Forensic Loan Audits—What Are They? Should I Pay For One?

Mon, Mar 8, 2010

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This is a guest post from our partners at Housing and Economic Rights Advocates in Oakland.

Forensic Loan Audits—What Are They? Should I Pay For One?
A “forensic loan audit” is a term that is being used to refer to someone looking over a homeowner’s loan documents in order to determine whether there is anything legally wrong with the loan. Companies and individuals that advertise this service promise to provide a written report of these legal violations, and that report is supposed to help the homeowner get a better loan modification or find an attorney who will file a lawsuit on behalf of the homeowner.

The problems with these audits are:

(1) The audits are frequently poorly done, with very little information in the audit report about what was wrong with your loan. The audit reports usually have a lot of canned, standard language that appears to be cut and past from one report to another and does not help you, the homeowner, very much.

(2) Audits are not always performed by attorneys, or the attorney involved does not have much experience in the area of mortgages, consumer rights, or mortgage fraud. As a result, the audit report can be inaccurate and a complete waste of money.

(3) Showing an audit report to a mortgage lender or servicer is not usually enough to get a loan modification. If you have real legal problems with the loan, you will need an attorney who is willing to work with you for the weeks and perhaps months it will take to get a positive outcome.

(4) Some legal problems with documents are not strong enough to pressure a lender or servicer into providing a loan modification. The people who prepare audit reports do not tell you that.

(5) Forensic loan audits are expensive – $1500 and more.

(6) You may be able to get legal assistance for free from Housing and Economic Rights Advocates (HERA) at 510 271-8443. Call for intake hours.

(7) You can get FREE LOAN MODIFICATION ASSISTANCE from HUD-certified housing counseling agencies. Visit HUD’s website to find the offices closest to you, at http://www.hud.gov/local/ca/homeownership/hsgcounseling.cfm

One more thing: This past year, a new law was passed in California that prohibits anyone – including attorneys, realtors and brokers—from charging or collecting any money from consumers for loan modification work until that work has been completed. If the forensic loan audit is being offered as a way to help you get a better modification, then the person or company offering this service cannot charge you money up front for this service.

For a list of places you can complain to if you have been defrauded, visit the following website of the California Department of Real Estate: http://www.dre.ca.gov/pdf_docs/FraudWarningsCaDRE03_2009.pdf

9 Comments For This Post

  1. Rosendo Natcher Says:

    Loans need sturdy people with a means of livelihood and a future to behold, and who will endure in the face of calamity, or otherwise when the time of service nears and you still can’t put two plus two together, the thought of them will give you sleepless nights.

  2. Russ Cokel Says:

    There are people who rush to take quick loans not knowing the short-term implications of such a move or even without having an elaborate plan on how to utilize the money for maximum benefits, only to see their property fall under the auctioneer’s hammer.

  3. David Pereira Says:

    The bigger issues with forensic loan audits are in these areas:

    1. The statute of limitations has run on most claims. A RESPA/TILA claim must be filed within one year (TILA rescission is 3 years) and most of these reports make highly inflammatory claims that are time barred.

    2. Stated income loans. They attempt to make the misrepresentations of the borrower (i.e. stated they make 10k/month when they really make 5k/month) and shift the blame to the lender for poor underwriting. The error they make is that it is most likely fraud to mistake income and if they merely relied on the mortgage broker putting in the amount, it was negligent for them to sign the loan app without reading it. Also it most likely violates California Civil Code §1788.20, which states:

    In connection with any request or application for consumer credit, no person shall:

    (a) Request or apply for such credit at a time when such person knows there is no reasonable probability of such person’s being able, or such person then lacks the intention, to pay the obligation created thereby in accordance with the terms and conditions of the credit extension; or

    (b) Knowingly submit false or inaccurate information or willfully conceal adverse information bearing upon such person’s credit worthiness, credit standing, or credit capacity.

    Competent counsel should also be consulted before doing a loan modification or short sale to ensure that even applying does not subject the consumer to civil or criminal liability. Consumers should be very worried about providing info to the financial institution and having a SAR filed against them.

  4. MARTHA SANDOVAL Says:

    I have problems with Bank of America regarding my loan and I need help before they forlcsure my home We put a $400.000.00 dlls down payment and a we need loan Audit to see if they did somting roong on are papper work we been workging with the bank but they alrady did a modification but when we sing the papper work the said the we will pay only $2700.00 month then when the staments start to came in they were going up and up and they said it was gonig to be fix but they didn’t I don’t now what els to do now they said we are behaind whit are payments please call me if you can help us to resolve this problem are phone #909-251-6678 and are emil is alicia_sandoval12@yahoo.com

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  7. Tanveer Says:

    Yes, but it’s a secret .I’ll share with you! First, when you say stop do you urtsnedand you are halting the process only and not the lenders rights under sate code. Anything can be negotiate up till a notice of sale (i.e. California). Then all bets are more or less off. If you want to negotiate a settlement then talk to the lender before a sale date is set. Attorneys can also seek a temporary injunction for a valid claim against your lender. NOW THE SECRET: But if you think you have a wrongful foreclosure action then DON’T stop the process let it continue. After the home goes back to the lender it’s only then you have grounds for a wrongful claim. Stay in the home afterwards by responding to the unlawful detainer the lender will file to have you removed. Make your claim strong as to decepetive and predatory isntances a good auditor can determine for you. Some folks have gotten back their home at 50 cents on the current loan against their house under a negotiated settlement.

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