Homeowners frustrated with trying to work out a mortgage modification often turn to a third party company to negotiate on their behalf. That can be a big mistake.
Several states have been cracking down on these operators lately, and in Minnesota Attorney General Lori Swanson has sued two mortgage modification companies. In separate actions, she accused the two companies of violating a 2009 state law that prohibits companies that offer to negotiate or modify the terms or conditions of an existing home mortgage from requesting advance payments from homeowners.
"Homeowners who contact their lenders to modify their mortgages often face unreturned phone calls, lost paperwork, and other red tape. This and the bad economy have created an opening for mortgage modification companies to swoop in and take advantage of people," Swanson said.
The lawsuits were filed against American Modification Consultants, LLC of Philadelphia, Pa., d/b/a American Mitigation Consultants; and INQB8 LLC of Scottsdale, Arizona, d/b/a Discount Mortgage Relief.
A state law that went into effect on June 20, 2009, prohibits mortgage modification companies from charging fees to consumers before they deliver on the promised services. These are the first lawsuits filed under the new law.
Law targets shady operators
The law was drafted and supported by the attorney general's office to combat the problem of mortgage modification companies taking advance payments from homeowners and then disappearing, going out of business, or not delivering the promised services.
The lawsuits allege that the companies violated Minnesota law by charging advance fees to homeowners and then failed to deliver the promised services. American Mitigation Consultants charged homeowners advance fees of up to $1,250; and Discount Mortgage Relief charged homeowners advance fees of up to $3,000.
American Mitigation Consultants sent marketing solicitations to Minnesota consumers stating that they may be entitled to special modification programs as a result of the federal economic stimulus act.
"No homeowner should pay advance fees to companies for assistance in modifying the interest rate or terms of their mortgage," Swanson said.
She added that people facing financial trouble can find reputable nonprofit organizations that will help them at little or no cost.