Sometimes mortgage servicers charge people money they don’t owe. Yea, it happens. Sometimes it happens by mistake. Despite being huge, well-funded, and advised by hundreds of different corporate lawyers, mortgage servicers can and do screw up sometimes. They may apply a payment to the wrong account. They may charge you for flood insurance when you don’t live in a FEMA-defined flood plain. They may apply a payment after the grace period, when in fact you sent it to them well before the grace period.
So how do you prevent that from happening in the first place?
1. Use online bill pay. This hugely convenient service (nowadays provided by almost every depository bank) allows you to keep years of records of payments made without having to keep giant folders full of paper somewhere in your home. If there is ever a dispute about when a check was cashed by a bank, you have the proof right at your fingertips. It also allows you to track when payments were sent.
2. Keep Notes. If you pay by writing your own checks, just keep notes of when they were sent. A lot of problems begin with the mortgage company not crediting you on time. For instance, you mail a check to Nationstar Mortgage on May 3rd, you know that the US Postal Service takes an average of 3 days to carry an envelope to Iowa, where the mortgage servicer’s lockbox is. It should be there by May 7th at the latest. But they don’t credit you until May 15th, after the 10 day grace period. That is a problem. Lenders and mortgage servicers are required to promptly credit you for payments made. If they don’t, they’re breaking the law.
3. Shop for your own insurance. Most mortgage loans have escrow accounts attached to them that provide for the payment of taxes and insurance on the property. If you let your insurance lapse or fail to obtain your own insurance, the mortgage company can place their own insurance, called “Force-placed insurance.” This is always a ripoff because it costs you more than your own insurance would and it gives you less coverage. Why? Because the mortgage companies keep the extra money. If you find your own insurance from a licensed agent in Alabama, then the mortgage company has to accept it if it provides adequate coverage. They have no choice but to pay the insurance you choose.
4. Don’t take their word for it. Sometimes a lender will place bogus fees and charges on top of your loan. You may get a statement that has a “property preservation fee” or a “miscellaneous corporate advance fee.” The mortgage contract does allow for a few reasonably necessary expenses to protect the property and their legal rights, but the keywords are REASONABLE and NECESSARY. You have a right to know what they’re charging you for. If you see something that looks suspicious, write them a letter disputing that you owe the charge and demanding an explanation for what it is. They have to tell you.