Experts are discovering that 80 percent of mortgage loans issued during the prosperous years of 2002 to 2006 contain serious violations of federal and state laws. These violations may result into substantial penalties for the lender, such as being forced to return all interests that have been paid by the borrower since the start of the loan. Moreover, the lender would not be able to enforce the conditions stipulated in the loan agreement, such as a foreclosure.
If the foreclosure process has already been started, the lender will be ordered to put it on hold while the litigation on the questionable provisions of the loan is still unresolved. In addition, the borrower does not need to pay the mortgage installments during the litigation process, although it is often suggested that the borrower should be ready with these payments by depositing them into a separate bank account.
To determine if such violations are present in a commercial real estate loan, the property owner usually hires a forensic loan audit expert who will go through the various loan documents with a fine tooth comb. After the audit is completed, a report of the violations is presented to the borrower, if there are any. This report will specify the laws and regulations that have been violated.
These findings could be used by the borrower when requesting for a loan modification. A loan modification may be the solution to preventing a foreclosure if the borrower is no longer capable of coming up with the mortgage installments. With the violations that carry stiff penalties for the lender, the borrower can present a strong case for the approval of the application of a loan modification.
It should be noted that another factor in favor of the borrower is the impending crisis in commercial real estate loans. With sales in commercial real estate virtually non-existent, lenders would find it very difficult to find a buyer for the properties that they will repossess. Thus, they would also be averse to the prospect of a foreclosure.
Because the various transactions for the loan modification are complex, the borrower may then obtain the services of a loss mitigation expert, who will be responsible for making the necessary negotiations with the lender. This professional will make the preliminary contact with the lender to determine if there is a possibility for a negotiation. If the lender agrees, then the expert proceeds with the negotiations until both parties reach an agreement.
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