Can “Mortgage Loan Audits” Stop Foreclosures?
At first it sounds like a good idea for concerned borrowers: Stop foreclosure by showing that the lender has improperly calculated the amount owed. If the lender did not appropriately credit a payment, improperly charged a fee or used the wrong interest rate then the borrower would have grounds to contest a foreclosure action or at least the amount owed.
How can you prove that a lender screwed up? One idea is to get something called a forensic mortgage loan audit.
The catch, says the Federal Trade Commission, is that such audits are “the latest foreclosure rescue scam to exploit financially strapped homeowners.”
“In exchange for an upfront fee of several hundred dollars,” says the FTC, “so-called forensic loan auditors, mortgage loan auditors, or foreclosure prevention auditors backed by forensic attorneys offer to review your mortgage loan documents to determine whether your lender complied with state and federal mortgage lending laws. The ‘auditors’ say you can use the audit report to avoid foreclosure, accelerate the loan modification process, reduce your loan principal, or even cancel your loan.”
Free Pass For Lenders
There’s a real tragedy here on several levels: First, lenders should be held accountable for properly maintaining mortgage accounts. How is it possible to know whether lenders seeking to foreclose have the records right without a careful review of the loan? In a sense, the FTC is giving a huge pass to lenders. It’s like asking Enron to vouch for its own accounting.
Second, imagine if a borrower is foreclosed and the lender seeks a deficiency judgment for the unpaid balance. Wouldn’t it be good to know how much is actually owed to the lender before a court makes an award?
Third, it is troublesome to have the FTC suggest that distressed borrowers should not seek help from licensed attorneys. The implication seems to be that all attorneys who work in the foreclosure defense field are somehow tainted, an implication which is nonsense.
Perjury
We know that lenders are not always right. For instance, the paperwork in so many Florida foreclosure cases has been so wrong, so often that the state court system decided in February that attorneys must verify that their claims are correct or face charges of perjury.
“When filing an action for foreclosure of a mortgage on residential real property,” said the Florida state court system, “the complaint shall be verified. When verification of a document is required, the document filed shall include an oath, affirmation, or the following statement: Under penalty of perjury, I declare that I have read the foregoing, and the facts alleged therein are true and correct to the best of my knowledge and belief.”
The reason for the rule, says Florida, is “(1) to provide incentive for the plaintiff to appropriately investigate and verify its ownership of the note or right to enforce the note and ensure that the allegations in the complaint are accurate; (2) to conserve judicial resources that are currently being wasted on inappropriately pleaded ?lost note counts and inconsistent allegations; (3) to prevent the wasting of judicial resources and harm to defendants resulting from suits brought by plaintiffs not entitled to enforce the note; and (4) to give trial courts greater authority to sanction plaintiffs who make false allegations.”
In other words, the Florida courts have found multiple instances where lender foreclosure claims were simply untrue.
And yet, the FTC says:
There is no evidence that forensic loan audits will help you get a loan modification or any other foreclosure relief, even if they’re conducted by a licensed, legitimate and trained auditor, mortgage professional or lawyer.
Some federal laws allow you to sue your lender based on errors in your loan documents. But even if you sue and win, your lender is not required to modify your loan simply to make your payments more affordable.
If you cancel your loan, you will lose your home and you will have to return the money you borrowed to your lender.
You can see the problem here: Audit fraud is obviously wrong, it’s a crime. It will not result in a mortgage modification. And a fraudulent effort to stop a foreclosure will only make things worse for borrowers. But the issue for many homeowners is NOT that they want to modify their loan, it’s that they want to avoid an improper foreclosure. How can borrowers get help when the FTC is warning against the use of even a “licensed, legitimate and trained auditor, mortgage professional or lawyer.” Is no one other than a lender qualified to review foreclosure claims?
Perhaps the answer is that we ought to license mortgage auditors. But until we do, what are homeowners supposed to do to protect their homes against unfair and incorrect foreclosure claims? What are borrowers supposed to do when overcharged by lenders?
it’s true that some attorneys have committed fraud. it’s also true that the overwhelming majority have not. The FTC’s recommendation is simply too broad.
The FTC — which has an exceptional record defending consumer interests — needs to offer better, more precise advice to the public. What, exactly, should borrowers do in the face of lender foreclosure claims which may be false or inflated?
The real point is that lender errors cannot be used to force a loan modification. However, lender errors should not be the basis of a foreclosure. Someone at some point needs to review lender foreclosure claims to see if they’re justified.
If you face a foreclosure claim defend your rights and get help from an experienced attorney or legal clinic. Speak with a HUD foreclosure avoidance counselor. See if pro bono legal services are available. A local community housing group may be able to help. Lastly, look into the government’s mortgage modification program, Making Home Affordable.
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