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NCBLC - National Consumer Bankruptcy Litigation Center

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Mortgage and Mortgage Servicing Scams

Mortgage lending is ripe with opportunities for unscrupulous creditors to take advantage of you through scams requiring up-front payments for services that are never provided to the addition of fees for unnecessary and unauthorized services to your mortgage debt. A variety of state and federal laws, including the Truth in Lending Act and various state and federal predatory lending laws, protect your right to complete and accurate information in your mortgage transactions.

Advance Fee Loan Scams: Beware of companies that claim they can guarantee you a loan, but require an up-front fee. Although some legitimate lenders charge loan processing fees, they do not guarantee approval, even verbally. Legitimate lenders do not guarantee approval in return for a fee. Advance fee loan scammers may also tell you verbally that your fee will be refunded if you are not approved, or that it will be credited toward the loan balance. Usually, these representations are false, and if you review the written documents you'll find that these promises don't appear anywhere in writing. Victims of advance fee loan scams can make reports with the Attorney General or another consumer protection agency in their states, as well as the Better Business Bureau and the Federal Trade Commission.

Suspense Trust Accounts: Some lenders won't apply a payment to your account balance until the full payment has been received. That means that if you make a partial payment, you end up paying interest and late fees as if you hadn't made any payment at all. Often, the mortgage agreement obligates the lender to apply any money received to the loan immediately. If you've ever made a partial payment toward your mortgage, you may have been charged extra late fees and interest without even realizing it.

Unauthorized, Excessive and Unnecessary Mortgage Servicing Fees: Obviously mortgage servicing fees mean additional expenses to you, but what might not be so obvious is that often fees charged are not authorized by the mortgage agreement. The services may not be performed, or the fees may be excessive, or they may be altogether unnecessary. One example of a common way mortgage lenders generate profit for themselves at your expense is the inclusion of single-premium insurance. Single-premium insurance is just what it sounds like: insurance that you pay for in a single premium up front. Of course, the lender will be glad to roll that premium into your loan, so that you don't actually have to make payment in advance. That means additional principle on which you'll pay interest every month, keeping the balance of your loan (and thus your interest payments) slightly higher throughout the life of the loan. And the advantage to you-the fact that you don't have to come up with the full premium in cash-isn't even a real advantage for most people, since there are other terms on which you can obtain the required insurance.

Mortgage-related violations may be covered by state consumer protection laws, predatory lending laws at the state and federal level, and the Truth in Lending Act. In some cases, mortgage fees, interest applied, or collection activities may also violate provisions of the U.S. Bankruptcy Code.

If you're looking for a mortgage, make sure that you understand the terms up front, and that you review all of the fees for reasonableness and necessity and explore other options for fees the lender plans to roll into your mortgage loan. If you've already paid excessive late fees due to the application of partial payments, been charged for fees not authorized by your mortgage agreement, or otherwise been misled with regard to your mortgage obligations, talk to an attorney, your state attorney general and/or the Federal Trade Commission.

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