Questions to Ask Before You Hire a Loan Modification Company

It’s too bad that the vast majority of loan modification companies have ruined it for the fewer numbers of companies who are legitimately helping people. It’s sickening to think that homeowners are being scammed because they are vulnerable as a result of their mortgages and the dire economic situation in this country.

I am asked a lot of questions about loan modification companies, which is why I compiled this list of things you should ask before you hire a loan mod company.

1.           Are they properly licensed?

California requires that loan modification companies be licensed.  Arizona, where I live, will begin requiring a license for loan modifications in 2010.

Ask to see a copy of their license or do your research online before hiring them. Run a Google search on the company and see what comes up. You can also check the BBB and your state’s Attorney General website for information.

2.           Are they supervised by an attorney licensed in your state?

Beware of this one! Many loan mod shops are advertising that they are “attorney backed” or “attorney supervised.” These terms are meaningless. It means they are trying to make you believe that a licensed attorney is on staff and to give the impression that they have an edge over the next company. You should be immediately suspicious.

Bar associations have strict rules about referral fees and lawyer affiliations with non-attorneys. Attorneys are prohibited from paying referral fees to non-lawyers, so you should be suspicious of any loan mod shop who says they are “attorney backed” or “attorney supervised.”

I don’t know any attorney who is going to risk their law license for a few leads from a loan mod shop. It’s just not worth it.

I recommend you hire a law firm that specializes in loan modifications and foreclosure defense. These law firms are sometimes hard to find. I know because I spent months looking for an attorney who would even speak to me about helping homeowners. If you need a referral, send me an e-mail at Christine@DesertEdgeLegal.com and I’ll point you in the right direction.

Also, I see bloggers and other commentary on the internet from people who say that you should hire “an experienced real estate attorney.” I’m an expert when it comes to TILA/RESPA, and most real estate attorneys I’ve met with are clueless about this new area of law. Foreclosure defense has really only been around for about a year and as I mentioned in a previous post, lawyers have been slow to get into this area of law for various reasons.

Unless an attorney has been practicing in foreclosure defense for the last year, they are not positioned to get you a decent loan modification or represent you in a lawsuit against your lender. So forget all this nonsense about real estate attorneys being the best type of lawyer to hire, because is most cases, it’s just not true.

3.           Does the loan modification company have a money back guarantee?

I’ve seen this one backfire too. A couple of my clients hired me to do an audit, and they found a loan modification company on their own, who told them that an attorney was on staff.

They paid the $4000 upfront fee, got the money back guarantee in writing and were happy…… until the loan mod company called and said they could no longer honor their money back guarantee because of circumstances related to the borrower’s situation.

When my clients asked for their money back, the loan mod shop refused to give them a full refund because they had already worked on the file. These “circumstances” should have been disclosed before the homeowners paid them the money.

If you don’t get an unconditional money back guarantee in writing, you should be suspicious, and even if you do, I’d still be suspicious. This is only the case if you hire a non-attorney loan modification shop.

If you hire a lawyer, they will most likely not give you a money back guarantee. However, if you get scammed by an attorney, you can go to the bar association and file a bar complaint. In my opinion, it’s worth the peace of mind. A lawyer is going to think twice about scamming clients because they don’t want to risk losing their license.

4.           Does the company perform a loan audit and use the findings as leverage for a modification? What if the loan stinks of predatory lending? Will the attorney agree to pursue litigation if warranted?

I heard a statistic today that said 85% of borrowers have mistakes, undisclosed fees or hidden finance charges in their loan documents. A loan audit is ALWAYS the first step in a loan modification. If the company isn’t conducting a loan audit, don’t bother hiring them.

Any attorney who is well versed in foreclosure defense will tell you that a loan audit is always the first step, (sometimes they know what they’re talking about) because it shows you where the causes of action are to use as leverage against the lender.

Many of the loans I’ve audited have enough problems to use as leverage for a decent loan modification (not necessarily a principal reduction, however), which, for many clients, is their desired outcome.

However, there are other clients whose loans just stink of predatory lending and they should pursue the lender in federal court for violations of TILA/RESPA.

Here’s the problem: as I referenced in an earlier blog post, lawyers have become afraid to pursue lawsuits! It’s the craziest thing I’ve ever seen. Who would have thought lawyers would ever be afraid to go to court?

I know of one law firm that says they will not sue lenders because it will impact their ability to get loan modifications for their clients. I’m not a lawyer (yet) but I think this is a load of crap.

If a law firm had a reputation as aggressive and not afraid to pursue litigation, the lenders would push the mod paperwork through a lot faster because they know the law firm would sue them. The threat of litigation is usually a good incentive to move faster.

5.           Who is making money on my loan modification? How many parties are involved?

I’m a firm believer that if you’re adding value for others, you should be fairly compensated. It’s completely reasonable for a loan mod shop or law firm to pay people for legitimate services provided, such as the loan audits or marketing fees.

However, I object to the multi-level marketing and other schemes perpetuated upon homeowners when it comes to loan modifications.

I attend a lot of networking events here in Phoenix, and it seems like everyone is hawking loan mods these days. It scares me to think that people with no legal experience are pushing people into loan mods without any discussion of loan audits or predatory lending. When you modify a loan, you essentially waive any claims you have under TILA/RESPA. Wouldn’t you like to know if you could pursue your lender for a better loan modification before you get their boilerplate modification agreement? I certainly would.

Or worse, the person selling loan mods is a former mortgage broker. Many of these people are partly responsible for this mess we’re all in. A lot of mortgage brokers were selling products to borrowers without fully disclosing their fees and acting in their own self interests, instead of selling the borrowers a product that was in their best interest.

My point is, you should ASK who is handling your file and who is making money on it.