March 27, 2017

What is a “Forensic Loan Audit?”

Definition of the word “Audit

  • A systematic, independent and documented process for obtaining evidence.
  • formal examination of an organization’s or individual’s accounts or financial situation. An audit may also include examination of compliance with applicable terms, laws, and regulations.
  • The physical review of practice records to determine if the practice has been (and is being) compliant with carrier requirements.

Definition of the word “Forensic”

  • Relating to, used in, or appropriate for courts of law or for public discussion or argumentation.
  • Of, relating to, or used in debate or argument; rhetorical.
  • Relating to the use of science, specific methods or technology in the investigation and establishment of facts or evidence in a court of law:a forensic laboratory.

Loan servicing complaints

Section 6 provides borrowers with important consumer protections relating to the servicing of their loans. Under Section 6 of RESPA, borrowers who have a problem with the servicing of their loan (including escrow account questions), should contact their loan servicer in writing, outlining the nature of their complaint. The servicer must acknowledge the complaint in writing within 20 business days of receipt of the complaint. Within 60 business days the servicer must resolve the complaint by correcting the account or giving a statement of the reasons for its position. Until the complaint is resolved, borrowers should continue to make the servicer’s required payment.

A borrower may bring a private law suit, or a group of borrowers may bring a class action suit, within three years, against a servicer who fails to comply with Section 6’s provisions. Borrowers may obtain actual damages, as well as additional damages if there is a pattern of non-compliance.

According to the Truth in Lending Act even a small mistake with calculating the borrower’s annual percentage rate could be an actionable violation, enabling the borrower to rescind the loan. Therefore, the threat of a lawsuit is often sufficient to persuade an otherwise uncooperative lender to negotiate an attractive work out with the borrower. Because the Truth-in-Lending Act (TILA) requires all attorney fees to be paid by the predatory lender (in which a new servicer is now the responsible party ), the vast majority of cases settle out of court quickly.

Even non-material disclosure violations or violations over a year old can still be used as claims and defenses in recoupment in a foreclosure defense. (See 15 U.S.C. § 1640(e)) – these claims and affirmative defenses raise genuine issues of material fact sufficient to survive any motion for summary judgment.

Until recently Forensic Loan Examinations were only made available to large banks and lending institutions wanting to determine their own exposure to risk and potential legal liabilities prior to purchasing large pools of mortgage loans.

Providing the loan audit gives homeowners more ammunition so they can stand a chance in negotiating a decent modification with lenders who have far more resources than the average borrower and often play hardball unless they are faced with the risk of a costly lawsuit.

A Forensic Mortgage Loan Audit using Lane Houk’s Proprietary Methods and Technology results in the most comprehensive and thorough audit reporting process of its kind that reveals ALL violations of Federal and State Codes including RESPA, TILA, HOEPA and ECOA along with detailing EVERY VIOLATION, its severity, and the specific law/regulation in violation in an easy to read format. ALL of the forensic loan audits reports can reveal these guiding queries:

 Was fraud involved?

  • Constructive Fraud
  • Misrepresentation
  • Victim of Bait and Switch
  • Straw Buying Victim
  • Steering
  • Appraisal Fraud

Common Abuses:
Predatory mortgage lending involves a wide array of abusive practices. A brief description of some of the most common are:

  • Excessive Fees
  • Hidden Fees
  • Abusive Prepayment Penalties
  • Kickbacks to Brokers (Yield Spread Premiums)
  • Loan Flipping
  • Unnecessary Products
  • Mandatory Arbitration
  • Steering & Targeting
  • Breach of Contract

We can help you find out…

  • Did the loan officer accurately disclose the loan terms to you?
  • Did you sign a separate broker fee agreement?
  • Was your home’s value inflated by the lender’s appraiser?
  • Did the lender fail to verify your ability to repay the loan?
  • Were you given all federal and state disclosures?
  • Were you properly notified of your right to cancel the loan?
  • Do your closing documents contain any technical errors?
  • Were you charged excessive or undisclosed fees?
  • Has your loan been sold without your knowledge?
  • Any and all applicable federal and state law violations
  • The real terms of your loan
  • Outline of hidden fees and/or commission earned by your broker or lender
  • A complete assessment so you can pursue possible legal claims against your broker and/or lender
  • Report of all factual findings of the forensic audit

 In my experience, there are very few auditors out there who truly know the “forensic” aspects of the loan audit process. The real litmus test is to ask the auditor where most of their business comes from? If it’s not from consumer law attorneys walk away. Ask for attorney references at all times.

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