Legal Question in Real Estate Law in California

You need an accountant, not a lawyer. If the accountant finds irregularities in the handling of the mortgage and the mortgage company refuses to correct them, THEN you need a lawyer.

Yes, you do need an audit. The only time period you mentioned was three years from a 100K paydown, and the only way I can see an 88K balance is a long period of negative amortization. This could possible happen, but I don't think loans with major neg-am. have been around long enough. Was any cash ever taken out in a refinancing? I'd hire a local CPA to investigate, and hopefully you have all your records. The lender's annual statements may be particularly helpful -the ones you get for tax purposes.

I agree with Mr. Whipple, it sounds fishy. I also have questions as to whether the lender calculated and assessed a prepayment penalty. I would want to review the loan documents, a history of the payments, and any documentation from the lender.