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.
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.
While it generally true that a holder in due course is not liable for claims made against the seller of a property, there are times when a holder in due course could be liable. If an assignee to a mortgage takes control over the loan when there is a clear violation of the contract under applicable law then that assignee could be liable. Here’s a situation that could lead to a rescission just as if the originator of the loan were still servicing the loan.
Mortgage Company A underwrites a loan for $250,000 to a borrower in January 2008. In August 2009, Mortgage Company A sells the loan to Mortgage Company B. In September 2009 the homeowner loses his job. Mortgage Company B attempts to collect payments for 90 days then begins the foreclosure process. In February 2009, the homeowner discovers a TILA violation after conducting a forensic loan audit. Mortgage Company A failed to provide the necessary disclosures to the homeowner. Is Mortgage Company B now liable and can the homeowner seek a loan modification based on this situation?
The answer, clearly, is “yes.”
We are not attempting to provide legal advice here, but the question is a matter of whether or not Mortgage Company B should have known about the violation prior to purchasing the loan. Since recognition missing required documents is something that a simple review would have uncovered, it can be argued that Mortgage Company B did not do its due diligence. As a holder in due course on the mortgage documents in question, Mortgage Company B could be liable and the homeowner may be able to request a loan modification.
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.