The Legal Loophole That Could Endanger Your Mortgage Modification

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Dear ABC News Fixer: I would like to get my mortgage modified or restructured.

I came across a law office that is based in California, but practices in New Jersey and other states. I have been scammed before, and my mortgage is extremely high. My bank does not care to help because I have been paying on time, but things are getting increasingly difficult. How do I find out if a lawyer is legitimate?

- Kaye-Ann Thomas, Roselle Park, N.J.

Got a consumer problem? The ABC News Fixer may be able to help. Click here to submit your problem online. Letters are edited for length and clarity.

Dear Kaye-Ann: It sounds like your Spidey sense is kicking in, and that’s a good thing because the recent trend among mortgage scammers is to hide behind a fancy law firm name as they troll for victims.

It’s illegal under federal law to charge money up-front for a promise to modify a mortgage. But some of the old “mortgage rescue” schemes have tried to exploit a narrow exception for lawyers. They’ve teamed up with shady lawyers to do the exact schemes they used to, using the veil of providing “legal services.”

We told the story of one such law firm last spring. And just last week, the Consumer Financial Protection Bureau, Federal Trade Commission and 15 states announced lawsuits against a slew of mortgage modification businesses that styled themselves as legal firms or as being associated with lawyers. The suits alleged the companies collected more than $25 million in illegal advance fees from homeowners who were desperate to prevent being foreclosed upon or who wanted a better mortgage rate.

Consumers who are considering hiring a lawyer for debt help should check the lawyer’s record at their state’s bar association. If you do hire a law firm, make sure you actually get to meet with the lawyer. A firm that takes your money but won’t let you talk to anyone above an underling is a sign that something is wrong, consumer advocates say.

Here are some more tips from the Consumer Financial Protection Bureau:

  • Be wary of anyone asking for an up-front fee before you receive a modification. A licensed lawyer can ask to be paid in advance, but only if he or she is licensed in your state and only if they are actually providing you with legal advice.
  • If a mortgage help company claims it will guarantee a modification, walk away. Only your lender can modify your mortgage, so any promises of a guaranteed modification are highly suspect.
  • Don’t be pressured. Most licensed lawyers don’t call or email consumers directly or pressure them to pay money immediately. That’s a huge red flag.

In short, National Consumer Law Center attorney Andrew Pizor says if the entity promising to help you isn't your mortgage servicer, a government agency or a HUD-certified housing counselor, it’s probably a scam.

“I would only recommend hiring an attorney if you think the lender who gave you the loan or your mortgage servicer has violated the law,” Pizor told the ABC News Fixer. “And even then, you need to be careful about selecting an attorney. Helping borrowers with mortgage problems is a very specialized area of the law and most lawyers do not have much experience with it.”

If you want to hire a lawyer, look for non-profits that help low-income consumers or seniors at LawHelp.org or ask the National Association of Consumer Advocates. Consumers who are behind on their payments or having a hard time financially may be able to get free help from a HUD-approved counselor or state housing agency at the Consumer Financial Protection Bureau or at the HUD's website. For more info on mortgage scams, check out Prevent Loan Scams, a project of the Lawyers’ Committee for Civil Rights Under Law.

- The ABC News Fixer

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