Upfront Fees for Loan Modification Illegal in Illinois

 Posted on March 30, 2015 in Foreclosure

In the wake of the mortgage and foreclosure crisis that has plagued the nation over the past several years, you may have noticed an increase in advertisements for mortgage counseling services. These companies, which target not only homeowners but mortgage bankers and brokers as well, promise to help homeowners who are delinquent on their mortgage modify the loan’s terms to avoid foreclosure. In exchange for these services, homeowners are asked to pay an upfront fee. The only problem? Requiring payment of upfront fees is illegal in Illinois.

What is a Loan Modification?

Loan modifications alter the terms of an existing mortgage to make payments more affordable for a homeowner who is in danger of defaulting. In most cases it is done prior to a scheduled rate increase, for example when a five-year adjustable rate mortgage (ARM) is about to end, but can also be done when the mortgage holder’s circumstances have made it impossible for him to continue to make payments under the current terms of the mortgage.

Loan modifications are not the same as a refinance situation. When a homeowner refinances his mortgage, he is neither delinquent nor in danger of defaulting. Instead, the purpose of the refinance is to take advantage of more attractive interest rates.

Illinois Mortgage Fraud Rescue Act

Enacted in 2006, the Mortgage Fraud Rescue Act specifically prohibits those individuals or companies, known as “distressed property consultants,” from collecting fees from a client until all work that was promised under the contract is completed. They are also prohibited from asking a homeowner to sign a lien, mortgage or deed that would serve as payment for their services prior to completion of work.

What can you do to protect yourself from unscrupulous businesses seeking to profit off homeowners desperate to save the family home?

• Before working with any mortgage counseling service, make sure they are on the Department of Housing & Human Development’s list of approved agencies. These counseling services offer low- or no-cost assistance to homeowners.
• Contact your mortgage lender. They will provide information and answer any questions you may have about the loan modification process free of charge.
• Get a signed contract that specifically outlines the services to be provided and the cost, and make no payments until all work on the under contract is completed.
• Do not work with anybody who guarantees they can get your loan modified or avoid foreclosure. No agency can guarantee that, and mortgage lenders are not required to agree to a loan modification.

The thought of losing your family’s home to foreclosure is frightening. Do not, however, let your fear make you a victim of unscrupulous individuals who have only their best interests at heart. If you have questions regarding loan modification or foreclosure, our skilled Kane County foreclosure attorneys can help. Call us today at 630-466-1600, or complete our online contact form, to schedule your free initial consultation. We also represent clients in DuPage County, Kendall County, and DeKalb County.