This page is dedicated to scams we see in our law practice. We hope this information is helpful to consumers.  If you are in Alabama and become aware of other scams or similar scams and are not represented by an attorney, please email us with your story.

Credit Counseling

Credit counseling usually steers people into a payment plan that is not much different than the minimum payments they already cannot afford on their credit card debts.  In other words, these plans don’t work if you are “in the hole.”  If you are not “in the hole,” maybe you should just pay your bills.  Because people “in the hole” cannot afford the payments already, these plans usually fail and result in the lowest credit scores we have seen.  Some creditors may not agree to the plan and sue (e.g., Discover Bank) on the theory that the plan won’t work anyway.  Many of these companies have been shut-down for fraud but many are still around particularly on the internet.  Our advice is that if you can afford the credit counseling plan, you can afford the minimum payments and whether credit counseling is a good approach depends upon whether the damage to your credit is less important than getting a 8-10% interest rate and consolidating debt.  Be careful!

Credit Repair

Credit repair should assist people with challenging items on their credit report which are untrue.  Instead, it is often used to commit fraud by seeking to remove damaging but true items from the credit report followed by quickly qualifying for a loan.  The federal Credit Repair Organizations Act establishes that challenging true information is an act of fraud by both the credit repair company and their customer.  It is legitimate, though, to use a reputable company (or do-it-yourself) to challenge errors on credit reports which are unfortunately common place.  Examples of legitimate challenges include items caused by identity theft, mix-ups between fathers and sons with the same names (Jr.s and Sr.s); debts that have been resolved in bankruptcy and debts which have been paid-off or settled.

Debt Settlement

Debt Settlement scams are rampant on TV, on radio and on the internet.  In our law practice, we average 3 clients per month that have been scammed by debt settlement companies.  Their practices vary somewhat but as a rule-of-thumb if they offer to take a monthly payment to save your money for you and later settle with the creditor, it is most likely a scam.  Most just keep your money.  Some settle a small debt early in the process to hook you and then keep your money.  They debit your bank account monthly and, even after you tell them to stop, they keep on until you change banks.  Some say they have settled a debt but really haven’t.  None of them can protect you from getting sued by the creditors they are telling you not to pay.  Even if operating legitimately, it is unlikely to work because a garnishment from one creditor can go into effect while saving to settle another one.  Our firm settles debts all-at-once or none-at-all as part of our law practice.  Usually the client does not have such funds but it is sometimes an excellent option when (1) paid-for by a friend or relative; (2) paid-for after selling or refinancing property; or (3) paid-for out of an estate when someone has died to settle their debts.  Make sure whoever you work with is licensed by the Alabama Securities Commission or Alabama State Bar and in compliance with the new rules of the Federal Trade Commission.

Mortgage Loan Modification

Mortgage Loan Modification scams are the leading cause of foreclosures we see in our law practice and is the most common scam we see.  That’s right.  Something that was meant to stop foreclosures has backfired and is actually causing them instead.

1. Do not use a third party – such as another company you found on the internet or heard on TV – to help you get the loan modification.  Deal directly with the mortgage company. 
2. Very few succeed.  Most loan modification applications do not make it to the 3-5 month trial period.  In July 2010, according to Money Magazine, 36,695 people received permanent loan modifications while 96,025 were canceled – a roughly 1-in-4 success rate for those who make it that far.
3. The mortgage company will tell you to fax the paperwork but will lose it several times over instead of putting you in the trial program.  Many people get so far behind that when they finally get turned down they just lose their home.  In 2009, over half of all home sales in the U.S. were sold at foreclosure.  The moral is to save your money while not making the payments or you won’t be able to get caught-up when you get turned-down much later.  Alternatively, you may need a Chapter 13 bankruptcy to force the mortgage company to allow you five years to get caught-up on your house payment through the Chapter 13 payment plan. 
4. Keep copies of everything you send them.  They will lose your faxed application repeatedly so call them as often as necessary to verify receipt of the application.  Keeping extra copies will allow you to quickly re-submit the information.
5. Make sure you have a written statement from the mortgage company that they will not foreclose on your home while you are working toward a loan modification with them.  Lots of luck with that.  We often see foreclosures taking place while the mortgage company assures the consumer they are working toward a loan modification.  People just assume it is OK to wait on the trial period to start making payments again while late fees and unreasonably high attorney fees may be added to their account.  Such can end-up stealing the equity in the home.
6. Watch the legal notices in the newspaper and read the collection letters from attorneys’ offices carefully in order to make sure you are not in foreclosure.  If you come within one week of a foreclosure auction, it is time to abandon the loan modification and immediately seek the assistance of a licensed bankruptcy attorney with a possible Chapter 13 payment plan.  Such will not change your mortgage but could keep you from losing your home by giving you time to get caught-up.  Don’t wait until the last minute as the case must be prepared before filing.  Chapter 13 only works if you can afford your normal house payment plus the Chapter 13 plan payment.  Chapter 13 may make that possible by reducing how much you have to pay on credit cards and other unsecured debts so as to free-up income toward saving your home.