What is a forensic loan audit?
A Forensic Loan Audit is the comprehensive review of all documentation, legal paperwork, transaction data, and other evidence pertaining to a real estate loan that has already been funded in the near, or distant past. A Forensic Loan Audit identifies any illegalities performed by the lender, their broker, or other parties in conjunction with the loan. During the audit process, highly skilled professionals review your loan to ensure that it meets all legal requirements that were in effect at the time the loan was funded.
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Why is this important?
Loans must be legal to remain enforceable by the lender. Loan Violations are serious offenses of Federal Consumer Protection Law and lenders may face stiff fines and legal consequences for breaking these laws.
Lenders, banks and investors are firms run by rational business people. Lenders understand the financial ramifications of their mistakes and usually want to avoid expensive litigation or risk being charged with large fines. When their money is on the line, lenders can often be persuaded to mend situations more easily with homeowners.
How does this help a home owner?
Violations are the leverage used to argue your case with lenders. Generally, the more violations, and the more severe those violations are, the better your chances are of obtaining a favorable settlement. This settlement can include punitive damages, attorney fees, new (affordable) loan terms, a delay or prevention of a foreclosure sale and more.
What should a proper loan audit look for?
A thorough loan audit should look for:
Constructive Fraud
Material facts include the terms of the loan, whether there is a prepayment penalty, or any other information which a reasonable borrower would want to know before accepting the loan. Did the broker or loan officer or anyone working for the broker or loan officer fail to disclose any material facts to the borrower?
Fraud and Negligent Misrepresentation
Were any representations, statements, or comments, written or oral made by the loan officer, broker, notary or anyone else which contradicted the terms of the documents? When a mortgage professional makes errors which a reasonably diligent mortgage professional would not have made, he or she may have made a negligent misrepresentation.
Excessive Fees
Were there any Excessive Fees and Improper Charges made by the lender or loan broker? Is there any Deceptive Abusive Predatory Lending Practices, Excessive Prepayment Penalties? What are the Tangible Benefits to the Borrower? Is the loan Affordable to the Borrower? Are the fees disclosed properly?
Breach of Contract
The note and its attachments are a contract. The broker must follow all the terms of the contract such as the way the interest is calculated, and the penalties it assesses. Were there any terms in the contract which the lender failed to follow?
What happens if there are violations in my loan?
Once the loan audit determines that you may have been a Victim of Deceptive Lending Practices or any other type of Mortgage Compliance Issue stated above, you have the leverage to fight your lender.
The best course of action is to hire an attorney who is skilled in consumer advocacy, predatory lending and real estate law.
Your attorney will determine the proper course of action. This may include an attempt to settle the Loan Issue/Documented Dispute with the Lender prior to filing complaint(s) with any agency and inform the Lender of the Issues found in the "Forensic Audit and Loan Review".
If a loan was funded unlawfully, the borrower may be entitled to compensation, a refund of all interest paid to date, legal fees, or renegotiation of the terms of the loan.
From 2000-2007, tens of thousands of loans were funded unlawfully. Your loan may be unlawful, and you may be entitled to substantial damages whether or not you're currently in foreclosure. The penalties for failure to comply with the Truth In Lending Act can be substantial.
A creditor who violates the disclosure requirements may be sued for twice the amount of the total finance charge on the loan. In the case of a home mortgage, this can be a very significant amount, amounting in to the scores of thousands of dollars. Costs and attorneys fees may also be awarded to the consumer.
How can this stop a foreclosure?
If you are in foreclosure, the proper litigation can stop the foreclosure process immediately.
The law gives a borrower a limited amount of time to act. If you wait, you may not be able to take action later.
What is Predatory Lending?
Predatory lending is a hot topic in the news and there is a good reason why. Dishonest behavior by many lenders, bankers, brokers and their sales force have caused financial ruin worldwide in the last year or so. As property values fall, energy costs soar, consumers become unable to pay exorbitant mortgage fees. The collapse of the sub-prime market is a direct result of predatory lending.
Here are the various types of predatory lending:
Pay Option Loans
Many lenders and mortgage brokers have acted dishonestly and without integrity by providing teaser rates and "pay option" loans. Bottom line is that many lenders and brokers knew these loans were too good be true, and borrowers were not told the truth. By law, contracted real estate professionals have a fiduciary responsibility to their clients (They must act in the best financial interest of their clients.). When they fail to do so (usually earning significant commissions at great financial cost to their clients), it is called Predatory Lending.
Stated Income Loans
Predatory Lending can also apply to all aspects of the mortgage industry and can also refer to the dishonest practice where a broker or creditor may put a borrower into a loan that the borrower will probably not be able to repay. Federal laws like the Truth In Lending Act ("TILA") and the Real Estate Settlement Procedures Act ("RESPA") (as well as many state laws) require that creditors disclose certain terms of loans to borrowers, and when those terms are not disclosed or are inaccurately disclosed, these laws provide severe monetary penalties against these creditors.
Bait & Switch
Predatory lending tactics like the classic bait and switch. You're sold on the phone by a smooth talking loan officer who pitches you a great rate. Things move quickly and when you appear to sign your loan documents with a notary at the closing table, the loan costs have increased significantly and/or that great rate isn't so great anymore. You wonder, "what happened" but it s too late. You are already at the closing table and you face significant penalties for delays in the transaction by the seller, or you already are committed to a refinance because you need the cash out.
Elder Abuse
Elder abuse is really common because retirees often have a large amount of equity in their homes, they are prime targets for greedy and crooked creditors. We have seen mortgage sellers cold call elderly homeowners and then scam them into a loan which they do not need, can not afford, and which provides the seller with an incredibly large commission. Both federal and state law prohibit the mortgage industry from providing different loan terms to people based on race, sex, ethnicity, or other protected class. Such a transaction may be subject to a cause of action under the Unruh Civil Rights Act or other law. Equity theft also called equity skimming, refers to the situation whereby the same creditor refinances the same property with the same borrower multiple times and uses the equity in the borrower's property.
How do I begin?
Here is an overview of how the ANLA program works:
1. ANLA will conduct a Forensic Loan Audit which scrutinizes the mortgage documents you received upon the closing of your loans(s) and look for TILA, RESPA and/or HOEPA violations by your lender. Once you receive your Audit, you will know what violations, if any, were committed in the handling of your loan. (Statistically, nearly every loan has at least some violations.) You can then decide if you should proceed to seek a remedy. If you do proceed,
2. A referral attorney can immediately file a Federal lawsuit on your behalf, and place a Lis Pendens on the property, to stop the foreclosure process (if applicable) and begin litigating your causes of action against the lender(s)
3. The attorney will reach a settlement agreement with the lender (most cases) or continue on to trial (rare situations) and demonstrate to a judge or jury how the lender has willfully failed to comply with Federal Law.
4. In most cases, it is NOT necessary for you to make mortgage payments while the lawsuit is pending.
5. It is also unlawful for the lender to report negative information about you to the Credit Reporting Agencies while the lawsuit is pending under the Fair Credit Reporting Act.
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