March 11, 2010 in Mortgages

Mortgage audit won’t help loan modification

Most people facing foreclosure simply want to get reduced payments so that they can afford to keep their homes. Mortgage audits, supporters contend, can help by uncovering mistakes or legal violations in loan documents, giving homeowners a bargaining chip in negotiations with lenders. Yet many others with experience in the field say that in most cases, a mortgage audit is no bargain at all.

“We find violations in 98 percent of the audits we perform,” says Sylvia Alayon, vice president of operations at the Consumer Mortgage Audit Center, a due diligence and consulting company based in Fort Lauderdale, Fla.

“The mere fact that we’re finding so many tells us that there were not a lot of standards in loan qualifications. People were put into loan programs they simply could not afford beyond the initial payments. If you could fog a mirror, you could get a loan.”

Homeowners can then take their audits to an attorney or a consumer advocacy group, Alayon says, and “depending on the type of violation, there are remedies available to them. The audit serves as the negotiating tool in getting their loan modified.”

Foreclosure, she points out, involves a lawsuit, “and that means going to court, which can become very expensive.”

Few audits succeed

But consumer advocates say that people who pay for a mortgage audit will have to pursue any errors in court anyway — and few cases to date have been successful.

“In my opinion, they’re a waste of money,” says Margot Saunders, an attorney with National Consumer Law Center. “The ones I’ve seen are often wrong.

“Second, even if they are correct, you need to hire an attorney who knows how to use them. Third, even if you’ve got a good claim, that doesn’t necessarily mean you’ll have a case. An audit of the numbers in a file omits the much more important story of what went on and why the consumer was wronged, if they were. They don’t tell the whole story, so they’re often unsuccessful.”

In some instances, judges might deny foreclosure actions because the lenders are unable to produce the notes that prove legal ownership, says Barry Zigas, director of housing and credit policy at the Consumer Federation of America. A large portion of the loans now in trouble were securitized, he says, and shipped to a trustee to hold — “so when the judge asks the lender to produce the note, they don’t have it.”

Another loophole might open up, according to Zigas, “if there was a deliberate attempt to qualify for more than the borrower could afford, and there’s no evidence that the borrower colluded.” But that would be extremely difficult to prove, and, he admits, “how often any of this is happening, I don’t know.”

Almost never, says Sara J. Mobley, managing member of S.J. Mobley & Associates in Greenwood Village, Colo.

“We used to do mortgage audits in-house,” she says. “It’s true that the majority of loans have Real Estate Settlement Procedures Act (RESPA) or Truth in Lending Act (TILA) violations, but if you take it to litigation, you’ll have to submit it to the lender, and loan servicers and investors are taking a punitive attitude.

“It’s the little guy against the big guy. Banks can draw litigation out as long as they want. Plus they will have to expend money on legal help, pull the documents for the RESPA, and recalculate the TILA. It’s a lot of work, and as a result they are not going to be as amenable to giving you a loan modification.”

Rashmi Airan-Pace, a partner in the real-estate law firm Airan2, Airan-Pace & Crosa in Coral Gables, Fla., reports much the same experience.

“I used to try to sell every client on the idea of a forensic audit,” she says, “and send a very aggressive letter to the bank for violations of TILA or RESPA. What we found is that generally we were not getting the results we expected. Banks are not responding, and my experience is that they’re not helping people get reductions. I almost felt like we were being blacklisted.”

Litigation costs

Some people want a mortgage audit to find out what’s wrong with their loan, Mobley says. Others want to be able to call upon a mortgage auditor as an expert witness — though very few are qualified as such.

“Many clients are determined to sue, but find they can’t afford litigation,” she says. “In cases where the homeowner insists on it, we’ll do it, but in my opinion they only create unrealistic expectations.”

“We will do audits if a client is denied a modification and wants to file a lawsuit against the bank,” says Airan-Pace, “but only if it makes sense, and they are pursuing an aggressive strategy. Litigation is costly and not fun.”

Any consumer opting for an audit, Airan-Pace says, “needs to do their research and make sure that whoever they hire has real experience. There are many people, both lawyers and nonlawyers, going to weekend seminars and claiming to be foreclosure experts. And, of course, people should be wary of anyone who makes lofty promises or guarantees.

“Unfortunately, there is no quick fix.”