If you're late on your mortgage payments, most loan contracts allow the lender to charge late fees, property inspections, foreclosure costs, and other fees to your account under certain circumstances. The loan servicer, the company that handles your loan's day-to-day management for the lender or current loan owner (called an “investor”), will charge the fees to your account.
After you've defaulted on the loan and the servicer charges different types of fees to your account, your mortgage debt will increase—sometimes by a significant amount.
If your mortgage payment is late, the servicer will probably charge a late fee once the grace period ends. Most loan contracts include a grace period of ten or fifteen days, after which the servicer assesses the fee. The servicer can charge late fees only in the amount authorized explicitly by the mortgage documents. You can find the late fee provision in the promissory note you signed when you took out the loan.
Generally, the late fee will be in an amount equal to four or five percent of the overdue payment. Though, state law might limit the late charge. If the state limit is lower than what the loan documents allow, state law will override the loan documents.
Late fees can quickly stack up, adding hundreds of dollars to the amount you owe the loan owner (called the "lender" in this article).
Most mortgage and deed of trust contracts prohibit the borrower from destroying or damaging the home or allowing the property to deteriorate. Loan contracts also typically permit the lender to take necessary steps to protect its interest in the property, like performing yard maintenance, fixing broken windows, or winterizing an abandoned home.
Once the loan goes into default, the servicer will order drive-by property inspections to ensure that the property is occupied and appropriately maintained. The servicer then adds the inspection charges to the total mortgage debt. The amount charged for each inspection is typically minimal at around $10 or $15. But inspections might be performed monthly or more often, so the charges can add up.
Some courts have found that repeated inspections aren't necessary when the servicer is in contact with the homeowner, knows the property is occupied, and has no reason to be concerned about the home's condition.
Broker's price opinions (BPOs) are property valuations that real estate brokers or other qualified individuals conduct after a borrower defaults on the loan. The valuation will be based on public data sources, a drive-by exterior examination, and recent comparable sales.
BPOs are an alternative to a full appraisal and, like property inspections, are ordered to evaluate the mortgaged property's physical condition and value. BPOs cost more than drive-by inspections, usually coming in around $100, certainly less than a full appraisal, which often costs several hundred dollars.
The loan servicer might also charge the costs for preserving the property's value to the borrower's account. A property preservation company or “field services company” that the servicer hires usually handles the maintenance.
Loan servicers have broad discretion to charge for property preservation services, which might include:
To be collectable from the borrower, the property preservation fees charged must be actually incurred and necessary to preserve the property's value or the lender's rights in the property.
Borrowers are typically required to pay the lender's fees and costs associated with a foreclosure. The servicer will add these sums to the total loan balance.
To be collectable, attorneys' fees or trustee's fees must be reasonable and actually incurred. Additionally, some states limit the fee amount that can be charged.
Foreclosure costs include, among others
Generally, foreclosure costs must also be reasonable and actually incurred before they're recoverable against the borrower.
A non-sufficient funds fee—also known as a returned payment fee or returned check fee—is charged to a borrower's account when a mortgage payment comes from a closed account or an account that doesn't have adequate funds to honor the payment. This fee usually ranges from $15 to $75 and may be limited by state law.
Most mortgages and deeds of trust require that the homeowner maintain homeowners' insurance coverage to protect the lender's interest in case of fire or other casualty. If the homeowner fails to maintain continuous insurance coverage, the lender may purchase insurance and charge it to the borrower's account. This kind of insurance is called force-placed (or lender-placed) insurance.
The Dodd-Frank Wall Street Reform and Consumer Protection Act requires the servicer to send two notices before ordering force-placed insurance informing the borrower of:
The servicer must send the second notice at least 30 days after the first notice, and if the homeowner doesn't provide proof of insurance coverage within 15 days after the second notice, the servicer can place the insurance coverage. A servicer must cancel the force-placed coverage within 15 days after receiving evidence of coverage, and refund any duplicate coverage costs.
Force-placed insurance is typically costly and can prevent a borrower who's already having difficulty making payments from catching up because it often results in a large increase in the monthly payments. Suppose the servicer improperly orders insurance, say you already had existing coverage. In that case, you might have a defense to a foreclosure—especially if the additional costs caused you to default on the loan.
Corporate advances are expenses the servicer paid that are recoverable from the borrower. Allowable advances might include bankruptcy fees, for instance. After a borrower files for bankruptcy, the servicer might incur attorneys' fees and costs as part of the bankruptcy process.
A servicer might also charge overnight delivery fees or other fees in some circumstances, like when a reinstatement or payoff statement is prepared and sent to the borrower or other authorized party. If undefined corporate advances show up on your account, you should ask your loan servicer for an explanation to ensure they're appropriate for inclusion in the total amount you owe.
If your loan servicer charges incorrect or excessive fees to your account, you can challenge those fees before or during a foreclosure. Consider talking to a foreclosure attorney who can advise you what to do in your particular situation.