Thursday, January 28, 2010

Forensic Loan Audit - scam or useful modification service?

Even before the passage of SB94, real estate agents, consultants, and lawyers were offering to perform a forensic loan audit. Since SB94 went into effect, there are many companies and law firms doing this service to avoid the advance fee provisions of this new law. It seems to me that the majority of these are people who are desperate since they can't charge large up front fees to do loan modifications. It is hard to determine based upon the way they structure these services whether they violate SB 94, but there are things a consumer needs to know before paying any up front fees.

Forensic loan audits are where someone reviews the documents that were used to originate your loan(s). Under state and federal lending, banking, credit, and consumer protection laws, there are required disclosures that have to be provided and certain limits on fees and other things that happen during the loan process.

Someone who does a loan audit will often tell the consumer that if they find Truth In Lending Act (TILA) violations or Real Estate Settlement Procedures Act (RESPA) violations, that your lender will suddenly just change their tune and give you a loan modification. That is far from the case. While these violations can technically be legal claims, your lender will usually not even pay attention to them until a lawsuit is filed in court. Even then, it does not mean that they will just try to settle by giving you a modification.

There is a time and place for a review of the loan docs, but just finding violations is not a real service. Anyone who is not a licensed attorney may not realize that there are complex issues involved with lender litigation. Many banks are protected under federal laws such as the national banking act and the only claims that can be brought against them are with a regulatory agency, not a basic lawsuit. Lawsuits are often dismissed on this basis. Also, there are time limits within which you must bring your claims against the lender, many of which are within one year of the original loan date. Even the right of rescission's 3 year time limit is complicated as you often have to give back the property and loan proceeds in order to move forward with that remedy.

All in all, the majority of loan audits will not help you get a loan modification and are just another way people are trying to take your money. Only if you have very serious claims will it potentially make a difference and usually you have to go after the bank for monetary damages which doesn't guarantee you will keep the home or get a modification.

If someone claims all kinds of success in getting modifications or that their loan audit will push your mod through, take a look at this link with the minimal amount of permanent modifications in 2009 nationwide under the Making Homes Affordable Plan (66,000). Clearly, no one has a magic bullet that will guarantee modifications.

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