Denha & Associates, PLLC Blog


By: Lance T. Denha, Esq.

A forensic loan audit is an essential tool for a loan modification attorney. But not all of them are created equal. You can’t make a decision based on price alone. There are some essential elements to an effective loan audit that you should know before you purchase one. It is said that more than 80% of all mortgages contain some kind of lender violation. Therefore, the chances are fairly high that a homeowner could benefit from a loan audit. If a lender violation is uncovered it will provide leverage for the homeowner when seeking out a loan modification, short sale or any other type of residential loan workout.

If a homeowner received a home loan between 2002 and 2008, that homeowner may very well be a prime candidate for a residential loan workout. Why? During that time many lenders issued high interest loans, refinanced loans, and ARMs – adjustable rate mortgages. Those types of loans are typically problem loans for the homeowners because the borrowers end up not being able to afford them. The banks should have never issued those loans based on the borrower’s incomes and ability to pay. Attorneys working with Forensic Loan Audit Specialists can help determine if there are problems associated with the homeowner’s loan. Homeowners now have a tool that will allow them to fight back against unscrupulous lenders and predatory mortgage companies and win in court or meet at the negotiating table and walk away with a fair and equitable loan settlement.

A forensic loan audit is a thorough, scientific investigation of a loan to determine whether a lender has violated any federal, state, or local laws in the servicing of the loan. A loan auditor is someone who can perform a thorough and comprehensive analysis of a client’s mortgage documents to determine if there are any lender violations associated with the homeowner’s mortgage.

There are some essential elements to an effective loan audit that every homeowner should know before making a decision to obtain a loan audit. Below is a short list of informational tidbits a homeowner should be aware of:

• A good loan audit is comprehensive and involves a review of every document in your client’s mortgage contract.

• A loan audit should be forensic; that is, scientifically conducted.

• Mortgage documents should be reviewed and compared to all relevant and applicable mortgage case law.

• Your loan audit should be in writing with an analysis indicating problem areas that your client should know about.

If a homeowner is attempting to modify his/her loan, chances are that the lender is making life difficult for such homeowner, either by not returning calls, providing different information every time the homeowner calls or continuing to delay the process. However, when a borrower presents the lender with evidence of loan violations, the lender is usually more willing to talk to the borrower about a residential loan workout to avoid potential litigation.

One thing every homeowner needs to be weary of in obtaining a forensic loan audit is that certain companies are not trained to handle these audits nor do they associate themselves with attorneys. According to the Federal Trade Commission (“FTC”), Fraudulent foreclosure “rescue” professionals use half-truths and outright lies to sell services that promise relief to homeowners in distress. Therefore the Homeowner has to be weary and spot a scam when professional expertise is not involved in a forensic loan audit. According to the FTC, in spotting a scam, homeowner should be weary and should avoid any business that:

• Automatically guarantees to stop the foreclosure process. Again this is a helpful tool for leverage to the homeowner in working out a loan modification, short sale or other residential loan workout;

• Instructs homeowner not to contact your lender, lawyer or credit or housing counselor;

• Encourages Homeowner to lease the home so homeowner can buy it back over time;

• Recommends that homeowner makes mortgage payments directly to it, rather than the lender;

• Pressures homeowner to sign papers that homeowner hasn’t had a chance to read thoroughly or doesn’t understand.

Even if homeowners are not attempting to modify their mortgages because they cannot pay or because they have decided that foreclosure is the best option, obtaining a forensic loan audit may still be in your best interest to determine any type of lender violations. When performing any type of loan workout or even moving forward with a foreclosure on the residence, having information about loan violations may help the homeowner make a better settlement with the bank and potentially avoid a deficiency judgment. Without proper negotiating from an expert in handling loan workout negotiations, the lender can still get a judgment for the rest of the money owed on homeowner’s mortgage and can try to collect it years later.

Should a homeowner consider a loan modification, facing foreclosure, or consider any other serious financial hardship when it comes to his/her home, a forensic loan audit may be the key to boosting homeowner’s negotiation position with the lender if such homeowner is struggling attempting to make payments and stay current in an effort to maintain the residence. This should not be used by every homeowner in an attempt to get out of a loan they if the homeowner has the full capability of performing on the mortgage and understands the terms of their particular loan and circumstances. Homeowner’s should not use this tactic unless they feel wronged by the loan or feel that the lender absolutely may have taken advantage of their circumstances by placing the homeowner into a loan they were never qualified for in the first place. It will also help homeowner understand their financial status more clearly. In the end a loan audit and attorney’s professional advice should provide the homeowner with a clear indication on how best to proceed.