Wednesday, May 27, 2009

Loan Scams: How to Spot the Red Flags


This piece offers some solid tips about avoiding lending scams:

"Challenging economic times, declining home values and skyrocketing foreclosure rates have homeowners looking for solutions to help them keep their homes. An appealing option for some is loan modification—which involves working with your current lender to alter the terms of your existing loan. A loan modification usually means your monthly payments are reduced, either by lowering the interest rate or extending the term of the loan.


“For homeowners struggling to make monthly mortgage payments, the opportunity to renegotiate the terms of their current loan may help them keep their homes,” said Jessica Cecere, president of Consumer Credit Counseling Service (CCCS) of Palm Beach County and the Treasure Coast.


“Unfortunately, there are businesses that will take advantage of consumers’ fears. Homeowners need to know that help is available from many HUD-approved nonprofit counseling agencies and they need to investigate any company that requires a payment for these services.”


CCCS cautions consumers to be aware of some of the red flags of typical scams:

Guarantees – Be wary of any company that offers a guarantee of stopping foreclosure regardless of your circumstances. Keep in mind that oral promises and agreements relating to your home are not usually binding, so a guarantee in an ad or from their representative may be meaningless.



Up-front fees – Some companies charge a fee before reviewing your situation or making a single call on your behalf. Beware of any attempt to collect payment from you before providing a service.


Redirected payments – Do not agree to make payments to a third-party. Some scams involve having the homeowner pay a company with the promise that they will make your mortgage payments. If they fail to do so, you have lost your money and may still wind up in foreclosure. Always make payments directly to your mortgage company.


Buy-back or Lease-back plans – In this case, companies have homeowners sign over the deed to their home and then rent it back from the company. The terms of the agreement may require high up-front and monthly fees and failure to meet these terms may result in the loss of your money and eviction. It is important to note that transferring your title does not change your payment obligations—you are still responsible for your mortgage debt even though you no longer own your home.


Consumers need to be especially cautious of any attempts by a company to stop them from communicating directly with their lender, with an attorney, or with a housing counselor. They need to carefully read every document and fully understand what they are signing. Never allow the company to complete the paperwork for you or pressure you into signing a document you have not thoroughly reviewed.

Loan Modifications Are Available –The federal government has developed a major loan modification and refinancing program to help homeowners find affordable loans and to save their homes. For more information on these federal mortgage modification and refinancing programs, visit http://www.makinghomeaffordable.gov/."


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Sharon is the author of the Frugal Duchess: How to Live Well and Save Money and a contributing writer in Wise Bread's 10,0001 Ways to Live Large on a Small Budget.

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