What is a Loan Audit?

The Federal Trade Commission (FTC), the nation’s consumer protection agency, warns consumers to be wary of forensic loan audits.  A forensic loan audit is where, for an upfront fee of several hundred dollars, a forensic loan auditor will review your mortgage loan documents to determine if your lender complied with state and federal laws when your loan was originated.

According to those selling audit services, you can use the audit results to force the lender to provide you with a loan modification, reduce your loan principal, or even cancel your loan entirely, thereby avoiding foreclosure and all the consequences of foreclosure.  However, for the most part, forensic loan audits are just a new kind of foreclosure rescue scam designed to prey on vulnerable homeowners who are facing foreclosure.

State and federal lending laws, as well as various consumer protection laws, have requirements that lenders must follow when originating a loan.  For example, lenders are required to provide certain disclosures to borrowers and there are limits on the fees that lenders can charge, among other things.  According to proponents of forensic loan audits, if violations of laws, such as the Truth In Lending Act (TILA) or Real Estate Settlement Procedures Act (RESPA), are found then this will provide the borrower with an enormous amount of leverage against the lender.  Forensic loan audit scammers will often exaggerate the success of their audits, claiming that almost all loans have mistakes in the origination process and that a forensic loan audit is the silver bullet that can stop a foreclosure in its tracks and convince your lender to give you a loan modification.

Most forensic loan audits are completed by an inexperienced processor who mechanically plugs data into a computer program, which then spits out the results of the analysis in a multi-page report.  Many forensic loan audit companies are unlicensed and have previously been engaged in illegal loan modification or foreclosure notice of default rescue scams.

While forensic loan auditing companies will tell you that an audit report that exposes violations will provide you with the leverage you need to get a loan modification or stop your foreclosure, there is no evidence showing this to be the case.  Often, the findings reveal only minor violations. Moreover, a loan audit report is of zero value by itself.  Even if the audit finds significant issues, like fraud, predatory lending, or other violations of the law, you would have to file a lawsuit against the lender to halt the foreclosure.  You will either need to file an answer to the lender’s complaint in a judicial foreclosure or initiate you own lawsuit if the foreclosure is non-judicial.  Simply providing the lender with a copy of the audit results is highly unlikely to produce any results.

Furthermore, even if win your case, the lender is not required to give you a more affordable monthly payment.  You may be awarded monetary damages, but this does not guarantee you will be allowed to remain in your home or receive a modification.  And, if the violations permit you to cancel your loan, you will have to return the loan proceeds, which likely means you’ll have to give up the property anyway.  Also, there are time limits for bringing claims against the lender, many of which are within one year of the original loan date.

First of all, do not pay your mortgage payments to anyone other than your lender or loan servicer.  If you have limited funds, some forensic loan audit companies will tell you to pay them for the audit instead of making your mortgage payment to your lender because the audit is sure to produce results leading to a loan modification or other relief.  Not true!  Often, the company will take your money and you probably won’t receive a modification, which puts you even further behind in your mortgage payments.

Do not ignore letters or phone calls from your mortgage lender or loan servicer in the hopes that a forensic loan audit will save the day when you are having trouble paying your mortgage. Keeping open lines of communication is imperative if you want to save your house.

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