The Newest Mortgage Scam: Forensic Audits

Antonio Ocegueda and his wife Ines have a lot wrapped up in their house, a beige ranch in Union City, California. Antonio supervises a commercial landscaping company; over forty percent of his income every month goes toward pay off the $370,000 mortgage. His wife stays home to provide 24-hour care to their daughter, who has Down Syndrome.

In 2009, the Oceguedas wanted to modify their mortgage, looking for a lower interest rate so they could pay the loan off faster. Antonio heard an interview on a Spanish-language radio show with a local real estate broker who promised successful, risk-free modifications.

The broker said he worked with lawyers who “were really good” at forcing banks to modify mortgages.

In a meeting with the broker’s staff, the Oceguedas signed a contract agreeing to pay Ken Nathanson, a Beverly Hills-based lawyer, $3,995. Nathanson advertises a service he calls a “forensic audit,” which involves looking for mistakes and misleading statements in mortgage documents that could enable homeowners to sue their lenders and win loan modifications.

Nathanson took nearly $4,000 from the Oceguedas, but never did anything to help them, according to a class-action lawsuit filed in June. Nathanson did not respond to a phone call seeking comment.

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“The term ‘forensic audit’ is fake,” says James Zahradka, supervising attorney for the Law Foundation of Silicon Valley, a nonprofit group that is bringing the suit.

At Credit.com, we’ve been writing about mortgage modification scams for a while. Forensic audits appear to be the latest version, according to the Federal Trade Commission.

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“The ‘auditors’ say you can use the audit report to avoid foreclosure, accelerate the loan modification process, reduce your loan principal, or even cancel your loan,” the FTC says in a recent warning to consumers. “Nothing could be further from the truth.”

Like all good lies, a forensic audit scam is rooted in a kernel of truth. The Law Foundation of Silicon Valley has actually been doing a very similar process for years, Zahradka says. During the mortgage boom, many unscrupulous lenders and brokers boosted their incomes by lying to home buyers about the terms, and packing the loans full of high hidden fees and interest rates, says Zahrada.

After interviews with the homeowner and a careful review of the loan documents, an experienced attorney may be able to find places where these misrepresentations broke the law. In some such cases, the homeowner may be able to negotiate, or even sue, to get the loan rewritten with more favorable terms. The difference between legitimate document reviews and forensic audit scams is that the scammers charge up front. And they don’t do a whole lot in return.

In this way the forensic audit scam “besmirches the whole practice, which has very legitimate applications,” says Zahrada.

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The Newest Mortgage Scam: Forensic Audits (cont.) »

Image: Tall Chris, via Flickr.com