If you are a struggling homeowner unable to make your current house payments, you are in need of loan modification help. If you are in this position, you may have seen one of the many loan modification companies that advertise that they can help you get a loan workout. However, when you call them up they want you to pay anywhere from $1500 to $5000 upfront before they will even start on your application! This is outrageous and can’t be legal, can it? The answer is…it depends.
The truth is that there is little regulation or oversight in this relatively new mortgage industry branch. Each state has the responsibility for governing who can make loan modifications and how much they can charge for the service. The majority of states prohibit any fee collection from homeowners once a Notice of Default has been filed. Other states, like California, require a license for loan modification companies. These companies must approve their upfront fee agreement before they can legally charge homeowners for their services. Still other states have no regulatory structure in place yet and this invite abuses. Other companies totally ignore state laws and fly under the radar.
The law allows attorneys who specialize in loan modification help to collect an upfront retainer for their services. If you use an attorney to handle lender negotiations it will likely result in a better outcome, however, it can be very costly. So if you are paying for an attorney’s services, you definitely want him or her to strictly be doing the negotiations for you alone.
If you could get a written guarantee that the company offering you loan modification help will not charge you unless they do obtain a loan modification for you, you might feel more secure. Even though that sounds good, no one can really guarantee a satisfactory result. Make sure you read the fine print on any type of guarantee like that because if the loan modification results in a $50 lower payment, that might satisfy the guarantee, but it really doesn’t help you much!
This advice may seem quite negative, but there have been many homeowners burned by giving their last dollar to get loan modification help only to find out later that the company did nothing to help them. That’s not to say that there aren’t some very qualified companies that are motivated to really help homeowners facing default. You just need to do your research, ask a lot of questions and thoroughly prepare before you hand over your hard earned cash.
You can always check with your local Department of Real Estate to make sure that the company you plan to work with is operating legally. Then, only after carefully reviewing their contract and any guarantees, commit your financial and home security to them.