In California earlier this year a company calling itself Federal Loan Modification Law Center (FedMod) hit the spotlight after it was learned that they had not been successful in delivering loan modifications to consumers who were paying them thousands of dollars for their services. FedMod is not the only company to succumb to this temptation.
You can call this practice the flip side to predatory lending. It’s predatory loan salvation - only no one’s loans are being saved. It amounts to financial rape.
FedMod had been a mortgage broker helping people get in over their heads in loans they couldn’t afford. Then, when the loan modification trend started, they started billing themselves as loan modification experts. Here’s what the Modesto Bee reported in July this year:
Despite making promises of relief to homeowners desperate to keep their homes, FedMod and other profit-making loan-modification firms often fail to deliver, according to a New York Times investigation based on interviews with scores of former employees and customers, more than 650 complaints filed with the Better Business Bureau and documents filed by the Federal Trade Commission in a lawsuit against the company.
According to the Bee, FedMod failed to deliver one successful loan modification. That’s unacceptable.
In our view, if you want to succeed in getting your clients the loan modifications they deserve, you have to start with solid information on their loans - the good, the bad, and the ugly. A forensic loan audit is designed to uncover lender violations that could lead to a successful loan modification. It’s about time we rid ourselves of predatory lenders and their friends and help people with real services designed to keep them in their homes. A trustworthy company will offer a full money-back guarantee.
A forensic loan audit is an essential tool for a loan modification attorney. But not all of them are created equal. You can’t make a decision based on price alone. There are some essential elements to an effective loan audit that you should know before you purchase one. Here’s a short list of things to look for in your next loan audit:
- Your loan auditor should not promise to uncover lender violations; it’s not a guarantee that can be kept.
- A good loan audit is comprehensive and involves a review of every document in your client’s mortgage contract.
- A loan audit should be forensic; that is, scientifically conducted.
- Should be performed by human eyes, not a computer.
- Mortgage documents should be reviewed and compared to all relevant and applicable mortgage case law.
- Your loan audit should be in writing with an analysis indicating problem areas that your client should know about.
In the end, your loan audit should give you a clear indication on how best to proceed with negotiations for better mortgage terms for your client. If it doesn’t do that then you’ve paid too much for the loan audit at any price.
If you received a home loan between 2002 and 2008 then you could be a prime candidate for a loan modification. But before you attempt a loan mod, you should first have your attorney seek a forensic loan audit.
Most loan violations occur in loans that were originated between 2002 and 2008. During that time many lenders issued high interest loans, refinanced loans, and ARMs - adjustable rate mortgages. Those types of loans are the most often problem loans for the homeowners because the borrowers end up not being able to afford them. The banks should never have issued those loans based on the borrowers incomes and ability to pay. That makes them bad loans.
That’s not to say that if you have a loan that originated in those years that you automatically qualify for a loan modification. Your loan is not necessarily bad because it was issued during this time frame. But the fact that your loan originated during that time puts you in a high risk category. If you think you may be headed toward foreclosure or you’ve been getting foreclosure threats from your bank then you should seek assistance from an attorney and request a loan audit. The loan audit will tell you if your lender has violated any applicable law and give your negotiating power in seeking a loan modification.
Loan modification attorneys are special people. You help people keep their homes and get them at affordable mortgage rates so that they live within their means. In the worst cases you are up against some tough predatory lenders. And if you have the right tools at your disposal you’ll beat them. Here are some loan modification terms you should know in order to win in court and at the negotiating table:
- Loan Modification - Any change to an existing loan, usually that is favorable toward the borrower.
- Loan Settlement Statement - A document given to a borrower at closing that shows all disbursements being paid to all parties involved in the transaction.
- TILA - Truth In Lending Act. Passed in 1968.
- Regulation Z - A part of TILA. Most often cited for its right to rescission for the borrower.
- HOEPA - Home Ownership And Equity Protection Act. Affords protections to consumers of high interest and high fee loans.
- RESPA - Real Esate Settlement Procedures Act. Protects consumers of loans on HUD homes.
- ARM - Adjustable Rate Mortgage.
- Loan Auditor - An individual who does not represent either party to a loan transaction, but is capable of reviewing loan documents and finding lender violations
- Lender Violation - Any law that a lender has broken intentionally or unintentionally while servicing a loan.
- Mortgage Document Review - An independent review of a homeowner’s mortgage documents and analysis regarding whether any lender violations exist.
- Forensic Loan Audit - A thorough, scientific investigation of a loan to determine whether a lender has violated any federal, state, or local laws in the servicing of the loan.
- Foreclosure Defense - A strategy used to help stop the foreclosure process before the homeowner loses her home.
These are just a few of the terms a loan modification attorney should be familiar with in order to help homeowners keep their homes and save their mortgages. Hope it helps you succeed.
Doug Willis in Pasadena California waxes poetic about loan modification attorneys sticking it banks and predatory lenders. He says one thing that is many homeowners may take out of context or not understand at all. But there is truth in it.
A successful outcome can reduce your mortgage balance to 90% of the appraised value and also secure a market interest rate on the new balance.
He’s talking about a successful outcome on a loan modification attempt. If your client is like most homeowners, he is upside down on his mortgage. His interest rate is through the roof and his monthly payments are so far out of reach that he can’t see the fingers. He may even owe more on the house than it’s worth due to declines in real estate values. Of course, the banks will argue that isn’t their fault.
To be fair, the banks don’t have control over market value, but they can control approving loans for people who can’t afford the terms. And that’s where the loan modification is necessary. The loan audit comes in when you are looking for reasons to start a modification negotiation. Without the loan audit you may not succeed.
When it comes to foreclosure defense, there’s only one real sure way to win the case. It’s probably not what you think.
Your first option is to hope the bank forgets about your client and they can keep the home no matter what. But hope isn’t a plan so you might as well stop that one dead in its tracks.
You could, of course, instruct your client to sell his property to the highest of the low bidders. They call themselves real estate investors. They go around to distressed homeowners and make offers on their homes that would make a dead real estate agent roll over in his grave. And the sad part is they usually walk away with the deal. It’s a win for the investor because the homeowner takes a big loss, which they perceive as a lot better than losing the house to the bank. It’s not the best deal, believe me.
Another option is to short sale the home. Again, your client will be taking less than fair market value for the home just so they can keep their credit clean. Not really a deal, is it?
Seriously, your best foreclosure defense option is to seek a loan modification. 83% of all mortgages have lender violations in them. In essence, the lender has just walked up to you with a silver platter and handed you a gold nugget. Take it. Perform a forensic loan audit and uncover those violations. Once you know where the lender has failed to comply with the law - whether intentional or by oversight - you can pound the nail into the stake. Approach the lender with your negotiation offer and close the deal. Your client keeps the house and pays less each month to boot. Now that’s a deal!
As an attorney working in the loan modification issue and helping homeowners achieve a fair and equitable loan settlement, you’ve got to be familiar with applicable local, state, and federal case law. As you know, many times precedent rules. But precedent is based on written law. And when it comes to written law, there are plenty of applicable Acts, Statutes, and other legislation to help you get the best settlement for your client.
- TILA - Truth in Lending Act. Passed in 1968. Designed to help protect consumers who fall victim to predatory lending practices and requires certain disclosures for any loan or mortgage company to issue to potential borrowers with stringent timelines.
- RESPA - Real Estate Settlement Procedures Act. Protects consumers of HUD financing and requires certain disclosures and prohibits kickbacks for loan services.
- HOEPA - Home Ownership And Equity Protection Act. Passed in 1994. Amends TILA. Requires further disclosures with stringent timelines when a consumer is applying for a high rate, high interest loan. Designed to protect consumers who borrow against their home equity.
- ECOA - Equal Credit Opportunity Act. Designed to protect minorities from discrimination practices in lending.
- Gramm-Leach-Bliley Act - Passed in 1999. Also known as Financial Services Modernization Act. Restricts information lending institutions can hold on its customers and strengthens consumer privacy.
- State And Local Laws - Many states and local governments have their own laws that are even stricter than federal law. If you practice law in those states then you should be familiar with applicable local laws and know how to use them to protect your clients.
If you are working on a loan settlement case then you’ll need evidence to act as negotiation leverage. The best tool to gain that leverage is a forensic loan audit.
Lenders in violation of the Truth In Lending Act are not always nefarious scoundrels and unscrupulous snakes. Sometimes a mortgage company simply miscalculates a finance charge and that miscalculation becomes a part of your mortgage documentation. It may not even be found for years, if at all.
Nevertheless, it could mean a refund of all of your finance charges if it is found.
Even if the financial error is a mere $25, you could end up with a refund of your interest payments even if you’ve paid in thousands of dollars in finance charges. With your right to rescission you can make a right wrong, but you should prepare yourself with a second mortgage because if you win your case and your loan is rescinded you will still have to pay the principal balance on your home.
Let’s say, for instance, that you buy a house for $250,000. After two years of making steady payments you’ve paid out $27,000 in interest. You’ll still be in the hot seat for the principal balance of the home so subtract your interest refund from that - $223,000 - and you’ll need a new loan for that amount. You’d better have that lined up with a new lender before the end of your day in court because once the loan is rescinded, it’s a done deal.
This is where you need to seek legal counsel. And make sure you choose an attorney who specializes in loan modifications.
With 83% of mortgages consisting of some type of lender violation, you’d think there’d be a swarm of loan settlements coming in. But there’s not. That’s because most borrowers aren’t aware of the violations that could get them a refund, a nice size loan settlement, or a modification to their home loan. As their attorney, it is your job to educate them.
Of course, you know that.
But have you considered a forensic loan audit?
The forensic loan audit is your ace in the hole. It’s the one tool that is nearly fail-safe in producing the evidence you need to win your case - and your client a loan settlement. With a forensic loan audit that is thorough and comprehensive, you can be sure that your clients are aware of the disclosures they should have received and know which ones they didn’t. Or if there are other issues such as TILA violations then you can help your client seek the remedy they are due.
As a loan modification attorney, you are the one person who can bring your client, a borrower, into contact with justice and relief from predatory lenders. But you need the right tools and your best tool is the forensic loan audit. It doesn’t lie.
What’s the best foreclosure defense? Experts will tell you that a loan modification is the best way to defend oneself against foreclosure, but there’s more to it than that. The truth is, an attempt to modify a loan without first getting a professional forensic loan audit will almost always end with a less-than-adequate loan settlement for the borrower.
You can prevent being taken to the bank by your lender by first seeking a qualified attorney to represent you and then asking your attorney to get you a professional audit.
No homeowner would think of buying a home without first having it inspected by a qualified home inspector. Why then would you consider a loan modification without first getting the evidence that proves you need one? Better yet, why would you seek a loan modification without getting the leverage you need to negotiate a fair settlement?
So, to answer the question: What’s the best foreclosure defense? Answer: A forensic loan audit in capable hands.