A last-ditch loan-mod effort

Judging from the number of companies that now advertise on the Web as doing "forensic loan reviews" on behalf of homeowners, one would think we have finally achieved the Holy Grail to forestalling foreclosures.

Well, we haven't. The forensic loan review is expensive (pricing is usually $2,000 to $5,000) and even if it is successful in discovering problems in your underlying mortgage documents, that's usually not enough to make a difference with your bank.

The forensic loan review is an in-depth scrutinization and subsequent report on all documentation, transactional data and associated aspects of the residential loan origination process. The review often focuses on the closing documents to see if they contain violations of the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), or if there was any kind of fraud or misrepresentation.

This type of review is only successful if you, as a consumer, go the next step, which is to bring a lawsuit against your lender.

"An audit by itself is not some magical way to make everything go away -- it is just a beginning," notes Dean Mostofi, the founder of National Loan Audits in Rockville, Md. "Borrowers who contact lenders with an audit don't get too far. It's in their best interest to go in with an attorney."

The good news is most lawsuits based on the findings of a forensic loan review are generally successful in attaining for the borrower a loan modification. The bad news: hiring a law firm is just another big expense at a time when you are so hurting financially you are in danger of losing your home.

More than 50 percent of the loans our company reviewed have material misrepresentations, says Jeffrey Taylor, managing director and chief business development officer for Digital Risk LLC in Dallas, which does work for large banks and government agencies, not individual consumers.

One of the first companies to do forensic loan reviews for consumers was You Walk Away LLC in Carlsbad, Calif. "We found about 80 percent of the loans we looked at had some type of violation in them. Clearly, a lot of adjustable-rate mortgages had violations," says Jon Maddux, CEO.

After a number of months, however, Maddux decided to stop doing forensic loan reviews. "When we first launched the business, we thought it was going to be a great new tactic to help the homeowners," he says, "but we found the lenders in California weren't really reacting to it, so we stopped doing it."

What happened was, lenders were, and still are, so overwhelmed with foreclosures that even if you walked into an office and handed them proof that there were problems in the original loan documentation, they still put you in the queue along with everyone else. Meanwhile, the clock continued to click down on the foreclosure process.

Maddux realized even with a forensic review no progress would be made with your lender unless you actually sued. ...CONTINUED

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