With all of the current programs and ideas that the housing industry and government are creating
out to help homeowners save their properties from foreclosure, it seems new terms and acronyms are being invented everyday. One of the most bewildering that has come into common acceptance is a “forensic loan audit,” which is being sold to many homeowners.
But what is a forensic loan audit, exactly? Banks will not just allow one of these as a solution to foreclosure, so why are homeowners being sold more and more of them? These are the questions that any company selling such services must answer when meeting with foreclosure victims who are trying to use their scarce monetary assets in the most effective manner.
A forensic loan audit is a detailed review of the original mortgage documents, from the closing of the real estate transaction to any refinances, second mortgages, and transfers of servicing rights or ownership of the note between lenders. The goal is to find enough mistakes or evidence to show a possible predatory lending case against the bank.
The main reason to obtain a forensic loan audit is to show the lender that it would make much more sense just to change the mortgage than to foreclose on the household and risk a lengthy defense. If the borrowers can show enough mistakes were made on their loan, it will become very difficult for the bank to get a default judgment and move quickly towards the sheriff sale of the home.
Thus, a forensic loan audit is more like an insurance policy than anything else. For a few hundred dollars, homeowners can go to their bank, show them how difficult it would be to attempt a foreclosure lawsuit, and then negotiate for a loan modification, short sale, or other alternative to foreclosure instead.
Forensic loan audits are most recommended for homeowners who are dealing with a particularly difficult bank. When they are unable to move forward in negotiations and the lender is not complying, the process may need to be pushed forward. A list of mistakes and evidence of lender misconduct may be just the jolt the bank needs to keep working on a solution.
A loan audit would also be recommended for borrowers who are dealing with the bank on their own. Those represented by an attorney or third party may not have to worry as much about this service, but those homeowners dealing with the lenders themselves may need an extra bargaining chip. In some cases, such an audit can be highly helpful.