Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Mar 2, 2011

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If you are behind on your mortgage, you may be receiving calls or mail from so-called loan modification experts. Most of these companies are scams. The most common type of loan modification scam is an up-front fee. Unless the company is a non-profit company, in most cases, it’s illegal for a loan modification company to charge an up-front fee, but most of them will ask you to pay one. They’ll tell you they can get your interest rate lowered or your loan balance reduced. In most cases, they will not be able to deliver on that promise.

State attorneys general and federal agencies have starting filing lawsuits against phony loan modification companies with allegations that are remarkably similar. Loan modification companies use slick advertisements that hint that they have secret information that gives them an edge in negotiating loan modifications, often suggest that they are a law firm or that they have lawyers working to negotiate your loan, and urge you to contact them. They demand up-front fees in amounts between $1000 and $3,500. Once paid, they stop returning telephone calls. Few do much work at all and none of them have the success rate of which they boast. In fact, a non-profit, HUD-approved housing counselor could do the same job for you for a nominal fee at most. But even if you are willing to pay extra, you could be getting ripped off.

As an alternative to getting scammed by these loan modification experts, The Office of the Comptroller of Currency (OCC – a bureau of the Treasury Department which charters, regulates and supervises all national banks) suggests the following steps:

  • Contact your lender or mortgage servicer first. Your loan servicer should have a loss mitigation or mortgage modification department. Start there.
  • Make all mortgage payments directly to your lender or to the mortgage servicer. Do not make payments to a third party unless requested to do so directly by your lender or mortgage servicer.
  • Avoid paying up-front fees. While some legitimate housing counselors will charge small fees for their services, do not pay fees to anyone before receiving any services.
  • Know what you are signing. Some scams involve tricking you into conveying your property to the company. Make sure you’re not giving your house away! Don’t sign a document with blanks that aren’t filled in. Never sign a document that contains errors or false statements, even if someone promises to correct them.