The Newest Mortgage Scam: Forensic Audits

Of course, scammers aren’t concerned about such niceties. Their pitch is straightforward, the FTC says. In return for an upfront payment of between $2,000 and $5,000, the person promises to review victims’ loan documents, looking for errors. When they find one, they promise to demand a modification from the loan’s servicer. If the servicer declines, the lawyers say they will sue.

But in most cases, homeowners hand over their financial documents and thousands of dollars, and nothing happens.

“In fact these bad guys have no means or intent to assist the homeowner,” says Douglas Robinson, spokesman for NeighborWorks America, a government-supported nonprofit group that assists affordable housing efforts. “They’re just looking to grab a fee for a service that is never rendered.”

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Judy Jones works the box office at a sports arena in downtown San Jose, and 75 percent of her income goes toward paying off the mortgage on her home. She agreed to pay $3,995 to Ken Nathanson and RewireMyLoan.com, which Zahradka’s lawsuit describes as a shell company created to find and funnel potential victims to Nathanson’s law firm.

Nathanson’s employees promised Jones that her mortgage modification would take 45 to 90 days. Instead, they strung her along for 15 months, according to the suit, demanding more documents, promising to be in touch, and then ignoring her calls and emails.

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In the end, Jones was left with her monstrously unaffordable mortgage, and she was out nearly $4,000.

“What we see is that the homeowner is in distress, these bad guys give them very official-looking documents that appear to offer a real solution, and the homeowner says ‘OK, let’s try it.'”

The lawsuit filed by the Law Foundation of Silicon Valley seeks to represent a larger class of people—such as Jones and Ocegueda—by Nathanson’s alleged scam. It seeks to recoup damages, plus legal fees and any punitive damages the court may see fit to impose. The suit was filed in Santa Clara County, and the defendants have yet to respond, which means there won’t be any results for quite some time, Zahrada says.

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There are many ways to tell whether an offer for a forensic audit is a scam. Perhaps the best rule of thumb is the simplest: ANY such offer is probably a scam, Zahrada says.

Why? It’s a simple question of math. Most laws regarding truth-in-lending violations have a three-year statute of limitations, Zahrada says. Given that the vast majority of problematic mortgages were written before 2008, and that very few mortgages have been sold in the years since, that means most homeowners are stuck with the loans they’ve already got.

“My view is that it’s pretty rare to find anything now that you can use to sue within the statute of limitations,” Zahrada says. “Most issues we could raise now would get thrown out immediately of court.”

Still, because some forensic audits may yet turn up evidence of deception and fraud in the mortgage process, one cannot write off the process entirely. Again, another indication of a probable scam is whether the person offering the service demands payment upfront.

“Don’t pay or anything until you get results,” Robinson says.

Another warning sign: Many scammers instruct victims not to contact their mortgage servicer, lender or financial planner, the FTC says. That’s because those professionals know about mortgage scams, and any mention of a forensic audit is sure to set off their warning bells.

If you’ve received an offer for a forensic audit, or any other kind of mortgage assistance, there’s an easy way to check and see if it’s legitimate. On its web site, NeighborWorks runs a listing of accredited mortgage counselors across the country. If the offer you receive is a scam but you still need help, those counselors may be able to point you in the right direction.

They’ll probably wind up giving the same advice that you’ve heard over and over: “If it’s too good to be true, it probably is,” Robinson says.