Mortgage servicers manage loan accounts on behalf of the lender. They send monthly statements, collect and process payments from homeowners, and administer the escrow account. In addition, servicers are in charge of loss mitigation options and applications, acting under the lender’s guidelines. Unfortunately, servicers often engage in harmful servicing practices that can cause a borrower to default on the loan or otherwise lead to foreclosure. Common instances of mortgage servicing errors include:
It is the duty of the mortgage servicer to collect and correctly process payments from the borrower. However, in some cases, a mortgage servicer may:
Most mortgage contracts allow a lender considerable leeway to charge fees under certain circumstances, such as when the borrower is late on a payment or is in default. These fees include, but are not limited to, late fees, inspection fees, foreclosure costs, and other default-related fees. However, when a servicer charges excessive or incorrect fees amounts to the account, it unlawfully increases the total balance owed by the borrower.
Many mortgage loans have escrow accounts, which are set up to pay real estate taxes and homeowner’s insurance. The servicer collects funds from the borrower that will be used to make payments for these expenses on behalf of the borrower, together with the monthly mortgage payment for principal and interest. However, if the servicer fails to make a tax or insurance payment, a homeowner could lose his or her home to a tax foreclosure or face difficulties with uninsured property damage. Additionally, any late fee imposed by the taxing authority or reinstatement fee imposed by the insurance company could improperly be charged to the borrower’s account. These fees could possibly lead to an escrow shortage, which in turn would increase the borrower’s monthly payments.
Most mortgages require mortgagors to maintain a homeowners insurance policy on their property. If the homeowner lets the coverage lapse, the servicer can obtain insurance coverage at the homeowner’s expense, a “force-placed” insurance policy. The policy premium is charged to the mortgage account, and is usually considerably more expensive than a policy obtained by the homeowner. Additionally, force-placed insurance does not cover the contents of the home.
Sometimes a mortgage servicer may force-place insurance coverage even though the borrower already had other coverage in place. The resulting increase in the monthly mortgage payment can cause homeowners to fall behind, or even cause a default for mortgagors already having difficulty making payments. At worst, force-placed insurance can send a mortgage into foreclosure.
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