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. Visit http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm to find a HUD-approved counselor.