When a man called Crystal Brown out of the blue promising to modify her loan, the St. Paul single working mother of three thought he was a godsend.
"He was very smooth, very nice, very understanding, not critical," Brown said. "He would lead you to believe he's 100 percent on your side, like he's really fighting for you."
The man told her he knew she was behind on her mortgage, and that he could help lower her monthly payments, Brown recalled. She assumed he was affiliated with her lender, Wells Fargo.
"And when he began to say, 'How much are you behind?' I said, 'Well, you should know. You're the bank,'" Brown recalled.
The man explained that he was not with the bank, but rather a third-party advocate who would work on her behalf to get her back on track with her mortgage.
He identified himself as an employee of KirkLand Young, a loan-modification company based in Miami Beach. Brown agreed to let him fax over some paperwork, and she almost signed the contract.
But once she read it, Brown saw that she would have to pay a non-refundable fee of $500. If she accepted the new mortgage, she would have to spend an additional $1,200.
“There will be more people out there looking to profit off people's misfortune.”Julie Gugin of the Minnesota Home Ownership Center
The contract also stipulated that she could have no contact with the lender -- in Brown's case, Wells Fargo -- once negotiations began.
"He explained to me ... I needed to give him this money up front," she said. "I was going to give him three payments. He's going to put this money into an account. And then when he goes to talk to Wells Fargo, he's got proof to show I've got savings, and this is what I could pay every month."
She said something didn't feel right about the arrangement.
Brown never sent in the papers. Instead, she sought help from a foreclosure counselor with the city of St. Paul, who offered to work with the lender at no cost.
In Minnesota, there's nothing illegal about companies charging for these services. But a spokesman for the Minnesota Commerce Department, Bill Walsh, said he is concerned about the rates that some of these companies are charging.
"We've seen thousands of dollars, $2,000 to 3,000 fees," Walsh said. "We just think that's exorbitant and not necessary to pay, especially when the state has provided mortgage foreclosure counselors for free."
And taxpayers are paying for that free service. Over the past year, Minnesota has received more than $5 million to more than triple the number of counselors around the state in an effort to fend off future foreclosures. The state will receive an additional $4 million next year to maintain its mortgage-counseling capacity.
The proliferation of the loan-modification industry in recent months has prompted the state to warn consumers that they may be targeted, Walsh said.
"Once you get behind a little bit, your name could be on a list and you could get a call," he said. "And the marketing starts."
Walsh said the state doesn't want to stop commerce, but these groups need to be registered as mortgage originators in Minnesota. He declined to say whether his department was investigating any of the firms, but states such as Colardo have been investigating such outfits.
Housing advocates say nonprofits are in a race with loan-modification firms, each scrambling to reach struggling borrowers first.
Julie Gugin, executive director of the Minnesota Home Ownership Center, said there are probably a dozen or so companies doing work in Minnesota.
"We continue to watch that list," said Gugin, whose group assists the statewide network of foreclosure counselors. "We suspect it will grow, and there will be more people out there looking to profit off people's misfortune."
One problem with loan-modification companies is that they often over-promise on what they can deliver, Gugin said. For some homeowners who have lost major sources of income, the reality is that they can't afford to stay in their homes.
In other cases, Gugin said, homeowners have reported that once they've paid the initial charges to loan-modification companies, the firms disappeared.
"At that point, our counselors step in and try to help consumers not only work with the lenders, but also try to approach those companies that have become non-responsive," she said.
Gugin says some companies have even incorporated the word "Hope" into their names. Gugin says that could be an attempt to confuse consumers with the Hope Now Initiative, a national partnership dedicated to foreclosure prevention.
But a representative with KirkLand Young, the company that contacted Crystal Brown, said not all loan-modification companies are predatory.
David Botton said in an e-mail to MPR that some of his clients have tried going through nonprofits but failed to reach a new workout plan. He said loan-modification companies can be an effective option for nervous borrowers who don't feel like they can manage negotiations with the lender on their own.
"Anyone that comes to Kirkland Young is aware that their Lender may provide Loan Modification services for free," Botton wrote. "[However], it is always the decision of the borrower whether or not to pay for more help."
Meanwhile, Crystal Brown of St. Paul says she's hoping to hang onto her home, a quaint and tidy townhouse that she purchased three years ago by working two steady jobs. Brown and her foreclosure counselor have called her bank in hopes of working out a better deal on her mortgage.
Nearly four months behind on her loan, she's still waiting for an answer.