

4. They Offer "Government Approved" Loan Modifications

If a company you don't know contacts you and offers a "government approved" loan modification, you might be dealing with a scam artist. Contact your mortgage lender first as they will tell you if you qualify for any government programs.

It's better to work directly with your mortgage lender, unless you feel they are not offering you a fair deal. At that point, you can reach out to a HUD-approved counselor or an attorney to determine your next course of action. Getting behind on your mortgage is stressful enough, so be cautious when dealing with companies you don't know.

As a general rule of thumb, just remember you don't have to pay to benefit from government loan modifications. Most of the time, you can contact your lender and reach an amicable agreement yourself. The only time you may have to pay fees is if you need legal services provided by an attorney.

5. They Advise You to Stop Paying Your Mortgage and Pay Them Instead

This ruse is one that puts homeowners in conflict with their lenders, and leads to foreclosure. The scammers contact homeowners offering to help lower their monthly mortgage payment by becoming the middle man who negotiates on the homeowner's behalf. They ask homeowners to stop paying the mortgage company and pay them directly instead, but they pocket the money and the homeowner is left in default with his or her mortgage company.

If you're struggling to make your payments each month, contact your mortgage lender to discuss your options directly. It's always better to work something out before you fall into default, and it's definitely better to work with your mortgage lender than a shady third party you don't know. You should never make mortgage payments to anyone other than your mortgage lender.

6. They Pressure You to Sign before You Read

If a company pressures you to sign paperwork before you've had a chance to fully read it, that's a sure sign things aren't on the up and up. Contracts are complicated, and you need time to read them over before agreeing to any terms. If you were contacted by a company other than your mortgage lender, and they're offering a loan modification, do your research.

This also applies to a similar scam whereby a company pressures homeowners to sign over the deed to their home. They make it sound as though you're getting a great deal, and you'll get to save money on your payment. Depending on the extent of the scam, you may be jumping from the frying pan to the fire. A legitimate company or housing counselor would never pressure you into signing documents you haven't had time to read, or don't fully understand, including deeds and powers of attorney.

If you ever have doubts or concerns when dealing with a third party, contact your mortgage lender or attorney for advice. Do your research on these companies and individuals contacting you, especially if they're promising things your mortgage company wouldn't. If you come across any of these six scenarios, you're most likely dealing with a scam, so decline their offer and contact your mortgage lender to handle the situation appropriately.