Mortgage servicers are the companies that many borrowers make their mortgage payments to. They may not be the same company as your originating lender and the owner of your loan. Servicers have many responsibilities for managing a mortgage, including:
- Sending monthly statements to borrowers
- Collecting, processing, and recording payments
- Paying taxes and insurance from escrow accounts
- Reviewing loan modification applications and alternatives to foreclosure for borrowers in default
- Initiating and managing foreclosure proceedings
With all that they are responsible for, it's important to make sure they are not abusing their power. You need to understand your rights and hold your servicer accountable when a change, mistake, or intentional fraud happens.
Borrower's Rights When Mortgage Servicer Changes
Mortgage servicer changes are common. Unfortunately, so is confusion resulting from it. After you close on a home, the lender may sell the right to service your loan to a servicing company. The servicer may hire yet another company to actually service your loan. And all of this is separate from the actual ownership of your mortgage, which your lender may also sell.
If a change happens, an accurate understanding of who your mortgage servicer is is vital to the health of your loan. If you send your mortgage payment to the wrong company, you could accidentally default on your loan. Your old servicer is supposed to send you notice at least 15 days before a change occurs. The notice should contain the following information:
- The date that the servicing transfer goes into effect, including when the old servicer will stop taking payments and when the new servicer will start accepting payments
- Contact information for the old and new servicer so any questions about the transfer can be answered
- Information about the effect the transfer will have on insurance and what can be done about it
When Your Servicer Makes A Mistake
Anything that involves humans is going to have mistakes at some point (like John Travolta's Battlefield Earth), and the consequences are very serious when they concern something as valuable as your home. When a servicer makes an error in processing your payment, you could be considered to be in default on your loan and end up in foreclosure proceedings. Some of the more common mistakes mortgage servicers make are:
- Not properly crediting payments to the account
- Not paying taxes and insurance
- Dual-Tracking (pursuing foreclosure while considering a loan modification application)
- Foreclosure sale or initiation without following proper protocols
Some of the things that go wrong between a borrower and servicer can be accidental. But some actions, like dual-tracking, are taken by the servicer out of convenience, even when they are restricted. Servicers have been held accountable for their actions in a massive settlement called The National Mortgage Settlement. The National Mortgage Settlement is a settlement with the five largest mortgage servicers (Ally/GMAC, Bank Of America, Citi, JP Morgan Chase, and Wells Fargo) and the federal government and 49 states. Announced in 2012, it requires the banks to pay $26 billion to homeowners and the government to settle numerous federal and state investigations related to mortgage servicing abuses. It is the second largest civil settlement in U.S. history. Among other things, the settlement states that the banks must review your completed loan modification application, and cannot sell the property, while the application is under review.
What To Do When You Have A Problem With Your Servicer
When you believe your servicer has made an error, you should first send them a letter. Under the Real Estate Settlement Procedures Act (RESPA), your letter to the servicer will be considered either a notice of error or a request for information, and they must acknowledge that they received the letter within five business days.
If your letter to your servicer is to notify them of an error they made, they must either let you know that they disagree, and why, or fix the error and notify you that they've done so. If your notice of error letter claims that the servicer incorrectly started, scheduled, or completed foreclosure, they must respond before the sale or within 30 days. If you are unsure if your servicer made an error, you can send them a request of information letter to see their records of your payments. The Consumer Financial Protection Bureau's (CFPB) website has sample letters and information as a resource for homeowners.
If you don't get the results you're looking for, you can register a complaint with the CFPB. Mortgage loans are the cause of more complaints than any other financial product to the CFPB. Any homeowner can make a formal complaint, or if they have an attorney, can ask them to register a complaint.
RESPA, CFPB, The National Mortgage Settlement, and other laws and rules guarantee rights for homeowners, and require responsiveness and fair treatment from servicers. But if you don't know what laws and rules exist, you won't know what rights you have. A law firm that's well-versed in foreclosure defense, loan modification assistance, and the areas of the law dealing with foreclosure is very important to distressed homeowners for this reason. Unfortunately, abusive practices, as well as honest mistakes happen. If they, or other mortgage issues that can't be resolved happen to you, the services of an experienced attorney are recommended.
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