Colorado Suit Claims Multi-State Mortgage Modification Scam

As statistics from the government's HAMP program attest, it isn't easy to get a mortgage modification. Loan servicers seem uninterested in helping, often requiring homeowners to jump through a frustrating series of hoops.

But that doesn't mean consumers should turn to a private company that makes big promises and charges a big upfront fee for help. In fact, Colorado Attorney General John Suthers says that's almost always a big mistake.

Suthers' office has filed suit against Colorado-based Loan Modification Solutions on suspicion the company defrauded consumers in search of home loan modifications and foreclosure relief, both in Colorado and nationwide.

$2,995 fee

According to the complaint, Loan Modification Solutions and its principals collected $2,995 upfront fees from homeowners in exchange for loan modification services (read more complaints about loan modification). The company is suspected of taking in more than $1 million since January 2009. 

In Colorado, and many other states, companies cannot demand an upfront fee for loan modification or foreclosure relief services.

Suthers says the company also is suspected of using deceptive advertisements to attract customers, including promises of a 100 percent money-back guarantee and a more than 90 percent success rate. The complaint says the company largely ignoring consumers' requests for refunds when they failed to secure modifications.

‘Skilled’ and ‘professional’

Many homeowners were undoubted attracted by the company's ads that said it employed "skilled" and "professional" negotiators to secure mortgage modifications. According to the complaint, the company did little more than collect documents from homeowners and fax them to their lenders, something homeowners could have done themselves.

"Loan-modification scams prey on distressed homeowners' desire to save their homes and to find any means to help fix their dire financial situations," Suthers said. "As is the case with most loan-modification operations, consumers who dealt with Loan Modification Solutions lost not only their upfront fee, but also crucial time they could have used to secure a modification through their lenders."

Be skeptical

Before turning to a private company to help secure a modification or head off impending foreclosure, homeowners need to employ a healthy dose of skepticism. A company that asks for a fee in advance should serve as a huge red flag. In fact, many states now have laws making that illegal.

Consumers should also be wary of any company that tells you to stop making your loan payments or to stop working with your lender. Failing to make payments could result in a foreclosure.

Finally, keep this in mind: the bigger the promise, the more likely it is to be a scam. Suthers says if a company promises to get rid of your debt, they are making a promise they cannot keep.