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Closer look at loan docs may qualify modifiers
Homeowners struggling to make their mortgage payments, but who have not yet missed a payment, are now eligible to have their loans modified. However, these modifications are hard to get, as lenders see no reason to modify a loan that is not in default. For homeowners trying proactively to prevent going into default and all that default entails forensic loan audits may be the first step to modification.
Many loans funded during between the years of 2002-2006 were performed with legal violations. Although only a fraction of the loans were funded with blatant disregard for the law, the majority of loans may have significant state and federal violations resulting from carelessness, greed or just innocent oversight by the lender and/or broker. However, no matter why these violations were performed by the lender, these violations carry stiff financial penalties for the lender, and can result in legal consequences to the lender, such as forcing the lender to refund all interest, principle and fees paid to date back to the borrower.
For example, let's say that over the last 2 years, a homeowner paid $25,000 in interest on their loan that contained Federal or State Violations. The lender could be required to pay you back $25,000.
A forensic loan audit is a thorough examination of a homeowner’s loan documentation. Companies providing loan audits first run the loan documentation through a software program designed to catch discrepancies in the loan application. The documentation is then studied by underwriters—professionals that work for lenders to ensure a loan application meets lender guidelines prior to a loan funding—to find any violations that may have been missed by the software. The results of the audit are then sent to a team of legal experts who draft a letter to the lenders pointing out the discrepancies and aggressively suggest that a loan modification would be a better solution for the lender than litigation.
The results of forensic loan audits are used as leverage with lenders. Most lenders, when presented with evidence proving a loan they funded has violated state or federal regulations, opt to modify a loan instead of going to court. The loan audit may provide evidence for homeowners that currently are not able to modify their loan to modify their loan.
Loans with illegal terms or conditions may not be enforceable. Foreclosures resulting from illegal loans are also not enforceable. The foreclosure process is halted when litigation on a questionable loan begins. Mortgage payments are not required during the foreclosure or litigation process, although depositing the mortgage payment into a separate bank account is suggested.
Homeowners need to be aware that forensic loan audits are merely a tool to get a modification. They are an additional step—meaning there is another fee involved—homeowners that do not qualify for a modification might want to consider. Forensic loan audits do not guarantee results. They do not guarantee that a homeowner turned down for a modification will “magically” qualify for one after an audit is performed. Not all homeowners will benefit from a forensic loan audit.
Homeowners that answer “yes” to one or more of the following may benefit from a forensic loan audit:
• The loan was originated between 2000-2006
• I qualified for the loan using reduced (stated income, stated assets, no documentation) documentation
• A drive-by appraisal was used (normally on HELOCs and 2nd loans) with my loan
• My loan is a pick a payment loan (loans with a negative amortization option)
There are normally upfront fees involved with forensic loan audits—prices range from $900-1200. Loan audit results are generally returned within 7-10 business days after necessary paperwork has been provided by the homeowner.
Homeowners will need to provide all their original loan documentation to the company performing the forensic loan audit. This can be found in the document package homeowners receive from the title company after signing.
When choosing a company to provide a forensic loan audit homeowners should opt for an attorney that specializes in real estate loss mitigation or an attorney based loss mitigation company.
Want to know what points are? Want to know about 1031 exchanges? Want to know if you have to pay a real estate agents commission when you buy or sell? Want to know how mortgage brokers can offer a “no points no fee loan”? Want to know why you need title insurance? I love answering your questions about loans, real estate, and any other question you may have about the industry.
Shoot me an email with your questions and I will do my best to answer them in my column. Please send questions to america@vgrouprm.com. I’ll do my best to answer.
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