I recently wrote this guide on Avvo based on a article I read in Crain's New York. I thought I would highlight it here, and expand it a little bit for you guys.
Here it is in a nutshell for the short attention span people - there are a lot of crooks out there, and the "Good guys" are on their trail, but until they catch up with them, buyer beware. The services they offer you can actually get for free if you look hard enough, or you can actually do yourself with a little education.
Here's Their Pitch: These "consultants" scour public records, like ACRIS and PropertyShark.com, and look for people in danger of defaulting on their mortgage loans. Most of this information is public knowledge if you know where to look.
They then bombard you with a barrage of mailings and phone solicitations - you've probably heard them, saw them, or know someone who has. They advertise themselves as a solution to your debt problems where, for a "modest" upfront fee, they'll negotiate with your bank to bring down the rate / term of your loan.
In many cases, they'll also advise you to STOP paying your mortgage. Some even claim to be "licensed" to do this kind of work. According to Crain's New York, mortgage modification is one of the fastest growing job fields in the country today.
Here's The Truth About Them: While some turn out to be legitimate, many of these "consultants" do little, if any, good.. and can potentially do a lot of harm while taking your money.
Let's dispell the myths: First, "consultants" can't charge an upfront fee for these services - it's illegal in New York (and in 11 other states) to do so unless you are an attorney or a non-profit.
Second, anyone advising you to stop making your regular payments is irresponsible, and following their bad advice can put you, more often than not, closer to the edge of foreclosure. Failing to pay your payment will not only put you in a hole financially, but harm your credit rating, and harm your chances of getting other loans and financing. The main rules about credit that I tell everyone are (1) try to pay your bills as regularly as possible and (2) NEVER close a credit line - the older the credit history, the better for your score.
Third, once they get your money, many "consultants" do little work (if they do any at all), and are unresponsive, leaving you in an even bigger hole than you started.
Finally, know that there is NO license for mortgage modification in the State of New York, and anyone who tells you otherwise is lying.
Here's How To Avoid The Scam: Unfortunately, it's virtually impossible to tell a legitimate mortgage modification company from a shady one - the wheels of justice are turning slowly and will figure that out for us. In fact, the New York Attorney General's office is investigating these firms. Until the authorities have time to catch up with this scam, there are plenty of legitimate resources to turn to for your mortgage concerns.
If you need assistance with your mortgage, there are qualified attorneys out there, and many of them donate their services to non-profit organizations specifically dealing with the mortgage crisis. You can find these organizations through your city and state government. One that I would suggest is Comptroller Thompson's Foreclosure Hotline.
The one rule that applies to every bank is this - they want money, and they'll make the deal that they perceive will maximize their bottom line the most. Keep this in mind when coming up with your negotiation strategy. So if the current mortgage arrangement won't pay the bank the most, then maybe the alternative is better for them and for you. Many lenders will work with borrowers who find themselves in a hardship situation.
These free and low-cost options are the best way to tackle your mortgage concerns. Take advantage of all that's out there. In these tough financial times, knowledge is power. Feel free to ask any questions, and I'll answer them on here.