Sometimes, loan servicers charge borrowers incorrect or unreasonable amounts for late fees, property inspection fees, foreclosure costs, and other default-related expenses. If you think your servicer made an error when charging you certain fees or overcharged you, you might be able to resolve the issue by sending the servicer a “notice of error.”
What Fees Can a Loan Servicer Charge?
The terms of a mortgage or deed of trust usually allow a loan servicer to charge a borrower fees under certain circumstances, like if the borrower is late making a payment or when a borrower is in foreclosure. A few expenses that servicers typically charge to borrowers' accounts are late fees, property inspection fees, foreclosure costs, and other default-related fees.
Late Fees
If you miss a mortgage payment, your loan servicer will probably charge you a late fee. The amount of the late fee is typically set out in the promissory note that you signed when taking out a home loan.
- Typical late fee limits. Generally, a prime, conventional loan contract allows a loan servicer to charge a late fee in an amount equal to 5% of the payment that’s due. But state law might limit the fee to 4% or some other amount. If the loan documents and state law conflict, the servicer may charge only the maximum allowed under state law.
- Grace periods. A servicer ordinarily can’t impose a late fee until after the “grace period” ends, usually ten or fifteen days after the payment’s due date. If you miss the due date but make your payment during the grace period, the servicer shouldn’t charge a late fee.
Servicers sometimes assess late fees incorrectly, either charging a fee when the borrower pays within the grace period or charging a fee in the wrong amount.
Property Inspection Fees
A servicer usually orders periodic property inspections after a borrower stops making payments. The purpose of the inspections, which are drive-by, is to determine whether the home is occupied and whether the borrower is maintaining the property.
Usually, the charge for a property inspection is around $10 or $15. The servicer then adds the charge to the total mortgage debt. Generally, one inspection a month is allowed. But servicers sometimes charge borrowers for several inspections each month or a significantly higher amount than $10 or $15.
Most courts consider multiple inspections in one month and charges considerably over $10 or $15 as unreasonable.
Foreclosure Costs
Foreclosure costs have to be reasonable and actually incurred before a servicer may charge the amounts to the borrower’s account. Depending on whether the foreclosure is judicial or nonjudicial and state law requirements, reasonable foreclosure costs might include costs for:
- advertising a foreclosure sale in a newspaper
- filing a document with a court
- recording a document in the land records
- serving court papers on a borrower, and
- sending certified mailings.
Mortgages and deeds of trust also typically require the borrower to pay foreclosure attorneys' fees so long as the fees are reasonable and actually incurred. Some states limit the amount of attorney’s fees that can be charged in a foreclosure.
Other Default-Related Fees
Under the terms of most mortgages and deeds of trust, a loan servicer may charge a borrower for costs related to preserving the value of the property, like for:
- winterizing the home
- replacing locks
- repairing broken windows
- restoring utility services, and
- landscaping the property.
Most courts have said that this type of fee must be reasonable—otherwise, the fee isn't chargeable to the borrower.
Find a Mistake? Send Your Servicer a "Notice of Error" Letter
Under the federal Real Estate Settlement Procedures Act (RESPA), if you send the servicer a letter (called a "notice of error") informing the servicer that it made an error on your account, like overcharging you for fees, the servicer must fix the error by a specific deadline. The amount of time a servicer gets to respond to a notice of error depends on the type of error.
If the servicer thinks it didn’t make an error, it has to let you know that there wasn’t a mistake and explain why it came to this conclusion.
Getting Help
If you think your mortgage servicer made an error or is charging unfair fees and your notice of error didn't resolve the matter or if you’re facing imminent foreclosure, consider talking to a foreclosure attorney who can give advice on what to do in your particular situation. If you can’t afford an attorney, a HUD-approved housing counselor might be able to help you.