A “forensic audit” is an evaluation of the financial information of an individual or corporation in anticipation of possible legal proceedings. It is a specialized form of investigation done by auditors who specialize in forensic audits. The purpose of the audit is to to investigate the possibility that some kind of crime was committed, such as the following:
These are crimes for which the evidence must be located in financial documents and records.
Forensic audits have also been used to review how home mortgage loans were prepared and as a tool for foreclosure defense. A forensic audit is a tool often used by federal agencies that fund mortgage loans to detect fraud on the part of borrowers and not lenders.
How Have Forensic Audits Been Used in Foreclosures?
A legitimate forensic audit used in a foreclosure might help evaluate all the documentation used in preparing a home mortgage loan to ensure that the information used to assess the borrower was used properly. The goal of these audits would be to locate errors made by mortgage underwriters. This type of audit might have been especially useful in reviewing loans that were made during the height of the housing boom. At that time, many loans were made to buyers of property that they could not realistically afford.
The right kind of forensic audits could be a method of detecting predatory lending practices that may violate the Truth in Lending Act or other state and federal laws regarding mortgage lending.
Are Forensic Audits for Foreclosures Legal?
Many of the practices used in forensic audits for foreclosure sparked the interest of consumer protection agencies. It was discovered that forensic audits that were in fact fraudulent were being sold to consumers facing foreclosure. These audits were marketed as a tool for evaluating all the documentation used in preparing for a foreclosure.
Many of these “audits” claimed to be a way to save borrowers but they were, in fact, scams. There are several factors that may make these “audits” illegal or fraudulent. The major problem with them is that they cannot lead to the kind of relief that the borrower in foreclosure needs.
Another factor is that many of these companies suggest paying them several hundreds of dollars in order to conduct a forensic loan audit in the hope of finding lending violations that could void the mortgage.
However, these claims are most often without any basis in fact. They only harm the borrower by wasting their money on a service that would not help them avoid foreclosure. Their money would be better spent paying their overdue mortgage or taking the steps needed to get out of a home mortgage the borrower can no longer afford.
The “auditors” would sell their service by claiming that a borrower could use the audit report to avoid foreclosure, speed up the loan modification process, reduce their loan principal (i.e., the amount they owe), or even cancel their loan.
But these claims were false and fraudulent. According to the Federal Trade Commission (FTC) and law enforcement, they are fraudulent for the following reasons:
- No foreclosure relief: There was no evidence that forensic loan audits would help a borrower get a loan modification or any other kind of foreclosure relief. Even if the audit was conducted by a licensed, trained auditor, mortgage professional or lawyer, it still would not provide the kind of relief needed by the borrower and promised by those selling the service;
- No payment relief: Some federal laws do allow a borrower to sue their lender based on errors in their loan documents. But even if a borrower were to sue and win, the mortgage lender would not be required to modify their loan simply to make their payments more affordable, which is what the borrower facing foreclosure needs;
- Canceling the loan is not a solution: If a borrower were to have grounds to cancel their home mortgage loan, the borrower would have to return the money they borrowed; this would mean selling the home the borrower bought with the borrowed money. So, this is not a solution to the borrower’s problem. The borrower is looking to stay in their home.
The FTC warns home mortgage borrowers seeking to prevent foreclosure of their home mortgage loan to avoid other scams, such as the following:
- Anyone who guarantees that they can stop the foreclosure process – no matter what a person’s expertise may be, no one can guarantee they will stop a foreclosure;
- Anyone who tells the borrower not to contact their lender, lawyer or credit or housing counselor; a borrower’s lender, lawyer and housing counselor are the people who can help a borrower in default on their mortgage; a person who tells the borrower to stay away from these people is setting them up for fraud or other scam;
- Anyone who insists on collecting a fee for their service before providing the service and accepts payment only by cashier’s check or wire transfer;
- Anyone who advises a borrower in default to lease their home so they can buy it back over time;
- Anyone who recommends that the borrower make their mortgage payments directly to them;
- Anyone who urges a borrower to transfer their property deed or title to them; if a borrower were to do this, they would be giving this person or company ownership of their home; of course a borrower should never do this;
- Anyone who offers to buy a borrower’s house for cash at a fixed price that is not appropriate for the housing market; any sale of a home, even one in foreclosure, should be supported by a professional appraisal of its value; if a borrower in default must sell their home, they want to get the best possible price for it;
- Anyone who pressures a borrower to sign papers they have not had a chance to read thoroughly or that they do not understand.
Some possible real solutions for borrowers in default on their mortgage payments would include a legitimate loan modification. Or a borrower might arrange a forbearance agreement in which the lender agrees not to foreclose and the borrower agrees to maintain payments, but in an amount the borrower can afford. Negotiating any of these options would not require a forensic audit, but only discussion between the lender and borrower or the borrower’s lawyer.
Should I Seek Legal Advice?
If you are in default on your mortgage, facing foreclosure and have paid for a forensic audit, you should consult with an experienced foreclosure attorney. An experienced attorney in your area can identify and help you respond to potentially fraudulent behavior.
Scam artists and fraudsters know that people facing foreclosure of their mortgage loans may feel desperate and are willing to believe in false promises and fraudulent claims. That is why a borrower must be careful and consult with an experienced foreclosure lawyer.
Also an experienced foreclosure lawyer is the person who may be able to offer real help with any ongoing foreclosure issues you are facing. You are most likely to get the best outcome if you have an experienced foreclosure attorney representing your interests in a home mortgage foreclosure.