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, which is the company that handles the day-to-day management of your loan on behalf of the lender, will actually charge the fees to your account.
Read on to learn about the different types of charges that the servicer can assess to your account if you've defaulted on the loan and how they affect the balance of your mortgage debt.
If your mortgage payment is late, you'll likely be charged a late fee once the grace period ends. Most loan contracts include a grace period of ten or fifteen days after which time the loan servicer will assess the fee. Late fees can only be assessed in the amount specifically authorized by mortgage documents. The late fee provision is usually found in the promissory note.
Generally, the late fee will be in an amount equal to 4 or 5% of the overdue payment. Though, state law might limit the amount of late charge that can be charged. If the state limit is lower than what the loan documents allow, it will generally override the loan documents.
Late fees can quickly stack up, adding hundreds of dollars on to the amount you owe the owner of the loan (called the "lender" in this article).
Most mortgage and deed of trust contracts allow the lender to take necessary steps to protect its right in the property. Property inspections are performed to ensure that your property is occupied and appropriately maintained.
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 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 are not necessary 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.
Broker’s price opinions (BPOs) are property valuations conducted by real estate brokers or other qualified individuals following a borrower’s default. The valuation will be based on:
BPOs are an alternative to a full appraisal and, like property inspections, are ordered to evaluate the physical condition and value of the mortgaged property.
The loan servicer might also charge the costs for preserving the value of the property to the borrower’s account. A property preservation company, hired by the servicer, usually handles the maintenance.
Loan servicers have wide discretion to charge for property preservation services, which may include:
In order to be collectable from the borrower, the property preservation fees charged must be:
Borrowers are typically required to pay the lender’s fees and costs in a foreclosure action. These sums will also be added to the total loan balance. These might include:
To be collectable, attorney’s fees or trustee's fees must be reasonable and actually incurred. Additionally, some states limit the amount of fees that can be charged.
Foreclosure costs include (among others):
Generally, foreclosure costs must also be reasonable and actually incurred before they are recoverable against the borrower. (To learn what to do—and what not do—if you’re facing a foreclosure, see Foreclosure Do's and Don'ts.)
A non-sufficient funds fee—also known as returned payment fee or returned check fee—is charged to a borrower’s account when a mortgage payment is made 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 property 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 is called force-placed (or lender-placed) insurance.
The Dodd-Frank Wall Street Reform and Consumer Protection Act requires that before force-place insurance can be ordered, the loan servicer must send two notices informing the borrower of:
The servicer must send the second notice at least thirty days after the first notice and, if the homeowner does not provide proof of insurance coverage within fifteen days after the second notice, the servicer can force-place the insurance coverage. A servicer must cancel the force-placed coverage within fifteen days after receiving evidence of coverage and any duplicate coverage costs must be refunded.
Force-place insurance is typically very expensive and can prevent a borrower who is already having difficulty making payments from catching up since it often results in a large increase in the monthly payments. If the placement of the insurance was improper (because there was already existing coverage, for example) the homeowner might have a defense to foreclosure if the additional costs caused him or her to go into default on the loan.
Corporate advances are expenses paid with servicer funds that are recoverable from the borrower. Corporate advances might include bankruptcy fees, for instance. After a borrower files bankruptcy, the servicer might incur attorney’s fees and costs as part of the bankruptcy process.
Additionally, a servicer may charge overnight delivery fees or fax fees in some circumstances, like when a reinstatement or payoff statement is prepared and faxed to the borrower or other authorized party.
If a servicer charges incorrect or excessive fees to your account, you can challenge those fees before or during a foreclosure. (Learn more in Challenging Late & Other Fees in Foreclosure.)
If you're facing a foreclosure and you think the servicer has charged improper fees or costs to your account, consider talking to local foreclosure attorney who can advise you what to do in your particular situation.