Joe Capote

This post is part 2 in a series on understanding a borrower’s road to the foreclosure. This series attempts to help borrowers to make better choices and retain their options through better understanding of the foreclosure process as a whole.

What is a loan modification?
Answers.com defines loan  modifications as ” a modification to an existing loan made by a lender in response to a borrower’s long-term inability to repay the loan. Loan modifications typically involve a reduction in the interest rate on the loan, an extension of the length of the term of the loan, a different type of loan or any combination of the three. A lender might be open to modifying a loan because the cost of doing so is less than the cost of default.” (http://www.answers.com/topic/loan-modification, par 1).

What makes a loan modification possible?
When a borrower has defaulted on the loan, generally the first step should be to investigate a loan modification. In the first entry in the series, it was pointed out that a loan modification is not a right of the borrower and is dependent upon the lender’s willingness to negotiate. While this is true, new programs are cropping up in an effort to promote guidelines and standardize loan modifications, such as the HAMP (Home Affordable Modification Program) which offer guides to the modifcations of first mortgages only. Lenders that have received TARP funds are required to participate in the HAMP program. More on this a little later in the post.

The current state of loan modifcations is a hodgepodge of lenders and possible programs. Addtionally, unscrupulous characters in both the real estate and legal professions have added to the confusion regarding what a loan modification is and who qualifies. Since the modification is really been dependent on the lender’s willingness to negotiate, this has resulted in a lot of consusion and leads folks to believe they could receive a loan modifcation based on the experience of someone they already know receiving one. For example, “My neighbor Joe modifed his loan, and I should be able to do the same at the same terms”.  Since each loan modification case is handled differently, even by the same lender, this is most always not true and adds to the already abundant confusion around loan modifications.

What about loan modificaton fraud?
The current amount of loan modification fraud awareness has reached the desks of the regulators. The California Department of Real Estate and the California Bar Association have investigated and/or taken action against realtors and lawyers who have been unscrupulously promoting loan modification services and not delivering. Scam artists will make lofty promises requiring an upfront fee and then never be heard from again. The list of lawyers under investigation is HERE. The California Department of Real Estate now has more than 1,340 open investigations into loan modification scams around the state, up from just 10 in August 2008 (More info on this HERE). In fact, the state attorney general has issued ways to help borrowers recognize and avoid loan modification scams, that is posted HERE.

The good news is, the government is attempting to regulate and standardize loan modifications. Programs like the Home Affordable Modification Program (or HAMP) are setting the stage for both borrower and lender to understand and participate in loan modifications under standardized guidelines, not just on a case by case basis. This program also standardizes the loan modification terms, conditions and length. There is a lot to know about the HAMP, and the official website is HERE. Additionally, the California state bar does recognize a VERY small number of lawyers who are qualifed to represent borrowers on loan modifcations. Check out this list at http://www.localloanmodification.com/CA.

Initiate loan modification as soon as loan default is imminent.
Many lenders require that a borrower be in default before the loan modification process can begin. The HAMP program requires the borrower be in default or “at risk of imminent default”. This depends on the lender, but generally is true. However, if the borrower has a choice they should try to modify the loan before defaulting, thereby preserving their credit rating as much as possible. This is especially true if the borrower can prove the ‘risk of imminent default”. Clearly, lenders are trying to protect themselves against borrowers attempting to modify loans who do currently have the means to continue to keep current.

Here is the takeaway for borrowers. If loan modification is the goal, then the borrower should begin contacting lenders as soon as default is imminent. They should attempt to work out a loan modification with their lender under the HAMP guidelines. They should be communicative and ready to submit all pertinent documentation to prove that default is imminent (w2’s, tax returns, pay stubs, etc). If the lender is not willing to negotiate, consider free credit counseling or  consider contacting an attorney who not only specializes but is recognized by the state bar as a qualified loan modification specialist. Be persistent when working with lenders.

Unfortunately, there are cases where a borrower just will not qualify for a loan modification, and must begin to cosinder the next option. Selling the home in pre-foreclosure or short sale. That is the next chapter in the road to foreclosure series.

Filed under: Buyer's Blog, Seller's Blog, loan modification, loan modification scams

21st Century Legal Services, Fidelity National Legal Services under federal investigation

You’ve probably heard ads on the radio from those companies that promise to get your mortgage payments slashed, sometimes in half. They’re called loan modification companies.

Authorities say many of them are scammers and con artists, but they haven’t always been able to shut them down. NBC investigative reporter Joel Grover exposes how one of the biggest loan modification companies has managed to stay in business, even though authorities in several states have tried to stop it.

The company has been widely known as 21st Century Legal Services, and its ads say it can get you a lower monthly payment and lower interest rate on your home mortage.

Joanne and Dave Steffin signed up with 21st Century, because they say the company promised to help them avoid foreclosure on their Rancho Cucamonga home. But the Steffins say all 21st Century did was take their money and not deliever on its promises.

“It’s not even the fact that they took your money. It’s the fact that you may lose the home still,” Joanne Steffin said.

In the last year, 21st Century became a giant in the loan modification business, operating out of a business park in Rancho Cucamonga, with dozens of employees working the phones, signing up homeowners desperate to avoid foreclosure. But two ex-employees tell NBC that the majority of 21st Century clients never got their loans modified.

“You were told to promise (clients) that they could get their loan modified?” Grover asked one of the former employees.

“Yeah, 100 percent,” the ex-employee answered.

Four states have sued 21st Century, and the Better Business Bureau says 21st Century has more complaints than any other loan modification company in business. But that didn’t stop 21st Century from signing up more and more clients.

Those two ex-employees explained to NBC about how 21st did business. The company always asked homeowners to pay them a hefty fee upfront, supposedly to get their loan modified.

Joanne and Dave Steffin had to fork over $3,500, and were told that 21st Century would be “working diligently with their lender” to try and get their payments cut in half.

“I just felt that if this is what they’re going to do and they can do this, we’re stupid not to do it,” said Dave Steffin.

But months later, the Steffins say 21st Century had cashed their checks, wouldn’t return their calls and didn’t even contact their lender.

“Do you feel like you were scammed?” Grover asked the Steffins.

“Yes, very much,” said Dave Steffin.

And those ex-employees interviewed by NBC say the customers they signed up kept calling them, saying things like, “You’ve taken my money,” “Nothing has been done to help my home,” and “Now I’m in foreclosure.”

Complaints like those caught the attention of the attorneys general in Ohio, Indiana, Arkansas and North Carolina. All four states banned 21st Century from doing business in their states.

But authorities say 21st Century Legal Services changed its name to Fidelity National Legal Services and continued signing up new clients.

Ex-employees say Fidelity was run out of the same office as 21st Century; was owned by the same woman, Andrea Ramirez; and even used the same ads to snare customers.

But the feds might finally be catching up with the owners of 21st Century and Fidelity. The FBI recently served search warrants on the home of Ramirez and searched the company’s offices. The FBI says the company is now under federal investigation. The company’s lawyer didn’t return our calls for comment.

NBC did this investigation with help from the non-profit investigative journalism organization Propublica.

California homeowners can get advice avoiding scammers at Attorney General Jerry Brown’s website.

Posted via web from josephcapote’s posterous

Filed under: Buyer's Blog, Seller's Blog, loan modification, loan modification scams