By Christine Springer
In an earlier post, I told you the story about how I became a loan auditor.
What exactly is a loan audit? I don't think the term "loan audit" is really a good description of what I do, but it seems to be easy for most people to understand.
If you've been following the foreclosure discussion, you've likely heard a lot about loan audits.
My favorite chestnut is this one: "Loan audits are a scam!" If you read some of the governmental warnings, it certainly seems like they might be a waste of time and money.
I personally think the government went off the deep end during the foreclosure crisis. Just a few weeks ago someone told me a story about how an attorney in their family was disbarred because of loan modifications. In retrospect, I don't think anyone expected that the banks would NOT modify loans. It just didn't make a lot of sense, until you followed the money.
Anyway, the way I use the term loan audit is to explain a review process by which I take apart a set of facts and find the problems, errors and inconsistencies.
If you are interested in learning how to audit or want to know how I audit loans, you can out the DIY Mortgage Review products on my other site. It's all in my books, and there's no software, just old-fashioned investigative work.
I typically begin with the documents from the closing of the transaction and note the details of the loan and the timelines. I keep track of those details and then I look at the recorded documents and look for discrepancies from the closing of the loan. I also check to see who is foreclosing, whether they have authority and whether the dates are in order, and whether anyone else claims to have an ownership in the loan.
The nice thing about the way I audit is that my conclusions are based on facts and evidence that are publicly available. The banks record documents that are usually easily picked apart. In the majority of loans I investigate, I find at least one, if not several major problems that call into question the bank's ability to foreclose.
If you're considering a loan audit, here are some suggestions based on successful outcomes for my clients.
First, it's important to be proactive. Clients who plan ahead get the best results. Don't wait until a week before the foreclosure date to begin the process of fighting foreclosure.
Much has changed since the foreclosure crisis first began unfolding, and many people are in better financial shape these days. Property values are recovering and the job market has picked up this year, too. Consider whether you can afford to keep the home, and be realistic. The most likely outcome from fighting a foreclosure in court is a loan modification.
Second, consider a loan audit or review the documents yourself. By the time many people come to me, they have already narrowed down their options and have a few choices about which way to proceed. I think a loan audit is a good next step if you want to keep the home. If you don't want to keep the home, check with an attorney in your state before you consider a strategic default.
When shopping for a loan auditor, you should ask about their track record. I have already told you about several cases I've worked on, along with my own cases, here on this blog. It's a nice benefit of writing a blog -- credibility. I am sure there are other great auditors out there.
I'd also ask about credentials, because if (and it's a BIG if) you need them as an expert witness, it helps to have a few degrees and some relevant experience.
There has been a lot of talk about expert witnesses when it comes to foreclosure defense. I personally haven't needed to testify as an expert witness yet because I usually have facts and evidence that an attorney can use as leverage. It's only when you have to make an inference based on evidence that is missing where an expert witness would be needed.
Third, find a competent attorney with a track record of winning foreclosure defense cases if you're fighting in state court.
If you're heading into Chapter 13 and want to do an adversary proceeding, look for an attorney who is willing to do this. A lot of bankruptcy attorneys don't want to do the extra work in these cases because they see the same judges and lawyers repeatedly and rely upon their relationships to make deals for future clients. In every Chapter 13 case I have consulted on, the main bankruptcy lawyer refused to handle an adversary proceeding. They typically don't want to bother with loan modifications, either.
If you have trouble with finding a lawyer, you will probably have to get creative. For example, consider whether a lawyer can be permitted pro hac vice to handle the adversary proceeding. I've seen this done in a recent case.
The Big Picture:
I think we've learned a lot about foreclosure processing after the crisis. It's rife with problems, and there are no signals that the banks are going to begin foreclosing the "right" way. As far as I can tell, they are still using the same shoddy foreclosure methods they used during the recession.
The problems stem from securitization of residential mortgage loans. A lot of people think that securitizing residential mortgage loans is illegal, but it isn't inherently illegal.
Banks securitize debt, such as student loans and car loans, routinely. They were already securitizing commercial real estate loans before the foreclosure crisis, but the documentation was done correctly in most of those loans.
The problem with securitization of residential mortgages is that the banks did not, and still don't appear to be, properly documenting the transfers of the loans.
This creates a opportunity for anyone fighting foreclosure. When you understand how it all fits together, it's really not that difficult to find some problems that would make it obvious to a judge that there is an issue, or to make opposing counsel re-think their decision to foreclose on you.
If you have questions about this process, let me know! Send me an e-mail or leave me a comment on our Facebook page.
Christine Springer is not an attorney and this is not intended to be legal advice.