Beware of loan modification scams
The U.S. Department of Housing and Urban Development offers free mortgage counseling to anyone, regardless of income. To reach a HUD-approved counselor in Rock or Walworth counties, call Community Action at (262) 728-8296 or (608) 755-2470 or Neighborhood Housing Services of Beloit at (608) 362-9051.
If you've been victimized by a loan modification scam, call the state's consumer protection hotline at 1-800-422-7128 or the Department of Financial Institutions at (608) 261-9555.
Tips to avoid scams
Here are some tips from the Wisconsin Department of Justice to avoid loan modification scams:
-- Don't pay upfront fees. The law prohibits foreclosure consultants from collecting money before they perform services.
-- Don't ignore letters from your lender or loan servicer. Responding to those letters is your best bet for saving your house.
-- Don't transfer title or sell your house to a "foreclosure rescuer." This might be a fraud to convince homeowners they can stay in the home as renters and buy their home back later. It also might be part of a fraudulent bankruptcy filing. Either way, the "rescuer" can evict the homeowner and resell the home.
-- Don't pay your mortgage payments to anyone other than your lender or loan servicer. Mortgage consultants often keep the money for themselves.
-- Never sign any documents without reading them first. Many homeowners think that they are signing documents for a loan modification or for a new loan to pay off their mortgage. Later, they discover that they actually transferred ownership of their home to someone who is now trying to evict them.
Crystal Runnells and her husband thought they'd finally found someone to help them through the nightmare of foreclosure.
The company, Federal Loan Modification of California, promised to negotiate with their lender to get lower payments. It wanted $1,500 upfront and $1,500 when the job was done.
"I've got all the paperwork," Runnells said. "It all looked legit, and they sounded really good."
The Clinton couple authorized the company to take $1,500 out of their account, and somehow the company took the other $1,500 out later, Runnells said.
The months passed, and nothing happened. The company promised a refund but never delivered.
When Runnells tried to call the company this month, the phones were disconnected.
"So we're out $3,000 and no different on our house," she said. "It's pretty sad that they take advantage of people in need."
Jody Stickney has heard this story over and over as a mortgage counselor for Community Action of Rock and Walworth Counties. She estimates 90 percent of her clients have been approached by companies offering to renegotiate their mortgages for an upfront fee.
Her advice: "Stay away."
"Anyone I know that has come to me that has already paid that fee has not been successful and has not ever seen a cent of their money again," she said.
Stickney said about a third of her clients approached with the offer lose money before they reach her door.
The state has seen a huge increase in these cases in recent months, said Nelle Rohlich, assistant attorney general.
The companies are usually from another state, often California, she said. They pretend to be affiliated with a bank or the government or they show the families newspaper articles invoking President Obama and the federal stimulus plan.
They often instruct families not to contact their lenders while the companies are "negotiating," so the families don't realize right away that they've been scammed, Rolich said.
Paula Carrier, an Edgerton real estate agent, said the companies are taking advantage of people in distress. The foreclosure process can be complicated, frustrating and scary, and people jump at the offer to make it all go away, she said.
"There's people out there trying to make money off other people's gloom," she said.
Even if a private company is legitimately renegotiating loans—and Stickney hasn't heard of any that are—there's never a reason to pay someone for the service, she said. The U.S. Department of Housing and Urban Development certifies local agencies to offer free mortgage counseling and renegotiation.
Community Action serves as the HUD-approved counselor in Rock and Walworth counties. Neighborhood Housing Services of Beloit also offers HUD-approved counseling to Rock County residents.
Stickney accepts any potential clients, she said. She serves as a liaison between the homeowner and the lender as they try to reach new terms of the loan and avoid foreclosure.
The service is in high demand. There's a three-week wait for appointments at Community Action, she said.
But homeowners have time as long as they take action as soon as they fall behind. It takes about a year from the time a homeowner falls behind on payments until the home is sold at auction, Stickney said.
"Lenders are more willing than ever before to try and get something worked out, so people should be in contact with their lender and not try to avoid them," she said.