With more Oregon families facing foreclosure, the state is warning homeowners to be wary of loan-modification scams, especially those that ask for large upfront payments to renegotiate mortgage terms.

Tony Green, a spokesman for the state attorney general’s office, said the department is seeing more consumer complaints regarding loan-modification companies, an industry that has cropped up only recently in response to the nation’s growing foreclosure crisis.

Although some companies or individuals legitimately provide loan-modification services, Green said it’s the state’s position that consumers should know they can renegotiate their mortgage terms for free, using either a federally certified housing counseling agency or by working directly with the financial institutions that service their mortgages.

“Our position is twofold,” Green said. “There are people (and companies) out there that offer you a service for a fee, in some cases substantial, who won’t do the service for you and will just rip you off. (But) there are nonprofits who will give you great advice on how to do it, and lots of (loan servicers) you can negotiate with directly.

“We’ve got some blowback from people that do this business. They claim they do a better job than the nonprofit would do, but our feeling is there’s a risk of consumers getting ripped off and paying for something you don’t need to.”

Joe Yates is a founder and president of LoanRefine.com, a Medford-based company with an office in Bend that specializes in renegotiating mortgage terms. LoanRefine charges an upfront fee of $495 for its loan-modification service, which covers the initial overhead costs. Yates said his company’s customers pay an additional $1,995 fee after they have agreed to accept the terms LoanRefine has negotiated on the customer’s behalf.

Yates said customers are not bound to accept the renegotiated terms.

“This company’s take from the very beginning is that we were definitely going to be fair,” Yates said. “We charge a nominal upfront fee, and if there are what we call tangible reasons to proceed (with the loan modification process), it’s $495 upfront, then the rest after. The problem with upfront fees, most companies charge a full fee upfront, and that’s tough.”

The state’s Division of Finance and Corporate Securities has a consumer Web site (see “Identifying scams” on Page G1) dedicated to recognizing foreclosure scams. A few of the red flags listed are the collection of fees prior to providing services and instructions to stop making payments to your lender or to send the payments directly to the loan negotiator.

Yates said LoanRefine’s upfront fee helps cover the costs the company accrues in renegotiating loans. He said 80 to 90 percent of its customers are homeowners who have tried to renegotiate their mortgages themselves but have been unsuccessful.

Yates said his company is staffed with former banking industry professionals who know the right questions to ask when renegotiating a mortgage and that’s what customers are paying for.

“People have an emotional attachment to their property and we don’t, and that’s why many loan modifications fail,” Yates said. “Our people are former loan servicers, the guys who’ve received these calls before, so they know more than how to fill out a package and send it in. They can battle back and say, ‘I want this.’”

In Central Oregon, the Redmond-based nonprofit NeighborImpact is certified by the U.S. Department of Housing and Urban Development to renegotiate mortgage terms. Kenny LaPoint, NeighborImpact’s housing specialist, said NeighborImpact specifically receives federal money for its loan-modification efforts.

“There are hot lines put in place to direct people to organizations like NeighborImpact so we can do this stuff for them,” LaPoint said. “I change terms all the time, (and) we do it for free.”

LaPoint said he’s hearing of more and more scams and worries that people, so distraught over the thought of losing their homes they’ll do anything to save them, are being preyed upon.

“I have this (client) who paid $4,000 in October and has seen nothing happen and is unable to get any money back. … (It’s) really taking advantage of people in hard times.”

Green said the number of complaints regarding loan modifications received by the state attorney general’s office is small, adding that the state didn’t even have a way to classify such complaints until two months ago. But Green said the number is growing, enough for the attorney general’s office to issue a scam alert on the matter two weeks ago.

To help protect Oregonians, Lisa Morawski, a spokesman for the Oregon Department of Consumer and Business Services, said the department has teamed with state Rep. Paul Holvey, D-Eugene, to introduce a bill in the state House that would require any company that offers to renegotiate consumer debt to apply for a state license to operate as a debt-management company.

“There’s some legitimate (loan-modification companies) out there and some are scams, but it’s challenging for consumers to figure out which is which, which is why we want them to be registered,” Morawski said.

Yates said he wouldn’t disapprove of a state registration requirement.

“We’re not hiding from anyone, and I think that makes a big difference,” Yates said.

A hearing for the bill, HB 2191, is scheduled for March 27.

Identifying scams

The state Division of Finance and Corporate Securities has a consumer Web site dedicated to recognizing foreclosure scams: http://dfcs.oregon.gov/ml/foreclosure/foreclosure_fraud.html