Challenging Late and Other Fees in Foreclosure

Mortgage contracts generally allow a loan servicer to charge foreclosure fees, including late fees, inspection fees, foreclosure costs, and other default-related fees to your account. If the servicer charges fees and costs in excessive or incorrect amounts, the total balance you owe on your loan will unfairly increase.

You can challenge any unfair foreclosure fees and costs.

What Are Foreclosure Fees?

Foreclosure fees include late charges, property inspection fees, property preservation costs, foreclosure costs and legal fees, and miscellaneous corporate advances.

What Late Fees Can Be Charged in a Foreclosure?

If your mortgage payment is late, your servicer may charge you a late fee.

What Is a Standard Late Payment Fee?

Most prime, conventional loan contracts allow the loan servicer to assess a late fee equal to 5% of the payment due. However, state law may limit the fee to a different amount, like 4%. If the loan documents and state law allow for different late fees, the servicer can only charge the maximum state law allows.

Limits on Late Fees

Late fees are often limited by:

• the dollar amount that may be charged (typically a maximum of $10 or $15)
• the percentage of the payment that may be charged (generally 4% or 5%)
• the date on which the late charge can be assessed, and
• the payment amount on which the late charge is calculated. (For example, the late charge might be based on a percentage of the entire amount of the payment due, including principal, interest, taxes, and escrow amounts, or it might be calculated based on a percentage of just the principal and interest due.)

What Are Some Examples of Improper Late Charges?

Servicers sometimes incorrectly assess late fees, either inappropriately or in the wrong amount, which can add hundreds of dollars to the amount you owe on the mortgage loan.

The servicer assesses a late charge during the grace period. Most mortgage contracts include a "grace period" of around ten or fifteen days. If you make your payment late but during the grace period, the servicer shouldn't charge you a late fee.

The servicer delays posting your payment to your account. If the loan servicer delays posting your payment to your account until after the grace period ends, it can also result in an improper late fee.

The servicer assesses an incorrect late charge amount. Late fees can only be assessed in the amount that the loan contract specifically authorizes. The late charge amount is usually found in the promissory note.

The servicer illegally "pyramids" late fees. In some cases, servicers charge borrowers late fees on full payments that were made on time because the borrower didn't include a payment for a previously unpaid late charge. "Pyramiding" occurs when the loan servicer takes the assessed late fees from the regular payment and leaves part of the scheduled payment overdue, which results in the assessment of another late charge. When the servicer does this, more and more late fees accumulate.

For example, a borrower sends in a late mortgage payment after the grace period has expired, but doesn't include the late fee. Let's say the late fee is $150. The borrower doesn't realize that she owes the extra $150, so the next month, she sends the regular payment amount on time. However, the loan servicer applies $150 of this payment to the prior late fee, which makes the second month come up short and another late fee is then due. Under the terms of the mortgage and the law, the funds should have been applied first to principal and interest and then to outstanding fees.

Federal regulations, state law, and mortgage contracts usually prohibit the pyramiding of late fees. According to the Federal Trade Commission, this practice is unfair to consumers. Regulation Z, which implements the Truth in Lending Act (TILA), also prohibits the pyramiding of late fees for mortgages that TILA covers.

The servicer assesses post-acceleration late charges. In most cases, the servicer is prohibited from assessing late charges after the loan has been accelerated.

What Are "Default-Related" Fees in a Foreclosure?

Property Inspection Fees During Foreclosure

Most mortgage contracts allow the servicer to take necessary steps to protect the lender's rights in the property, including conducting property inspections to determine the physical condition or occupancy status of the mortgaged property. Inspections are generally ordered automatically once the loan goes into default. The charges for the inspections are then added to the total mortgage debt.

The amount charged for each inspection, which is generally drive-by in nature, is typically minimal ($10 or $15). However, inspections might be performed monthly or more often, so the charges can add up quickly.

Some courts have found that repeated inspections when the servicer is in contact with the homeowner, knows the property is occupied, and has no reason to be concerned about the condition of the property, aren't necessary.

Property Preservation Costs

The loan servicer may also assess costs for preserving the property's value. For example, property preservation costs might include fees the servicer advanced to:

• winterize the home
• replace locks
• repair windows
• restore utilities, and
• landscape the property.

Most courts have held that such fees must be reasonable to be collectible from the borrower.

What Foreclosure Costs and Legal Fees Can the Servicer Charge?

Generally, foreclosure costs must be reasonable and actually incurred before they're recoverable against the borrower. Acceptable foreclosure costs include, among others:

• auction advertisements
• sheriff's costs
• filing fees
• service of process, and
• certified mailings.

Most mortgages require the borrower to pay the lender's foreclosure attorneys' fees as well. To be collectible, attorneys' fees must be reasonable and actually incurred. Additionally, some states limit attorneys' fees in foreclosures.

What Are "Miscellaneous Corporate Advances" in a Foreclosure?

Corporate advances are expenses the servicer paid, which can be recovered from the borrower. Corporate advances might include bankruptcy fees or force-placed insurance costs, for example.

If undefined corporate advances appear on your account, contact your loan servicer for an explanation to ensure they're appropriate for inclusion in the total amount owed.

Why You Should Challenge Foreclosure Fees

If the servicer charges inflated costs or unallowable fees and you don't challenge them, you'll owe more on your mortgage loan than you should. As a result, you'd have to pay more if you want to reinstate the loan or redeem the property, or you might owe a bigger deficiency judgment after a foreclosure.

Steps to Challenge Late Fees and Other Foreclosure Fees

Borrowers may raise any number of defenses regarding improper late fees or other incorrect default-related fees in defense to a foreclosure. Here's how you would go about challenging unfair foreclosure fees.

1. Review your mortgage or deed of trust and promissory note. These documents outline what fees the servicer can charge. Also, state law might limit certain charges.
2. Ask your servicer for an itemized list of fees and costs. You can do this as part of discovery in the foreclosure process if it goes through court (ask an attorney about this), or you might consider sending the servicer a qualified written request (a "notice of error" or "request for information.") You might also want to ask for a payment history and communications logs.
3. Identify unfair foreclosure charges. Figure out which fees or costs are excessive or not allowed by the mortgage contract or under the law.
4. Talk to a lawyer. The way you should challenge unfair foreclosure fees depends on the circumstances, like whether or not the foreclosure has started, what type of foreclosure you're facing (judicial or nonjudicial), and what stage the foreclosure is in. Talk to a lawyer to learn about your options.

Foreclosure Defenses Based on Unfair Fees and Costs

While some of these unfair fees might constitute a full defense to the foreclosure, others will reduce the amount owed on the debt, thereby potentially decreasing any deficiency the borrower owes to the lender following a foreclosure.

A few of the defenses that could potentially be raised are:

• breach of contract
• violation of state usury laws
• unfair and deceptive acts and practices
• unjust enrichment
• negligent servicing
• breach of fiduciary duty, and
• breach of good faith and fair dealing.

Why It's a Good Idea to Get Help From a Foreclosure Attorney

If you want to challenge the fees the servicer is charging in a foreclosure action, it's a good idea to talk to a qualified attorney. A lawyer can advise you on what defenses are available for your particular situation.

Also, loan servicing records can be difficult to interpret and reconcile. An attorney can help you review loan servicing communication logs and payment histories, as well as help you deal with your loan servicer, especially if they're being uncooperative.