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1.2.3 Follow the Money

Before analyzing the legal issues involved in a case, a useful exercise is to consider how the money breaks out in the transaction. Determine into whose pocket each dollar goes. If you are reviewing the origination of the loan, a good way to start is by making four lists.

The first list is for those items that are of value to the borrower: proceeds, purchase price, legitimate pay-offs of debts to third parties, legitimate refinanced balances, etc. In the second list, enumerate items to be paid (or purported to be paid) to third parties. The third list is charges clearly identified as going to the creditor. On some loans there is a fourth “what’s this?” list.

If you suspect a problem with the loan servicing, a fifth list can consider what is going into the servicer’s pockets. Following the money places a spotlight on those parties with the greatest pecuniary interest in the transaction and therefore the greatest incentive to take advantage of the borrower.