With all of the current programs and ideas that the mortgage industry and government are trotting out to help homeowners save their houses from foreclosure, it seems new terms and acronyms are being created everyday. One of the most bewildering that has come into common acceptance is a "forensic loan audit," which is being sold to many homeowners.
But what is a forensic loan audit, anyway? Banks will not just accept one of these as a solution to foreclosure, so why are owners being sold more and more of them? These are the questions that any company selling such services must address when meeting with foreclosure victims who are trying to use their reduced monetary assets in the most effective manner.
A forensic loan audit is a detailed review of the original loan documents, from the closing of the real estate transaction to any refinances, secondary mortgages, and transfers of servicing obligations or ownership of the note between lenders. The goal is to find enough errors or evidence to show a possible predatory lending argument against the lender.
The main reason to obtain a forensic loan audit is to demonstrate the lender that it would make much more sense just to modify the mortgage than to foreclose on the property and risk a lengthy defense. If the borrowers can show enough errors were made on their loan, it will become very hard for the bank to get a default judgment and move quickly towards the sheriff sale of the home.
Thus, a forensic loan audit is more like an insurance policy than anything else. For a few hundred dollars, homeowners can go to their bank, show them how difficult it would be to attempt a foreclosure lawsuit, and then negotiate for a loan modification, short sale, or other alternative to foreclosure instead.
Forensic loan audits are most recommended for homeowners who are dealing with a particularly difficult bank. When they are unable to move forward in negotiations and the lender is not helping, the process may need to be pushed forward. A list of errors and evidence of lender misconduct may be just the stimulation the bank needs to keep working on a solution.
A loan audit would also be beneficial for borrowers who are dealing with the bank on their own. Those represented by an attorney or third party may not have to worry as much about this process, but those homeowners dealing with the banks themselves may need an extra bargaining chip. In some cases, such an audit can be very helpful.
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