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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

Home loan modification scammers are the latest scoundrels to surface

Tom Kelly

Equity skimming, illegal property flipping, foreclosure rescue scams.

And now, say hello to the newcomer on the fraud block, the home loan modification scam.

“There’s no evidence that the same companies or the same people are involved,” said Deborah Bortner, director of consumer services for the Washington State Department of Financial Institutions. “But the intent is about the same: They are looking to take people’s money.”

State agencies like DFI were established to regulate and examine a variety of state-chartered financial services. The agencies also provide education and outreach to protect consumers from financial fraud. Given the peaks and valleys of real estate and mortgage banking, the agency has had its hands full.

“We proposed a new loan servicer bill because we received so many complaints from homeowners who lost their dreams – their homes – to questionable third-party loan servicing practices,” Bortner said. “Throughout the foreclosure crisis, homeowners desperately hoping to avoid losing their homes have fallen victim to companies offering to help, for a substantial fee. In many cases, the homeowner pays several thousand dollars, receives no loan modification and loses their home to foreclosure anyway.”

All servicers now must explain all fees, credit all payments within one business day of receipt, make reasonable attempts to comply with requests for information from the borrower, and promptly correct errors and refund invalid fees.

A typical loan modification is a permanent change in one or more of the terms of a borrower’s loan. It allows the loan to be reinstated and results in a payment the borrower can afford. This can mean a lower interest rate or an adjustment in loan term or monthly payment.

While there are legitimate loan modification companies, there are many more which charge fees for services never rendered.

New loan servicing/modification laws require licensure of loan servicers and create prohibited practices. They also compel all servicers to comply with many of the laws applicable to loan originators and demand them to maintain a surety bond.

Other guidelines address escrow shortcomings and require an escrow agent’s bond to cover the owner, a director or an officer in addition to all employees.

Investigators and regulators see all kinds of deceptive pitches. In every case, the program offers a desperate consumer hope of escaping a deep, dark hole. Three years ago, the big play was “foreclosure rescue,” where scammers peruse county records to find properties that face foreclosure for nonpayment of mortgages or taxes. And, like loan modification programs, these companies would charge questionable upfront fees and then not do any work.

Consumers who think they are being scammed should not sign anything until they have a neutral party look over the documents. They should contact the consumer protection division of their state attorney general’s office to get information about who would be an appropriate neutral party to review the documents.

Tom Kelly is a former real estate editor for the Seattle Times. His book “Cashing In on a Second Home in Mexico: How to Buy, Rent and Profit from Property South of the Border” was written with Mitch Creekmore of Stewart International.