Don’t blindly trust the information printed on your monthly mortgage statements; mortgage service companies can make mistakes, or worse, intentionally defraud you.
The mortgage servicer is the company that handles payments on the lender’s behalf. It could be a third-party or it might be a subsidiary owned by your lender. Mortgage servicing fraud can cost you a lot of money and in extreme cases can even lead to foreclosure. (A dishonest mortgage servicer could claim to have received your payments late, or not at all, and take steps to foreclose on your home.)
Like other types of financial fraud, mortgage servicing fraud can devastate your credit, whether due to recorded delinquent payments or foreclosure. Just as you should carefully monitor your credit report for signs of identity theft, also review your report for incorrect mortgage payment information.
How Mortgage Servicing Fraud Happens
Below are three common ways dirty mortgage servicers operate, and what you can do to safeguard yourself.
#1 – Late payments
Mortgage servicers can manipulate your payment date so the payment appears to be late. You get charged late fees even though you paid on time. Or, they’ll pay your property taxes or insurance late and charge you the late fee. If you made your payment on time, the lender is breaking the law by forcing you to pay a late fee.
Protect yourself by keeping a copy of your payment schedule provided by your lender when you first took on the mortgage. Always keep records of your payments, including copies of checks, payment confirmations, and your bank statements. These will help you prove that your payments were always made in a timely manner.
#2 – Incorrectly applied payments
Extra payments you make might not be applied to your principal as they should be, causing you to pay more on your mortgage than necessary. In one recent instance, a Countrywide customer made an additional mortgage principle payment online, only to later be told that prepayments must be mailed via check (even though the online payment portal included an option for prepaying the mortgage). The error resulted in a $700 difference in mortgage principle.
Protect yourself by keeping your own amortization schedule. This is pretty straightforward if you have a fixed rate mortgage; simply use a mortgage calculator and a spreadsheet to keep track of your payments. It gets a little trickier if you have a variable rate mortgage. For more information, check out Wisebread’s helpful mortgage math primer.
#3 – Unnecessary insurance
A mortgage servicer might claim your home is not properly insured and place additional insurance on your home, thereby increasing your mortgage payment. For example, you may receive a notice saying that the law requires you to have flood insurance. The mortgage servicer subsequently begins charging you for a flood insurance policy that may not even exist.
Protect yourself by double-checking; don’t just take the mortgage servicer’s word for it. If they say you need a certain type of insurance, check with your state insurance department to make sure you really do. If the servicer says your property taxes have increased, call your county tax collector to verify.
Your Legal Rights
The Real Estate Settlement Procedures Act gives you the right to send a complaint letter to your lender when there’s an issue. Make sure you include copies (not originals) of your payment history. If you are not satisfied with the results of your complaint, you can file a complaint with U.S. Department of Housing and Urban Development, the Consumer Protection Office of your State Attorney General, and the Federal Trade Commission.
Have you experienced mortgage service fraud? If yes, use the comments section below to tell us about it.