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The Mortgage Servicer Made a Serious Mistake

Mortgage servicers make mistakes all the time when they’re dealing with borrowers. A study done by law professor Katherine M. Porter showed that in 1,700 Chapter 13 bankruptcy cases, a majority of the claims submitted by mortgage owners had errors. (Misbehavior and Mistake in Bankruptcy Mortgage Claims, Texas Law Review 2008.) You may be able to fight your foreclosure based on this kind of mistake—for example, because the mortgage servicer imposed excessive fees or told you that you owed more than you really did.

What to Look For

Many errors occur when a lender or mortgage servicer tells you how much you must pay to reinstate or redeem your mortgage. Many states let you reinstate a mortgage within a certain period of time by getting current on your mortgage payments, including costs, attorneys’ fees, and interest. And even if a state doesn’t specifically provide a period in which you can reinstate the loan, the mortgage documents may themselves allow it. (See Ch. 2 and your state’s page in the appendix.)

In either case, when you receive notice of an impending foreclosure and are told how much you would need to pay to reinstate the mortgage, the amounts must be reasonably accurate and must be justified by language in the mortgage documents. For example, your lender can’t require you to pay a fee for a monthly reappraisal or inspection of the property if the mortgage documents don’t provide for it, if you were current on your payments when the inspection was made, or if the overall number of inspections or the inspection fee itself is obviously unreasonable. You could properly contest the foreclosure on the ground that the notice you received deprived you of the right to reinstate your mortgage because of the excessive fees.

EXAMPLE: Henry receives a statutory notice of default that tells him he’ll have to make up three missed payments and pay costs of $2,000. The costs include $800 for a reappraisal of the property and $1,200 for six drive-by property inspections at $200 a pop. While he could make up the missed payments, he can’t afford the costs so he doesn’t reinstate the mortgage within the time allowed in the notice. The lender starts a foreclosure lawsuit.

 

A mortgage broker advises Henry that the reappraisal and inspection fees are a rip-off, so Henry contests the foreclosure on the basis that the notice of default was faulty. The court agrees and delays the foreclosure for a month to give Henry time to reinstate the mortgage without paying the inflated fees. If Henry doesn’t reinstate on time, the foreclosure will go forward.

Determining whether or not your mortgage agreement allows a particular cost or procedure requires careful reading of the document. The fact is, mortgages are often almost undecipherable—you need an expert to make sense of them. The biggest area of contention is the amount the lender charges the homeowner for attorney fees paid by the lender for work on the default notice and foreclosure documents. As a general rule, such charges must be reasonable.

If the mortgage has been bought by Freddie Mac, Fannie Mae, or the FHA, there are limits on what attorneys can charge for services related to mortgage defaults or foreclosures. Limits also apply to fees charged by mortgage servicers. If the fees exceed these limits, and reinstatement of the mortgage is conditioned on payment of the fees, the result depends on the kind of foreclosure proceeding.

• In a judicial foreclosure, the judge could dismiss the foreclosure proceedings and either reinstate the mortgage or require the lender to start over. Or, in some states, the judge could delay the foreclosure, giving you more time to reinstate.
• In a nonjudicial foreclosure, a violation of attorney fee limits may be the basis for you to ask the court for an order (injunction) halting the foreclosure proceedings.

In addition to errant attorney fees, the most common errors that may have been made by your mortgage servicer—and that may lead a court to stop a foreclosure—are:

• misapplying your mortgage payments to the wrong account
• buying insurance on the property and billing you for it even though you already carried (and were current on) the insurance required by your mortgage agreement
• failing to pay your property tax, resulting in your owing fines to the government, even though you were paying into an escrow account and the servicer was responsible for paying the taxes
• charging you late fees and property inspection fees even though you were current on your mortgage payments, and
• engaging in coercive collection practices and falsely claiming that certain amounts are due.

How to Get Information About Errors

The more information you can wrest from your mortgage servicer, the better. A federal law called the Real Estate Settlement Procedures Act (RESPA) provides a way for you to challenge common kinds of errors such as improper charges, improper calculation of interest, or the failure to credit payments properly. It also gives you a way to get the information you need to make such a challenge.

Your first step is to send the servicer what’s known under RESPA as a qualified written request identifying the borrower and the account and the information you’re after. A sample is shown below.

Sample Qualified Written Request

Elmer Budd
401 North State Street
Frisco, TX XXXXX

December, 2, 20XX

VIA CERTIFIED MAIL

A & B Mortgages
1111 Black Lane
San Rafael, CA 95555

Attn: A & B Mortgages Loan Accounting Department
Re: Countrywide # 0987654

Dear Sir or Madam:

A & B Mortgages is the servicer of my mortgage loan at the above address. I dispute the amount that you claim I owe. I am making this qualified written request under the Real Estate Settlement and Procedures Act, asking that you send me detailed information about how you have handled my loan.

Specifically, I request:

• a complete payment history, including but not limited to the dates and amounts of all the payments I have made on the loan to date
• a breakdown of the amount of claimed arrears or delinquencies
• an explanation of how the amount you claim I owe (on the monthly billing statement) was calculated and why this amount was increased to $5,600 on November 6, 20xx
• the payment dates, purpose of payment, and recipient of any and all foreclosure fees and costs that have been charged to my account
• the payment dates, purpose of payment, and recipient of all escrow items charged to my account since January 20xx, the date A & B Mortgages took over the servicing
• a breakdown of the current escrow charge showing how it is calculated and the reasons for any increase within the last 24 months, and
• a copy of any annual escrow statements and notices of a shortage, deficiency, or surplus sent to me within the last three (3) years.

Thank you for taking the time to acknowledge and answer this request as required by the Real Estate Settlement and Procedures Act (Section 2605(e)).

Very truly yours,

Elmer Budd

Within 20 business days of receiving the qualified written request, the servicer must provide you with written acknowledge ment that your request was received.

Within 60 business days, the servicer must provide the information you requested or explain why it is not available, plus give you the name and contact information of someone you can follow up with.

While this process is going on, the servicer cannot report to a credit bureau as overdue any payment relating to your qualified written request. However, foreclosure proceedings may continue (if you are requesting this information after the foreclosure has begun).

If the servicer you are requesting information from has transferred your account to another servicer, your qualified written request must be sent no later than a year after the transfer.

If the servicer fails to comply with the act, you can sue and ask for statutory damages of $1,000, reimbursement for your attorneys’ fees, and compensation for your other losses. However, none of these remedies will help you stop the foreclosure. On the other hand, knowing that these remedies exist may help prod the servicer into giving you the information you’ve asked for.