What Is a Forensic Loan Audit?

But what is a forensic loan audit, exactly? Banks will not just accept one of these as a solution to foreclosure, so why are homeowners being sold more and more of them? These are the questions that any company selling such services must answer when speaking with foreclosure victims who are trying to use their scarce monetary resources in the most effective manner.

A forensic loan audit is a detailed examination of the original loan documents, from the closing of the real estate transaction to any refinances, second mortgages, and transfers of servicing rights or ownership of the note between lenders. The goal is to find enough mistakes or evidence to show a possible predatory lending case against the bank.

The main reason to obtain a forensic loan audit is to show the lender that it would make much more sense just to modify the mortgage than to foreclose on the home and risk a lengthy defense. If the borrowers can show enough mistakes were made on their loan, it will become very difficult 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 pursue 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 communicating, the process may need to be pushed forward. A list of mistakes and evidence of lender misconduct may be just the impetus the bank needs to keep working on a solution.

A loan audit would also be helpful for borrowers who are negotiating with the bank on their own. Those represented by an attorney or third party may not have to worry as much about this product, but those homeowners dealing with the bank themselves may need an extra bargaining chip. In some cases, such an audit can be extremely helpful.