Loan servicers handle mortgage accounts. Sometimes, the original lender or a bank that buys the loan from the lender (called an "investor") services the loan. In other cases, the lender or investor gives a third party the right to service the loan account.
A servicer’s duties usually include:
- sending monthly billing statements to borrowers
- collecting payments from borrowers
- handling escrow accounts
- keeping track of account balances
- reviewing borrowers’ requests for loss mitigation options and
- overseeing foreclosures when borrowers don’t keep up with payments.
Sometimes, servicers make critical errors when managing homeowners’ accounts. One common servicing mistake is when a servicer misapplies a borrower’s payment. Keep reading to learn about this common servicing error and how to resolve it.
Servicer Responsibility: Collecting and Processing Your Payments
One of a servicer’s responsibilities is collecting and processing a borrower's payments. The process is usually supposed to work like this: The borrower makes an on-time monthly mortgage payment. The servicer then applies the money to interest due, principal due, and escrow (if the borrower has an escrow account). If the borrower included any extra amounts along with the regular payment, those funds go towards paying off overdue late charges or other unpaid fees and then towards reducing the principal balance on the loan.
However, a loan servicer might make an error in this process, like accidentally applying the funds to the wrong account. For example, suppose Brendan sends his regular monthly mortgage payment of $1,500 to his loan servicer. The servicer mistakenly puts the funds into a suspense account—or worse, another borrower's account.
Because the loan servicer misapplied the payment, the servicer wrongfully reported Brendan’s payment as late to the credit reporting bureaus and charged a late fee to his account.
How to Resolve a Servicer Mistake: Send Your Servicer a "Notice of Error" Letter
If you believe your servicer misapplied a payment when handling your loan, you might be able to resolve the matter by sending the servicer a “notice of error.” Under a federal law, the Real Estate Settlement Procedures Act (RESPA), if you send your servicer a letter letting them know that it made an error on your account, the servicer must fix the mistake within a specific period. You might be able to submit your notice of error online.
Getting Help
Misapplying payments is just one typical error that loan servicers sometimes make. But, of course, servicers make other types of mistakes as well. If you think your servicer made an error when managing your account and need help resolving it, or if you’re facing imminent foreclosure, consider talking to a foreclosure attorney who can explain what to do in your particular situation.
If you can’t afford a lawyer, a HUD-approved housing counselor might be able to help you. You may also send a complaint to the Consumer Financial Protection Bureau (CFPB). The CFPB will forward your complaint to the servicer and work to get a response for you, usually within 15 days.