As if falling behind on your mortgage payments and being at risk of losing your home to foreclosure wasn't bad enough, it also costs you extra money in the form of fees, which make it even harder to get your mortgage back on track.
Being charged fees for not having enough money to pay your mortgage can feel like adding insult to injury. You didn't have enough money to pay the regular mortgage payments, now they add fees to that! Wonderful.
Unpleasant as it is, there's no getting around incurring some fees when you default on your mortgage. Your mortgage contract states that you will be charged fees in the event that you do not pay your mortgage in full and on time.
The amount of your missed payments, which include principal, interest, taxes and insurance, will make up most of the money you owe after defaulting, but the fees are nothing to sneeze at. Let's look at what some of them are.
Title Search Expense
When payments are missed, the servicer will do a title search to determine if there are other encumbrances, such as liens, on the property that would need to be dealt with before full possession can be taken. This charge can be a few hundred dollars.
Your bank will charge you for the cost of the attorney they pay to work on your foreclosure case. The longer you're in foreclosure, the more the attorney's fees add up. These fees could be flat rate or hourly and can add up to hundreds or thousands of dollars.
Pre-Acceleration Late Charge
Servicers are often prohibited from assessing late charges after the note has been accelerated, which is when they demand the whole loan be paid off because of missed payments. But before acceleration, they can charge you. A recent client of our firm in Florida was charged $225 in pre-acceleration late charges.
Private process server fee
In judicial foreclosure states, a homeowner has to be sued in a civil lawsuit in order for the lender to foreclose on their home. A summons and complaint has to be delivered, or served, to the homeowner by a process server. The client mentioned above was charged $65 for a private process server, which is about average.
Property "Preservation" Costs
After being served foreclosure your lender will try to determine what kind of shape the property is in and take steps to protect it. After all, the whole point of foreclosure is to sell the property to pay off the debt the borrower defaulted on.
So they need to do an inspection to find out if anyone is living in the home or if the homeowner poured cement down all the drains or left rotting fish in the attic before they left. Of course, the homeowner gets charged for the inspections. There will probably be a drive-by property inspection to determine if the home is occupied and what kind of condition it is in and other inspections will follow.
There may be quite a few other charges related to to preserving the property, especially if it is vacant. For example, the property may need repairs, winterizing, trash removal, lawn maintenance, and/or locks replaced. And the homeowner is charged for all of it.
What Happens To The Fees?
You may be able to get a fee removed if the bank has improperly assessed it, which has happened. But for the most part there's not much you can do. All the fees that are assessed will be added to the amount you're past due, which will eventually have to be dealt with.
If a property is sold in a foreclosure auction, proceeds from the sale will be used to pay the mortgage and late fees off, assuming the home sells for enough to cover all of it. When there's not enough money from the sale, there is a deficiency, which the bank can sue the homeowner to recover.
Alternatives to Foreclosure
Homeowners tend to not want to just roll over and let foreclosure happen to them. They want to find a solution that lets them resolve their situation with the least harm. Homeowners who want to get rid of their home and mortgage can try to get approval for a short sale or deed in lieu of foreclosure, sometimes with a cash-for-keys agreement.
With any of the above alternatives to foreclosure it's possible to negotiate a deficiency judgment waiver, they can be sure that the bank can't sue them for any deficiency.
If you want to keep your home, a loan modification may be your only hope. When a loan is permanently modified it is returned to normal servicing with one or more of its terms changed. There are a few ways the late fees and past due amount can be dealt with when a loan modification is given. It can be:
1. Added to the principal. where it is recapitalized and payments are made on it like normal.
2. Deferred. Sometimes mortgage servicers will take the past due amount, including fees, and defer it, charging no interest and requiring no payments to be made on it. Then, when the modified loan matures in 30 or 40 years, the deferment becomes due in full as one big balloon payment.
3. Forgiven. There are some cases where fees and missed payments are written off, though it's rare.
Getting An Attorney
Navigating foreclosure can be confusing and stressful. The uncertainty of not knowing what's going to happen causes people in foreclosure to be at increased risk of physical and mental health problems.
If you're facing foreclosure, you should consider hiring an attorney. Your bank has one (which they're charging you for). It's not a fair fight without one on your side. An experienced attorney could make sure you're not being charged improper fees, help to keep you out of foreclosure for as long as possible, and give you the best odds for getting the results you're looking for.
Images courtesy of Sira Anamwong and gameanna at FreeDigitalPhotos.net