Guarding Against Loan Modification Scams: Watch Out for these Red Flags


Many Americans do not realize they are victims of a loan modification scam until it is too late. The Lawyers’ Committee’s National Loan Modification Scam Database compiled data from March 2010 to September 2014 and showed that there were more than 42,000 foreclosure rescue scam complaints and a whopping $98 million of losses to homeowners.[1] With increased financial strain from the pandemic and an impending recession, vigilant homeowners can protect themselves from falling victim to loan modification scams by knowing how to recognize the red flags.

Here is a snippet of what the experience might entail. You, along with 164,580 other American homeowners, fell behind on your mortgage payments in the first half of 2022.[2] You know you will soon receive the dreaded letter that your mortgage servicer has decided to initiate foreclosure proceedings. Amid this stress, you receive a phone call from an unknown number. The person on the other line calls themselves a “loan modification consultant,” and they somehow know about your mortgage situation.[3] They tell you not to worry and that they can help. They say that they can get you a loan modification. In fact, they are guaranteeing that they can get you a fast one. You are not even sure what a loan modification is. You do some research and learn that a mortgage loan modification is an agreement to change the terms of your loans, commonly employed by homeowners experiencing foreclosure.[4]

The phone call feels like a beacon of hope. You have been getting frightening letters in the mail, all from different sources that also somehow know about your foreclosure. Some say they are entitled to payments.[5] Others say to stop making loan payments altogether.[6] Some even tell you to file for bankruptcy.[7] This is all overwhelming, and so hiring the person you spoke to yesterday seems like the best option. Their agency’s website looks legitimate (it even has testimonies!), and soon you are in their well-decorated office space for a consultation. Later that week, they give you a few papers to fill out with your personal information and sign. They charge upfront fees. What they are asking for is not cheap, but you are willing to pay whatever you can afford if it means keeping your home. At least they are letting you pay in monthly installments.[8] A part of you justifies the cost, thinking that anything cheaper for such a complicated process would definitely be a scam. Of course, the scam has already occurred. Did you catch any red flags?

Most telling is that it is illegal for loan modification companies to receive any payment upfront.[9] Fees for assisting with a loan modification may only be collected after the services have been rendered.[10] In fact, the New York Attorney General’s Office encourages homeowners to report these violations.[11] Second, banks are not required to grant anyone a loan modification.[12] A bank may refuse to grant a modification for various reasons, depending on someone’s debt-to-income ratio or the sufficiency of their proof of hardship.[13] Thus, the “guarantee” that a loan modification agency makes is nothing more than an empty promise. Third, there is no reason for a loan modification agency to ask for your personal financial information—your bank already has all the information it needs.[14]

So, what to do? First, report the scammer to the Attorney General’s office and block their number. Next, homeowners should contact a U.S. Department of Housing and Urban Development (“HUD”) approved housing counseling agency.[15] There are several non-profit organizations that provide loan modification assistance as well as offer referrals to attorneys. The HUD website lists these agencies by state.[16]

Bear in mind that free assistance is available. The stakes of undergoing foreclosure proceedings are high, and it is normal to feel anxiety about placing the future of your home in the hands of a free or affordable service. However, this anxiety is precisely what loan modification scammers are targeting. HUD-approved agencies can provide their experience and expertise to help find tailored solutions for homeowners.[17] With assistance from a reliable agency or attorney, homeowners can not only avoid loan modification scams, but may also renegotiate their mortgages and more readily navigate the federal Home Affordable Modification Program (“HAMP”).[18] In fact, NeighborWorks America, a non-profit organization chartered by Congress, submitted a Congressional Update regarding its loan-counseling program, showing that homeowners with counseling are almost three times more likely to receive a loan modification compared to homeowners without counseling.[19] Undergoing foreclosure is a remarkably stressful experience, so if something seems too good to be true, it probably is.

[1] Caroline Nagy & Michael Tanglis, Who Can You Trust? The Foreclosure Rescue Scam Crisis in New York, 16 (Matthew Hassett & Christie Peale eds., 2014).

[2] ATTOM Staff, Increased Foreclosure Activity in First Six Months of 2022 Approaches Pre-Covid Levels, ATTOM (July 14, 2022),

[3] See Avoiding Mortgage Modification Scams and Foreclosure Rescue Scams, Office of the Comptroller of the Currency (Feb. 24, 2011),,forward%20payments%20to%20your%20lender. Loan modification scammers often use public listings or information purchased from private companies to seek out their targets. See id.

[4] What is a mortgage loan modification?, Consumer Fin. Prot. Bureau (Sept. 4, 2020),

[5] What are mortgage loan modification scams?, Consumer Fin. Prot. Bureau (Aug. 9, 2022),

[6] See Avoiding Mortgage Modification Scams and Foreclosure Rescue Scams, supra note 3.

[7] See id.

[8] Lesley Fair, The lesson of the MARS Rule: Not one penny up front, Fed. Trade Comm’n (Jan. 26, 2018),

[9] FTC’s Mortgage Assistance Relief Services Advance Fee Ban Takes Effect, Fed. Trade Comm’n (Feb. 10, 2011),

[10] See id.

[11] Help for Homeowners, N.Y. Att’y Gen., (last visited Sept. 15, 2022).

[12] Natalie Campisi, Loan Modification: When You Can’t Afford Mortgage Payments, Forbes (May 19, 2022),

[13] See id.

[14] See Help for Homeowners, supra note 11.

[15] Lynnley Browning, Hiring a Lawyer for Loan-Modification Help, N.Y. Times (Dec. 16, 2010),

[16] Foreclosure Avoidance Counseling, U.S. Dep’t of Hous. and Urb. Dev., (last visited Sept. 15, 2022).

[17] Mortgage help, Consumer Fin. Prot. Bureau, (last visited Sept. 15, 2022).

[18] See Erica Braudy, Tax a Bank, Save a Home: Judicial, Legislative, and Other Creative Efforts to Prevent Foreclosures in New York, 17 CUNY L. Rev. 309, 317 (2014).

[19] NeighborWorks America, National Foreclosure Mitigation Counseling Program Congressional Report 6 (2016).



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Fordham Journal of Corporate & Financial Law