Mortgage audits are a strategy that's growing in popularity as a way for financially pressed homeowners to avoid foreclosure. The idea is that, by uncovering legal errors or other problems with the mortgage, a homeowner can gain leverage to renegotiate the loan and perhaps even reduce the amount owed.
The question is, does it work?
A mortgage audit involves a close examination of the mortgage documentation and other records. The auditor looks for things such as Truth in Lending Act violations, evidence of predatory lending, failure to properly credit payments and others. In some cases, audit companies say, the paper trail by which the mortgage was sold and repackaged to investors may have been broken, meaning the bank cannot prove ownership of the debt.
The Consumer Mortgage Audit Center, one of the more prominent companies offering the service, claims that 83 percent of all mortgages contain violations. A company spokeswoman said that such a high rate suggests that many borrowers were not properly qualified for their loans and were given mortgages they couldn't afford.
A check online finds scores of companies offering mortgage audit services. Some even sell software that you can use to audit your mortgage yourself.
It sounds good. But simply finding problems or errors with a mortgage may not be enough to get the bank to reduce your debt or modify the loan.
Audit is just the first step
The problem, many consumer advocates say, is that even if you discover technical or legal problems with your mortgage, you still have to be able to argue in court that those someone invalidate or tarnish the mortgage, which is a legal contract. And banks can bring far more legal firepower to a case and will likely be unwilling to give up without a fight.
The big thing is, if you're going to go the mortgage audit route, you're going to need good legal help to use any information you turn up. Many consumer advocate advise that borrowers should not contract with a mortgage audit company unless it is a registered law firm in good standing with its state bar association.
In fact, there have been reports of con artists who previously operated loan modification scams reinventing themselves as mortgage auditors to tap into the same pool of vulnerable homeowners with a slightly different approach. The FBI has stated that mortgage fraud is the top priority for its white collar crime unit in 2010.
Do your research first
It's important then, that consumers use caution when considering a mortgage audit. Many companies in the field are professional and will conduct a thorough review; unfortunately, there are also people with minimum training who will present themselves as auditors. Be particularly wary of firms that charge large fees up front and which promise they can get your mortgage costs reduced - both are red flags.
Finding errors or legal violations in your mortgage may be able to help you renegotiate the loan or otherwise cut your mortgage costs. But finding the errors is only the start - the real work comes in proving them and showing they are substantial enough to compel your lender to make a deal.