There's no shortage of people willing to take advantage of homeowners facing foreclosure. Two common scams are: refinancing scams and loan modification scams. The actual scams vary a bit, but pretty much result in the same thing—the scammer pockets your cash.
How a Refinancing Scam Works
In a refinancing scam, the scam company or individual sends a mailer or calls you. The scammer offers to help refinance your mortgage loan at a new, lower interest rate. Most of the homeowners targeted by this kind of scam have difficulty making their monthly loan payments. In some cases, you might have a high-interest rate, and are looking to benefit from a lower rate to save money.
Here are some "red flags" that might indicate a refinance scam:
- The scam company seeks an upfront fee, before services are provided. The fee might cover "refinance counseling" or a "refinance consultation" or might be the company's fee for refinancing. It could be hundreds or even thousands of dollars. The company might then keep the fee, but not refinance your home.
- The company doesn't disclose its fees and rates up front. For example, say a company promotes a low interest rate up front, and then, at closing, raises that rate. In addition, "extra" fees and costs not originally quoted should be a red flag.
- The company asks you to sign over the title (ownership) of your home while it refinances the property. The company promises that it will convey title back to you once the refinance is done. However, what typically happens is that the company gets title, then refinances the property, taking out all the equity. The fraudsters then take off with the money and let the property go into foreclosure.
Loan Modification Scams
If you're struggling to stay current on your mortgage payments, a loan modification might be the perfect solution to your problem. With a loan modification, the lender agrees to take certain steps, like reducing the interest rate or extending the term of the loan, to lower the monthly payments. (Here's what you need to know about getting a modification.)
You can easily apply for a modification on your own. But a scammer modification company might try to convince you that you’re better off hiring their company to help you "negotiate" with the lender. In truth, there's little negotiation in the modification process. If you meet eligibility requirements, you'll get a modification.
Modification companies, however, often exploit a homeowner by:
- charging very high fees for doing things that you could do without assistance, like sending in an application and supporting documentation to the servicer
- charging money for services and then not doing anything to earn the fees, or
- taking steps that actually hurt you, like not responding to the servicer's calls, neglecting to send required documentation to the servicer, or letting a foreclosure sale happen.
(If you want to get a loan modification, learn five tips to improve your chances of getting one).
What You Can Do
If you're contacted by a company you believe is trying to scam you, turn over the scam information to your state Attorney General. The Attorney General's office can then investigate the company. Such an investigation might protect other homeowners.
Getting Help
If you need help completing an application for a loan modification or want more information about different ways to avoid foreclosure, consider talking to a foreclosure lawyer or a HUD-approved housing counselor. You should, however, avoid hiring a loan modification company to help you.
