If you fail to keep up with payments on your mortgage, you may accumulate late fees related to those payments as well as other costs related to an eventual foreclosure. The lender or mortgage servicer will include these charges in the amount that you owe, which will increase the total balance on your loan. Unfortunately, these entities often make mistakes in their calculations or add improper fees. If you suspect abuse or an error by the foreclosing party, you can challenge the fees.
This may not completely defeat the foreclosure, but it may reduce the debt that you owe and make it easier to pay off any resulting deficiency judgment. Legal theories that may apply in these cases include unfair business practices, a breach of contract (a violation of the mortgage terms), unjust enrichment, a breach of the duty of good faith, and a breach of a fiduciary duty.
Errors in Late Fees
Many of the most common errors made in calculating fees involve late fees that are assessed when a homeowner misses a mortgage payment. Sometimes the mortgage servicer will not promptly credit the account for the payment, as required by federal rules. Or the servicer may charge a late fee that is greater than what the terms of the mortgage or state law allow. (If state law allows an amount lower than what the mortgage provides, the law generally will override the mortgage terms.)
A mortgage often provides a grace period after a payment is technically due. If you make your mortgage payment within the grace period, you should not be subject to a late fee. Also, once the loan has been accelerated at the start of the foreclosure process, the entire balance on the loan will be due. The mortgage servicer should not charge any further late fees at this stage.
Federal and state laws do not allow mortgage servicers to engage in a practice known as “pyramiding,” which essentially means stacking late fees. A homeowner may make a full payment on time but not pay a late fee related to a previous missed payment. “Pyramiding” happens when a lender uses part of the payment to cover the late fees. This means that the payment does not count as a full payment, and the lender then assesses additional late fees.
Challenging Other Fees in Foreclosure
You may face additional charges related to the foreclosure process, including the costs of the foreclosure itself and property inspection fees. Foreclosure costs must be reasonable and actual, as must attorney fees. Property inspection fees must be necessary to protect the condition of the property. If the lender has no reason to believe that the property will suffer damage, and the homeowner is still living there, these fees may not be necessary. They tend to be small but can add up if inspections are conducted on a monthly basis.
A related type of fee is property preservation costs. These may involve addressing security issues, such as broken locks or windows, or they may cover utility payments or repairs to the landscaping. However, these fees need to be reasonably necessary.
A more miscellaneous type of fee is corporate advances. The lender or mortgage servicer pays these fees with the expectation of being reimbursed by the homeowner. For example, if the homeowner allows their insurance policy on the property to lapse, the lender may purchase force-placed insurance and then charge the homeowner for those costs. If it purchased force-placed insurance in error, you may be able to wipe out that charge. If you notice charges that are unclear or that you do not understand, you should not hesitate to ask for an explanation.