After years of home ownership, you have lately been experiencing financial difficulties, and the worst has happened – you are now facing foreclosure. Like any Illinois resident in the same circumstances, you are feeling uncertain and don’t know where to turn. You’ve considered bankruptcy, but you’re also looking into other options to save your home and assets before resorting a Chapter 7 or Chapter 13.
The idea of a home loan modification may be unfamiliar to you. It is easy for those facing foreclosure to become victims of predatory companies offering fraudulent or ineffective loan modifications. Therefore, it is important to understand how this option works, as well as what to watch out for when a company offers you its services.
What is a loan modification?
As U.S. News & World Report explains, legitimate home loan modifications lower your monthly mortgage payment and can give you a chance to get back on your feet when your lender is about to foreclose on your home. While this option can be a lifesaver for many, it is not without drawbacks. For example, a modification’s most negative aspect is that it may significantly increase your interest rate. You may end up making payments on your mortgage years longer than you would have with the original contract. You might also find hidden fees and other charges added to the end of your loan, including legal fees or a portion of the loan that the lender told you would be forgiven with the modification.
Which scams should you watch out for?
Often, unscrupulous companies target those who have filed for Chapter 13 or are facing foreclosure with the promise of a quick-fix loan modification. These companies might require an up-front fee, which is not only a red flag, but illegal. Some companies could keep you on the hook for months, demanding more fees or tacking fraudulent charges onto your mortgage without your knowledge.
This is not to say that all modifications are unethical, but you will need to watch for red flags or “too good to be true” promises.