The Difference Between A Traditional Loan Audit And A Forensic Loan Audit

The process of obtaining a loan can be a complex and daunting experience, and it is not uncommon for errors or even fraudulent activity to occur during the loan origination or servicing process. As a result, borrowers may sometimes find themselves struggling to repay a loan that was improperly structured or facing foreclosure due to errors or violations committed by their lender or loan servicer.

To help address these issues, borrowers may choose to conduct a loan audit to review the documentation and records related to their loan. However, not all loan audits are created equal, and there are important differences between a traditional loan audit and a forensic loan audit.

A traditional loan audit is typically conducted by a professional auditor or accountant and is focused on verifying the accuracy of the loan documents and ensuring that the loan was properly structured and executed in accordance with applicable laws and regulations. This type of audit may be conducted during the loan origination process, or at any point during the loan’s term, to identify any errors or inconsistencies in the loan documentation or servicing records.

On the other hand, a forensic loan audit is a more in-depth examination of the loan documentation and records, conducted by a specialist who has expertise in mortgage lending and foreclosure law. The purpose of a forensic loan audit is to uncover any errors, omissions, or fraudulent activity related to the loan origination, servicing, or foreclosure process.

This type of audit may be conducted in response to a borrower’s request for assistance with a loan modification or foreclosure defense, or as part of a legal action against the lender or loan servicer.

While both traditional and forensic loan audits can be useful in identifying errors or issues related to a loan, a forensic loan audit typically provides a more detailed analysis of the loan documentation and may uncover more significant issues that could potentially help a borrower negotiate better loan terms or defend against foreclosure.

However, it is important to note that not all loan audits are successful in uncovering significant issues, and borrowers should carefully evaluate their options before deciding to pursue an audit.

When a borrower obtains a loan, they expect that the lender will properly structure and execute the loan in accordance with applicable laws and regulations. However, errors and even fraudulent activity can occur during the loan origination or servicing process, which can leave borrowers struggling to repay the loan or facing foreclosure.

To address these issues, borrowers may choose to conduct a loan audit to review the documentation and records related to their loan. There are two types of loan audits that borrowers may consider: traditional loan audits and forensic loan audits. While both types of audits can help identify issues with a loan, there are important differences between them.

Traditional Loan Audits

A traditional loan audit is typically conducted by a professional auditor or accountant and is focused on verifying the accuracy of the loan documents and ensuring that the loan was properly structured and executed in accordance with applicable laws and regulations. This type of audit may be conducted during the loan origination process or at any point during the loan’s term.

The purpose of a traditional loan audit is to identify any errors or inconsistencies in the loan documentation or servicing records and to ensure that the loan was properly executed. The auditor may examine the loan application, closing documents, a mortgage note, and servicing records to determine whether the loan was properly structured and executed.

They may also examine the lender’s policies and procedures to ensure that they comply with applicable laws and regulations. If the auditor identifies any errors or issues with the loan documentation or servicing records, they may recommend that the borrower negotiates with the lender to modify the loan or seek legal action against the lender.

Forensic Loan Audits

A forensic loan audit is a more in-depth examination of the loan documentation and records, conducted by a specialist who has expertise in mortgage lending and foreclosure law. The purpose of a forensic loan audit is to uncover any errors, omissions, or fraudulent activity related to the loan origination, servicing, or foreclosure process.

This type of audit may be conducted in response to a borrower’s request for assistance with a loan modification or foreclosure defense, or as part of a legal action against the lender or loan servicer. During a forensic loan audit, the analyst may examine the loan documentation and servicing records in greater detail than in a traditional loan audit.

They may review the loan application, closing documents, a mortgage note, and servicing records, as well as the lender’s policies and procedures. The forensic analyst may also perform a title search to identify any potential issues with the ownership of the property.

The goal of a forensic loan audit is to uncover any errors or fraudulent activity that may have occurred during the loan origination, servicing, or foreclosure process. These issues may include misrepresentations or omissions on the loan application, violations of state or federal lending laws, errors in the loan documents, such as incorrect interest rates or payment amounts, failure to follow proper procedures during the foreclosure process, or breach of contract or other legal violations by the lender or servicer.

If the forensic loan audit uncovers any issues, the borrower may use the findings to negotiate a loan modification or to challenge foreclosure proceedings. In some cases, the borrower may pursue legal action against the lender or servicer.

Which Type of Audit is Right for You?

Deciding which type of audit to conduct depends on the borrower’s goals and the complexity of the loan. A traditional loan audit may be sufficient for borrowers who are primarily concerned with verifying the accuracy of the loan documentation and ensuring that the loan was properly executed. However, a forensic loan audit may be necessary for borrowers who suspect that there may be more significant issues with the loan, such as fraudulent activity or violations of state or federal lending laws.

It is important to note that not all loan audits are successful in uncovering significant issues, and borrowers should carefully evaluate their options before deciding to pursue an audit

Disclaimer: This article should not be considered legal advice.