Homeowners who at risk of losing their homes to foreclosure are often the targets of scams. Sometimes, those scams come wrapped in official-sounding names.
"Forensic mortgage audits" can be one of those. Describing them as a "new twist on foreclosure rescue fraud," the Federal Trade Commission (FTC) is warning consumers that companies promoting these audits are using "half-truths and outright lies" to sell their services to financially stressed homeowners.
A "forensic audit" certainly sounds legitimate. And it is a legitimate line of work, referring to accounting methods used to uncover wrongdoing and collect evidence that can be presented in court. Such evidence can be used to prosecute crimes, such as embezzlement, or in civil cases to recover damages.
Benefits of an audit are limited
Companies that offer forensic audits of mortgages suggest that they may be able to turn irregularities that a homeowner can use as leverage to obtain a loan modification or free the homeowner of debt obligations, including principal reductions or even canceling the loan itself.
However, the FTC says a close examination of your mortgage documents isn't going to turn up anything that will help you get a loan modification or protect you from foreclosure. That's true even if the audit is conducted by a qualified accountant or attorney, according to the FTC - and typically, they lack even these credentials.
An audit of your mortgage may turn up errors you can sue your lender for, but you're very unlikely to win enough damages to persuade your lender to give you a loan modification as an alternative. You may be able to free yourself of financial liability if you can show the loan was fraudulent but that just means you're not required to make payments any more - not that you can keep the house. You still have to return any money you borrowed.
Foreclosure prevention scam warning signs
The FTC says there are several warning signs to look out for if you're seeking professional help in obtaining a loan modification or avoiding foreclosure. Among them, it urges consumers to avoid any company that:
• Guarantees it will enable you to avoid foreclosure, no matter how bad your situation
• Charges more than a modest retainer up front, or requires that payments be in the form of a cashier's check or wire transfer
• Suggests that you send your mortgage payments to it, rather than to your lender
• Suggests a buy-back or lease-back deal or any situation where you transfer the deed to them
• Tells you to deal only with them, and not to contact your lender, an attorney or a housing counselor
• Pressures you to sign any papers you don't understand or haven't had time to fully review
If you do need help, the FTC recommends that homeowners first contact their lenders, then seek assistance through a HUD-approved housing counseling agency.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of NASDAQ, Inc.