Homeowners wary of being taken in by bogus “loan modification specialists” should not assume that a law office is the most reliable way to work with their lender. Consumer advocates say a growing number of fraudulent modification services involve lawyers, or people who say they are lawyers.
Making sense of the story
- Increasingly, lawyers are lending “their names, their offices, their credentials” to fraudulent operations that vaunt superior skills in obtaining loan modifications, according to a senior counselor at the Lawyers’ Committee for Civil Rights Under Law in Washington.
- While Federal Trade Commission rules generally prohibit demanding upfront fees for mortgage relief services, there is a narrow exception for lawyers.
- Under the rules, a lawyer may charge clients in advance for assistance if the service is part of their general practice of law, and not outside of that practice.
- Certainly, many lawyers provide legitimate foreclosure-avoidance services, but borrowers should know that when going to a lawyer whose sole business is loan modifications, that is a red flag.
- As more homeowners become aware of these tactics, some operations are changing their practices. Instead of selling loan modification services, they are advertising so-called loan workouts and forensic loan audits. Some are even posing as nonprofit groups.
- The Homeownership Preservation Foundation and the Lawyers’ Committee both belong to a coalition of public and private agencies that maintain a national database of loan-modification complaints. Since March 2010, some 28,000 homeowners have reported potential fraud. Their reported monetary losses total around $66 million.
- Counseling services offered by the Dept. of Housing and Urban Development are free of charge. Visithttp://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm to find a HUD-approved counselor.