Q: This isn’t about a home sale exactly, but I hope you’ll look at my situation anyway. I hired a loan modification company that had a very good reputation. (I’m not behind on my mortgage payments, but I wanted to have my lender extend my 5-year adjustable-rate mortgage to a 30-year-fixed.) I was very wary of getting scammed, so I asked my mortgage broker — who has worked with my family for decades — to refer me to a company.

The company seemed legitimate. It was associated with a law firm, and offered to give me a full refund if it couldn’t get my loan modified. My boyfriend is an attorney, so he made sure my contract stated that the company would put my money in a trust account until they completed the loan modification.

Now, five months have passed. My lender told me six weeks ago that my application was rejected, and notified my loan mod company at that time. I called the company’s attorney and he offered to finish the modification for me if I would pay him another $1,000 and agree not to sue! On top of the $4,500 I already paid!

He says the company is on the verge of going out of business, is already being investigated by the authorities for not being successful with obtaining promised modifications, and no longer maintains a client trust fund, so probably can’t refund my money. What on earth could I have done differently?

A: In the way of due diligence, not much. I’d say you went slightly above and beyond in terms of how you selected your loan modification consultant (by referral from a trusted adviser) and the lengths you went to document a full money-back guarantee. Unfortunately, loan modification is simply one of those industries — like the traditional real estate and mortgage industries — in which there is a vast range of reliability and professionalism amongst providers.

Perhaps you could have checked with your state regulatory agencies (e.g., Department of Real Estate and/or Attorney General’s Office), but in many states loan modification is not an activity requiring any sort of licensing — it is regulated only if performed by a licensed real estate professional or active attorney. It sounds like your modification company’s troubles with regulators have been recent, and might not have even existed at the time you were checking the company out.

Some will suggest that you should have worked with a nonprofit, HUD-approved housing counseling agency for little or no fee. While I think these groups can be helpful in modifying a mortgage, many homeowners I know have gotten more significant results from for-profit consultants. (Full disclosure here: My own law office served loan modification clients for a fee — in the past. Back then, I urged people to try free loan modification efforts before resorting to hiring someone, even us. Now, I know better.)

The major upside of working with a nonprofit is that you wouldn’t be out $4,500. In fact, if there’s one critique I could make, it’s that the fee seems high for a single-loan, single-lender scenario — that might have been a tip-off, but I also understand your willingness to pay a premium to work with what you thought was an above-average provider. And even legitimate loan mod consultants charge a pretty wide range of fees, so the fee itself was not a 100 percent reliable gauge.

Others might say that outsourcing your loan modification project to anyone at all — rather than doing it yourself — was a mistake. But, again, I know many consumers who have tried to do it theirselves, and my personal observations have shown that those who hire effective loan modification representatives simply have a better chance at getting a good modification. …CONTINUED

Honestly, half the value of hiring a loan mod consultant or attorney is that they can constantly check in and follow up with your lender, as well as having staffers around who can always pick up the phone, quickly return calls and are willing to fax the same papers to the lender 12 times, if necessary. If those do-it-yourself advocates knew how many loan mod applications fall apart due to lack of prompt return phone calls or purportedly "missing" documents in the lender’s file, though, they would understand the demand for loan mod consultants.

(Note to mortgage banks and servicers: Want to kill the loan mod industry? Give your borrowers the time of day, reasonable customer service and good modification agreements when they apply for mods on their own! Most of the time, they’ve tried and failed on their own before they call a loan mod company or attorney. They’d rather give you the money they pay modification consultants anyway.)

If you forced me to pinpoint a mistake, and I’d be stretching here, I’d say that you might have more extensively researched the substantive factors weighing in favor of and against your obtaining a loan modification — with or without a consultant. Despite the best efforts of the Obama administration and the lending industry’s claims to the contrary, the unfortunate reality persists that you are much less likely to obtain a loan modification while you are current on your mortgage payments.

Let’s be clear, though — I am not suggesting you should go late on your mortgage. I’ve seen a number of people stop making payments in the name of obtaining a modification and end up losing their homes after the past-due amount balloons to the point of no return.

You face a tough decision as to what you should do going forward. There’s a wide spectrum of potential courses of action, ranging from continuing to aggressively pursue a modification to waiting as time moves closer to your adjustment date (when your lender is more likely to "fix" your adjustable-rate mortgage without all the begging and pleading on your part).

Despite what the company’s attorney says, I suggest you invoke the money-back guarantee of your contract, demand a refund and (if you don’t get it) contact the attorney general of your state.

Your decision as to what not to do is much easier: Don’t give anyone affiliated with your old loan mod company a single cent more.

Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.


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