When you take out a mortgage to purchase a house, you may anticipate dealing with the lender if any loan-related problems occur. However, this isn’t always the case. Frequently, the original bank or another lender that provided you with your house loan would sell the loan to a new owner, referred to as an investor. The loan’s owner may also delegate servicing to a third party, referred to as a “mortgage servicer.” In other words, the loan owner would pay the mortgage servicer to manage your account, which would include collecting payments, pursuing a foreclosure if you defaulted on the loan, and negotiating with you on foreclosure alternatives if necessary.
Whether the loan owner handles your loan directly or via a separate mortgage servicer, this business may make errors. In rare cases, a mortgage servicer may commit blatant fraud against homeowners. If you believe there has been an error, or if you just want more information about your loan account, you should write to the servicer. The Real Estate Settlement Procedures Act, a federal statute, requires it to react within a specified amount of time.
Mortgage Servicer Mistakes
If mortgage servicers do not recognize and correct errors, they can have a disastrous effect on homeowners. A mortgage servicer, for example, may fail to correctly process the homeowner’s monthly payments and credit them to the account on time. With limited exceptions, the servicer must credit your payment on the day it receives the cash under the quick crediting rule. A mortgage servicer may potentially fail to account for a grace period granted and incorrectly report a payment to credit bureaus as late or absent. Even if no foreclosure occurs, this might do significant damage to your credit.
Mortgage servicers are sometimes guilty of blatant fraud or abuse. They may charge a homeowner incorrect late fees, load on unnecessary foreclosure charges, or impose other erroneous fees as a result of a homeowner falling behind on payments or facing foreclosure. Even if the charge is legal, you may be able to contest the amount if it is excessive.
Dual tracking is a different sort of issue. While apparently working with the homeowner to amend their loan, the mortgage servicer is also seeking a foreclosure. Due to dual tracking, a foreclosure may occur before the loan modification application is completed. State laws frequently outright ban this technique, and federal law prohibits its use.
A homeowner’s house will almost certainly require insurance under the conditions of their mortgage. If the homeowner lets their insurance coverage lapse, the mortgage servicer can obtain a new policy and charge the homeowner fees for it. A mortgage servicer may impose force-placed coverage on a homeowner who still has an active insurance policy, whether by mistake or on purpose. If not handled, this might result in a significant increase in monthly mortgage payments and, if not resolved, foreclosure.
Escrow Accounts and Mortgage Servicers
An escrow account can be used by a mortgage servicer to collect money for property taxes and homeowners’ insurance payments. The homeowner may make the necessary payments into the escrow account, but the servicer may fail to make the necessary payments from the account for taxes or insurance. This might lead to a tax foreclosure or a coverage gap in insurance. Late taxes or the restoration of an insurance policy that lapsed due to the servicer’s error might result in additional fees for the homeowner. To avoid an escrow deficit and higher monthly payments, you should fix any apparent mistakes in making payments from the escrow account.