Mortgage Servicing Fraud - How They Push Homeowners to Foreclosure

Published: 11th September 2009
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In the past couple decades, since the government essentially created the abuse-encouraging mortgage servicing industry, there has been a wave of lawsuits against these servicers for a range of activities. Obviously, there is a systemic problem and homeowners need to be aware of it before they are taken advantage of. While there are a whole host of abuse practices these companies engage in, this article will look at five of the most common.

As ridiculous as it sounds, many mortgage servicers misapply customer payments. While they receive the full amount of a payment, they either do not apply it, apply it to the wrong account, or only credit a partial payment. For instance, a payment of $1550 may translate into $1150, creating a $400 per month shortfall that, over time, leads the owners into foreclosure. It may take months or years for the borrowers to recognize the issue and get it corrected, if ever.

Similar to misapplying payments is when a servicing company will just add late fees and property inspection charges related to a default when the homeowners have made all of their payments on time. This can be an outright lie and it is almost impossible to get the companies to admit to this and fix the problem. Instead, the borrowers may have to pay hundreds or thousands of dollars of these junk charges to get their loan current again, or face a fraudulent foreclosure.

Another clerical and record keeping error the companies make is when they force place insurance on a home that already has adequate insurance. The servicer will determine that the level of coverage is not adequate and will buy a policy through an insurer that is much more expensive than what the borrowers could get on their own. Even sending proof of adequate insurance is usually not enough to get the force placed policy removed, and the cost of this policy is passed along to the owners.

Closely related to claiming insurance policies have lapsed and forcing new charges on borrowers is the issue of servicers not paying property taxes. This has occasionally gone so far that the homeowners lost their property at a tax sale, and the servicing company ended up buying the home for just a few thousand dollars. The company keeps the escrow payments for itself, has government-imposed fees placed on the house until it is auctioned, and then buys and resells the house for a huge profit.

Finally, fraudulent mortgage servicing companies often engage in abusive collection practices against their victims. Requesting a simple payoff statement may lead to mass confusion as the servicer and its lawyers make up numbers that change by tens or hundreds of thousands of dollars by the week. Some courts have even found these companies making up payoff figures out of thin air, as they do not even have previous payment histories on loans that they purchase the rights to service on.

When homeowners feel that they are being taken advantage of by a bank or servicing company, they are often right to trust their intuitions. From imposing junk fees and forcing insurance on borrowers, to simply making up numbers out of thin air, the lack of due diligence in many mortgage transactions is astounding. The most important act homeowners can take in these types of situations is documenting the abusive actions and their attempts to fix the situation before the house is lost to foreclosure.
Nick publishes articles on the ForeclosureFish website to provide foreclosure help and news to borrowers in need of assistance. The site examines numerous options to save a home, including deed in lieu of foreclosure, filing bankruptcy, short sales, fighting foreclosure in court, and more. Visit the site for an e-book explaining the basics of foreclosure and how to stop the process:

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