Loan Audits
This page will discuss mortgage loan audits (“forensic audits”) and some of the items that a foreclosure defense lawyer may look for when trying to determine if a homeowner has any rights / legal leverage against the borrowers original and/or subsequent lender. The following information is general in nature, and should not be construed as legal advice or a substitute for legal advice. Although we have tried to be as accurate as possible, the following information may be inaccurate, missing some information, or outdated – as law can frequently change or become modified. If you have questions about your case, please contact a foreclosure defense lawyer in your area.
Typical items we look for when conducting a forensic loan audit / file review
(1) Did each borrower or person with ownership interest get two copies EACH of the Notice of Right to cancel with the Rescission date filled in? (Federal Truth in Lending requirement – TILA). If these disclosures were not or defective in nature, an extended three year right of rescission exists.
(2) Were the material TILA disclosures made, and were they accurate if made (APR, Finance Charge, Amount Financed, Total of Payments, Payment Schedule). If these disclosures were not or defective in nature, an extended three year right of rescission exists.
(3) Were the good faith estimate and preliminary truth in lending statements given to the borrower within 3 days of giving the loan application? (if not, this is a RESPA violation).
(4) Were advance fees improperly collected by the loan broker or lender?
(5) Was the broker/ lender / loan officer properly licensed at all stages of the loan origination process?
(6) Was the ARM / Option ARM / Negative Amortization Loan accurately disclosed in the note / adjustable rate rider and other disclosures?
(7) If the loan was an adjustable rate ARM loan, were the proper disclosures given (CHARMS booklet etc.)
(8) After the broker ran the credit, were the credit scores disclosed and factors affecting risk properly disclosed? Do the credit scores indicate the borrower should have been offered better credit terms?
(9) Is there any indication of fraud or material representations in the loan documents?
(10) Was the borrower told they were getting one loan but got another (i.e. is there grounds to argue that a contract was never formed – that there was no meeting of the minds)?
(11) Unfair Competition – If we find a violation of RESPA, Truth in Lending or HOEPA, or other statutory law, do we have grounds to assert that the lender has engaged in unfair, deceptive and/or fraudulent business acts and practices under California Business and Professions Code Section 17220 and potentially seek the imposition of a constructive trust forcing the lender to disgorge any ill-gotten gains or to seek an injunction?
(12) Were the loan documents properly signed, executed and notarized?
(13) Option Arms / Negam Loans: Is the note, TILA disclosure, and loan program disclosures clear and conspicuous or predatory in nature and potentially unconscionable. The terms of the note and adjustable rate rider may conflict making it virtually impossible to properly disclose this in a truth in lending statement.
(14) Is the loan unconscionable on other grounds and thus unenforceable? Ex. excessive fees or interest rates that “shock the conscience” (Ex. HOPEA loans)
(15) Was their any fraud, deceit or undue influence exerted against the elderly? In California, an elder is anyone over 65. Public Policy arguments can be made that unconscionable loans against the elderly should not be enforced.
(16) If the lender targeted minority groups (in CA there are several protected languages under California Civil Code Section 1632), were the contracts negotiated in the language of the borrower but reduced to english documents? Under Section 1632, this could provide grounds for rescission of the loan.
(17) Was there predatory underwriting on stated income loans (i.e. underwriter did not verify borrowers stated income via salary.com or in another manner as required by their internal policies – turning a blind eye and not following their own underwriting policies to get a loan done)? Was there an utter failure to care about the borrower’s ability to repay? This is unfair and deceptive.
(18) Were there excessive fees that Violate HOEPA? Or YSP fees that are predatory in nature that feathered the nest of the broker at the expense of the borrower (Breach of a broker’s fiduciary duty)?
(19) Was the borrower asked to sign conflicting disclosures or documents such as two different ARM disclosures or two different truth in lending statements that reflect two different APR’s or Interest rates (evidencing potential bait and switch or fraudulent loan origination practices)?
(20) Are there any other irregularities in the loan documents, disclosures, appraisal, etc. that would raise red flags as to the enforceability or rescindability of the loan?
These are a few of the things a foreclosure defense law-firm should investigate when reviewing a Client’s loan files. There may be other items not listed herein.
