Avoid Mortgage Modification Scams

If you’re in foreclosure, prepare to be inundated with solicitations offering to help you modify your loan. Some are legitimate, but many are scams. Fortunately, it’s easy to tell the difference if you take a brief moment to familiarize yourself with The Mortgage Assistance Relief Services Rule, or MARS Rule.

The MARS Rule

Yesterday, a homeowner told me she received a solicitation from a company offering to help her apply for a mortgage modification for the low, low price of $4,000.00. They offered to begin work on the mortgage modification just as soon as she made a down payment of $1,500.00. This is precisely the sort of scam that is illegal under the MARS Rule. In response to scores of unscrupulous people taking advantage of homeowners in foreclosure, the Federal Trade Commission (FTC) implemented the MARS Rule. The full text of the Rule can be found at 12 C.F.R. Part 1015, but here are a few important points you need to know:

1. It is illegal to ask for a fee in advance to assist you in applying for a loan modification or other work out option with your bank. Attorneys are an exception to this rule, provided that they are licensed in your jurisdiction and deposit the fee in a trust account, separate from their own funds. This is probably the biggest red flag. Unless you are hiring an attorney, nobody can ask you for a fee unless they obtain an offer from your lender and you decide to accept that offer. 
2. If anyone makes a promise or guarantee of a mortgage modification with your lender, run away. The MARS Rule actually prohibits companies from misrepresenting, “[t]he likelihood of negotiating, obtaining, or arranging” a workout option with your bank. And, if the person is offering you a “money-back guarantee”, just remember my first point…advance fees are illegal!
3. No legitimate housing counselor will advise you to stop paying your mortgage payments. This too is illegal. If a company tries to convince you to stop paying your mortgage in order to obtain a mortgage modification, you need to seek out a legitimate HUD-approved housing counseling agency.

Should You Really Pay Anything For Mortgage Assistance Anyway?

I’m an attorney after all, so I like making money. But, HUD-approved housing counselors are free and it’s hard to beat that price. I’ve worked with HUD-approved counselors throughout Pennsylvania and, in my experience, they are professional and effective. They can help you gather the financial documentation you need and apply for a mortgage modification with you bank. You can find a list of housing counselors in your area on HUD’s website. Once your application is submitted,  a little red tape can be expected. If you have a compliant lender, however, you should have a decision on your application within 4 weeks of submitting a completed application.

If the red tape becomes too tough to cut, or your lender isn’t complying with federal loss mitigation regulations, then it’s time to consult with an experienced foreclosure attorney to move things along. There are things that attorneys can do (such as sue a non-compliant mortgage servicer) that a housing counselor cannot do. If you need help cutting through the red tape, call The Mays Law Firm PC at (215) 792-4321 to schedule a free consultation.

5 Tips To Help You In The Mortgage Modification Process.

Today, most mortgage servicers offer mortgage modification programs. In most cases, your mortgage servicer will request that you complete a Request for Mortgage Assitance, or RMA. If your servicer hasn’t already provided you with the form, it can be found at www.makinghomeaffordable.gov. I have had the opportunity to attend hundreds of court-supervised conciliation conferences in residential mortgage foreclosure diversion programs throughout Pennsylvania, and I wanted to take a few moments and offer some tips to help you through the mortgage modification process:

1. Submit all documents as a complete package. The quickest way to get your submission reviewed by your mortgage servicer is to gather all of the documents requested by your mortgage servicer, and submit all of them together as one, complete package. Regulations established by the Consumer Finance Protection Bureau (CFPB) require that the servicer review your package and notify you of any missing documents within five days, but servicers frequently miss this deadline. Often, you may never receive timely notification from your mortgage servicer that your submission is incomplete. If your package “ages”, or sits idle too long, you may be stuck back at square one, and have to resubmit everything all over again. To avoid this, I recommend making every effort to gather all of the necessary documentation required by your lender and submitting it as one complete package.

2. Double check that 4506T. Your lender will require that you provide them with an IRS Form 4506T, Request for Transcript of Tax Return. Make sure that the form is completely filled out, this includes putting the information for your mortgage servicer in line 5. Your lender won’t fill in any missing blanks, so if you don’t fill this form out completely (and correctly) you can expect delays.

3. Taxes done? While we’re on the subject of taxes, if you have any unfiled tax returns, now is the time to do them. More likely than not, your lender will want copies of your signed tax returns from the past couple of years, in addition to the 4506T. If you were not required by law to file with the IRS, then make sure you write a letter, signed and dated, to your servicer explaining the reason(s) why you were not required to file.

4. Follow up, constantly. Once you provide a request for mortgage assistance to your lender, they have 5 days to review the submission for missing documents. Once your servicer receives the completed package, they have 30 days to review you for foreclosure alternatives. If it’s been more than 30 days since you submitted a package to your lender, follow up. Your RMA just might be sitting in someone’s inbox, collecting dust.

5. Is your mortgage servicer not following the CFPB Guidelines? Let the CFPB know about it. If your mortgage servicer is not following CFPB Guidelines for mortgage assistance, don’t be afraid to file a complaint against your servicer with the CFPB. It’s easy to submit online, and if the process is stalled, it could help move it along. You can file a complaint on the CFPB’s website.