Forensic Loan Audits

I saw a loan modification company advertise 'Stop bringing a pillow to a gun fight.  Use Forensic Loan Audits to obtain a Loan Modification".  It made me curious what a Forensic Loan Audit (FLA) was and if it was a gimmick or something that could help a loan modification or short sale.

What is a FLA:  A Forensic Loan Audit is a process that involves the examination of all of the homeowners' loan documents.  The purpose of the audit is to find violations within the loan documents that can be used to the homeowners' advantage under the Truth In Lending Act (TILA) or the Real Estate Settlement Procedures Act (RESPA).  

The goal of a FLA:  A Forensic Loan/Mortgage audit will help you to get "noticed" by your lender. Contrary to popular belief, the goal is not to actually have the loan rescinded so the homeowner can own the property free and clear but rather to redo the loan so that it follows all federal guidelines.  Oh, and while it's being rewritten, to adjust the interest rate into more favorable terms for the noteholder.  

It is estimated that up to 95% of mortgages may be legally unenforceable due to defects like lost documents, improper notices, appraisal and/or predatory lending. Most TILA violations have a 3 year statute of limitation, so if homeowners are struggling with a relatively new mortgage, they will have 3 years to have an audit performed.

Do Lenders Pay Attention to FLA:  Yes, lenders will put a loan modification or short sale request accompanied with a forensic audit at the top of the pile.  Lenders are also concerned because it is very hard for a bank to mount an effective defense against people who can prove that their loan contained violations.  And to go to court and fight every claim can be both time consuming and expensive.  Banks would rather see the problem corrected without having to go to court.  

Conclusion:  It appears that if you, as an investor, are looking to perform a subject-to transaction but would like more favorable terms, or are looking to perform a short sale, a forensic audit may be a benefit.  In all the research I've done, I've found it's recommended to seek legal counsel or third party assistance  if you are looking to perform a forensic audit as a mistake will hurt your case.  Therefore, there will be an investment involved.  As an investor, you will need to determine if the payoff will be worth the investment.