The combination of the recession, high unemployment rates and the crash of the housing market has left many homeowners struggling to make their mortgage payments. However, as the saying goes, in difficult circumstances comes opportunity. Unfortunately, for many homeowners, those taking advantage of the opportunities presented by these difficult times are loan modification scammers.
For those struggling to make or those who have fallen behind on their mortgage payments, bankruptcy may provide a solution for homeowners that want to keep their homes.
Not every company is in the business of helping you keep your home. Some, in fact, do not care if you keep your home or not, they just want your money. Some of the most common loan modification scams are:
Bait-and-Switch - a scammer will ask you to sign documents that you are told are for a loan modification that will "make your existing mortgage current." Buried in the fine print of these documents, however, could be language transferring the title of your home over to the scammer.
Rent-to-Own - also known as a "lease-back," in this scam you conditionally sign over the title to your house to the scammer with the "understanding" that you will stay in your home as a "renter," and that you will be able to purchase your home back at a later date. Oftentimes, though, the scammer never intended to sell your home back to you and will even draft the contract in such a way that it is nearly, if not completely, impossible for you to reclaim your home. The scammer may even raise your rent to the point that you miss payments, giving them legal authority to evict you. After you are evicted, they can sell the home and keep any profits.
Fake Counseling Services - this fraud is based upon the word of a con man who tells you that he can negotiate with your lender on your behalf to save your home. However, there is a catch: you have to pay all the fees for this service up front. The scammer will likely ask that you not contact anyone, as they will do this for you - this should serve as a warning that the transaction is a scam. Another tipoff that you are dealing with a scammer is that you may be asked to pay your mortgage payment to the scammer directly and not your lender - do NOT do this.
Phony "Government" Programs - these bogus programs involve a scammer who offers to help you enroll in an allegedly government-approved loan modification program. The caveat being, of course, that you have to pay a high up-front fee to "qualify" for the program. These fake programs may be difficult to spot, even if you conduct due diligence since everything, including the scammer's website, may seem official. Consult with your lender if you are contacted about one of these programs, as your lender will know if you qualify for any legitimate government programs or not.
Mortgage Lender Tricks
Mysterious third-party companies are not the only ones taking the opportunity to trick borrowers; your lender may try to deceive you as well. (Please remember that most lenders are reputable, but there are a few that may try this.) Be on the lookout for these signs that your lender may be trying to trick you:
- Continually telling you to call back to discuss your issues, without ever actually talking to you about your issues
- The lender tells you one thing, then either does another or does not honor what was told to you
- The lender tells you miss a payment(s)
Always make your payments if you can. If you miss payments, your lender may foreclose on your home.
Tips for Avoiding Scams
Not all fraudulent mortgage-related schemes are easy to discover. However, you may be dealing with a scammer if you are:
- Asked to sign your deed over to the company
- "Advised" to stop paying your mortgage payment to your lender and told to send the payment to the new company
- Given a "guarantee" that the company can get your loan modified or that the company can stop foreclosure
- Asked for a fee before the company can begin to work on your behalf
- Offered participation in a government-approved loan modification
- Asked for your personal financial information over the phone or online
The Bankruptcy Option
If you are behind on your mortgage payments and facing foreclosure, there may be an alternative to seeking the help of a loan modification company. Working with an attorney to file bankruptcy could help halt foreclosure proceedings and allow you to keep your home.
Chapter 13 bankruptcy, also referred to as "wage earners' bankruptcy," allows a debtor to restructure his or her debts into a monthly payment to be made over a three to five year period, after which the remaining debt is discharged.
One of the benefits of Chapter 13 bankruptcy is that it allows homeowners that are facing foreclosure to halt or stop the proceedings. The debtor is then allowed to fold the missed or late mortgage payments into the Chapter 13 repayment plan, paying them over the course of several years instead of in one lump sum. However, it should be noted that the debtor needs to keep current on the payments throughout the bankruptcy repayment period or risk foreclosure of the home.
To discuss your situation and discover if bankruptcy is the right option for you, contact an experienced bankruptcy attorney.