A forensic loan audit has the potential to disclose a variety of lender violations. There are about 80 different laws - federal, state, and local - that lenders must comply with when underwriting a mortgage loan. If they violate any one of those laws the lender faces a penalty, fine, or forced reimbursement of interest and principle. It could be costly for the lender.
Because the risk is so high for the lender and relatively low for the borrower, getting a forensic loan audit is one of the important things to do when seeking a loan modification. In fact, many lenders may turn you down for a loan modification request if there is no compelling reason to provide one. If you can show them that they’ve violated a law in their underwriting of a loan then that could be enough to get them to the negotiating table.
Once you get the lender to the negotiating them you’ve then got to convince them to give you terms that are favorable to you. Let your attorney do the negotiating. They often have more pull and can point out legal details that the lender’s attorney will hope you’ll miss.
At the end of the day, the goal is to keep your home and make it affordable for you to do so. A forensic loan audit can be an essential tool.
Two states that have laws against prepayment penalties are Texas and Vermont. These are good laws considering that many homeowners who default on their loans do so as a result running into financial trouble and losing their home because they could not pay off their loan early when they had the chance. Prepayment penalties discourage homeowners from making sound financial decisions that can affect their future and long-term financial security.
The biggest problem with prepayment penalties are that many of them are nondisclosed. That is, the mortgage company doesn’t tell the borrower about the penalty during the document preparation process. As a result, many homeowners find themselves paying huge penalties when they sell their homes and that may cause them financial hardship to such a degree that they can’t afford another home.
If you find yourself trying to sell your home and have been notified of a prepayment penalty, request a forensic loan audit. If the mortgage company has violated any federal law it may be in their best interest to waive your prepayment penalty or modify your loan to lessen or do away with it altogether.
How long does it take to get a loan modification? Right now, because there is such a huge demand for loan mods, it could take a little while. In actuality, it only takes one day for the loan modification to happen, but prior to signing the contract, other things have to take place.
From the time that you request a loan modification from your bank to the day the loan mod actually happens could be 5-7 business days. That’s because the bank must approve you as if approving you for a first time loan and process the paperwork. They are also working other loan modifications during the same time.
Prior to requesting it from the bank, you should have forensic loan audit or document review done. That will another 5-7 business days. If you have a homeowner-client who is very distressed financially then they need to understand that it’s not an overnight solution. If the homeowner is caught up in the foreclosure process while pursuing a loan modification then the bank could come from the keys before the process is completed. That’s why you should contact the bank prior to initiation of the loan modification process (after you receive your loan audit) and inform them of your decision to pursue the loan modification. It is often wise to halt the foreclosure process before seeking the loan modification. Let the audit be your leverage.
The Home Ownership And Equity Protection Act, better known as HOEPA, is a law that was passed in 1994. The Act amends TILA, passed in 1968. It’s primary focus is on high rate, high fee loans. The Act offers protections to consumers of loans above and beyond what TILA provides protection for.
HOEPA covers the following types of loans:
- First lien loan, which is the original mortgage, where the APR exceeds 8% of the rates for Treasury securities of comparable maturity
- Second lien loan where the APR exceeds 10% of the rates of T-securities of comparable maturity
- The total fees and points paid by the borrower exceed $583 or 8% of the total loan amount, whichever is higher
In addition to certain disclosures required by HOEPA, if a lender performs any of the following practices then that lender is in violation of your loan and there could be penalties, which may include a refund on your loan or interest amount.
- Balloon payments
- Negative amortization
- Default interest rates higher than pre-default
- Repayment schedule which consolidates more than two periodic payments paid in advance from proceeds of the loan
- Interest rebates calculated by any method less favorable than the actuarial method
- Due-on-demand clause
- The majority of prepayment penalties
- Loan money without consideration of your ability to pay
- Refinance a HOEPA loan into another HOEPA within the first 12 months
As you can see, these are pretty specific prohibitions. If you have a client that you think may have a HOEPA case, the best thing to do is to order a forensic loan audit, which will uncover any documentation to prove a lender is in violation of HOEPA.
Your most powerful negotiating tool is a loan document review. That should be the first thing they teach in loan modification school.
When you walk into a bank office or sit at the negotiating table with lenders and you carry with you a certified forensic loan audit performed by a professional team of loan auditors, you will be confident and have the ammunition you need to arrive at a fair and equitable loan settlement for your client. Sometimes, merely having the documents in your hand is enough to produce a confident walk and demeanor throughout the negotiating process. And negotiations tend to close sooner too.
When you have a lender who knows that his product was wrong yet sold it to the client anyway and that lender is faced with potential fines for his actions, a forensic loan audit can end negotiations quickly and in your favor. Most of the time you will not even need to litigate the case as it will be settled out of court long before the time.
A forensic loan audit is the most powerful negotiating tool because it often does the negotiating for you. All you need to do is sign on the dotted line and receive your payment.
California Senate Bill 94, passed in May of this year, requires third-party loan modification services to provide a written statement to customers prior to entering into any fee agreement the following statement, with the additional requirement that it be written in at least 14-point type bold font.
IT IS NOT NECESSARY TO PAY A THIRD PARTY TO ARRANGE FOR A LOAN MODIFICATION OR OTHER FORM OF FORBEARANCE FROM YOUR MORTGAGE LENDER OR SERVICER. YOU MAY CALL YOUR LENDER DIRECTLY TO ASK FOR A CHANGE IN YOUR LOAN TERMS. NONPROFIT HOUSING COUNSELING AGENCIES ALSO OFFER THESE AND OTHER FORMS OF BORROWER ASSISTANCE FREE OF CHARGE. A LIST OF NONPROFIT HOUSING COUNSELING AGENCIES APPROVED BY THE UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT (HUD) IS AVAILABLE FROM YOUR LOCAL HUD OFFICE OR BY VISITING WWW.HUD.GOV.
The question is, Why and who does this protect?
It is obvious the statement is designed to protect lenders. ALL lenders. Not just the good ones. It also protects unscrupulous lenders who do not deserve the protection.
Think about this: If your lender has violated state or federal law by not providing you with the proper disclosures or has sold you a mortgage product that you do not need and is above your means to pay, what incentive do you have to contact that lender directly for a loan modification? Furthermore, if you do contact that lender and request a loan modification, how will that lender treat you? The following treatments are common among lenders who also agree to provide their customers with loan modification services:
- Charge clients for the loan modification - This begs the question: Is the mortgage company providing a modification to the loan to help the borrower or to make more money off the borrower? If your lender is providing a loan modification then it shouldn’t cost you anything.
- Force you to sign away your rights - Many lenders will not discuss loan modification with you until you sign a waiver stating that you will not sue them. If such a statement is necessary then the lender must be worried that there is a cause for litigation (and there probably is). Just as well, you have a right to seek justice and remuneration for any wrong done you by your lender. Therefore, we advise you not to sign such statements.
- Offer a less than adequate modification - While you may think that you are getting a fair deal from your lender, remember that your lender sold you a product that you didn’t need. Many lenders will provide you with a loan modification, but your new loan terms will not be as good as they could have been had you used a third-party negotiator and the leverage of a forensic loan audit.
Your best strategy for getting the loan modification that you deserve is to first request a forensic loan audit through an attorney that specializes in loan modifications. Your attorney can order the audit on your behalf, which will be thorough and comprehensive in scope and analysis. If your lender has violated any state or federal law (83% of all mortgages has some kind of violation in them) then your attorney can negotiate a better settlement for you. You’ll get a much better deal with a third-party negotiator who specializes in modifications backed by a loan audit that can be used as admissible evidence in a court of law.
Thomas Moems is one attorney that understands what RESPA Section 9 requires, or prohibits, from a mortgage company. I love what he says here in his final paragraph:
So, the moral of the story: If you are a seller and you require the buyer to use your favorite title company or closing agent, you are probably violating Section 9 of RESPA.
The law is pretty clear here. RESPA Section 9 explicitly states that
(a) No seller of property that will be purchased with the assistance of a federally related mortgage loan shall require directly or indirectly, as a condition to selling the property, that title insurance covering the property be purchased by the buyer from any particular title company.
Mr. Moems waxes poetic about what the definition of a federally related mortgage loan is. It pretty much means any type of loan that is not a construction loan. Yes, even your non-VA and non-FHA residential mortgage. And what is the penalty for violating Section 9 of the RESPA law
(b) Any seller who violates the provisions of subsection (a) of this section shall be liable to the buyer in an amount equal to three times all charges made for such title insurance. 12 U.S.C. ยง 2608.
Emphasis is mine. Three times the amount paid for the insurance.
3 X
Let’s say it again. Three times the amount paid for the title insurance.
So any lender that includes a statement in your contract requiring you to purchase title insurance from a specific company is in violation of RESPA. And they don’t even have to do it directly. They can do it indirectly.
A forensic loan audit will be able to tell you whether or not your client’s lender is in violation of RESPA Section 9. If it is then you can use the evidence of that against the mortgage company and negotiate a loan settlement that will allow your client to keep his home.
The Truth In Lending Act of 1968 gave every consumer of mortgage products a right to rescind their loan under certain conditions. A rescission is a voiding of your contract. Straight from the Act itself:
When a consumer rescinds a transaction, the security interest giving rise to the right of rescission becomes void, and the consumer shall not be liable for any amount, including any finance charge.
Your right to rescission is absolute. There are certain and specific conditions that allow a borrower to rescind their loan. Furthermore, your lender must include a right to rescind disclosure statement with your closing documents - two copies.
The only time you do not have a right to rescind your loan is when you waive that right. From the Act:
The consumer may modify or waive the right to rescind if the consumer determines that the extension of credit is needed to meet a bona fide personal financial emergency. To modify or waive the right, the consumer shall give the creditor a dated written statement that describes the emergency, specifically modifies or waives the right to rescind, and bears the signature of all the consumers entitled to rescind.
It’s important to realize that if you exercise this waiver then you are giving up any future rights to rescind your loan. That means if you have just cause to rescind then you can’t. Before you sign a waiver of your rights, get a forensic loan audit to determine if your lender has violated any local, state, or federal laws with regard to your loan. If so then you’ll want to rescind your loan and/or seek to modify it.