When a borrower doesn’t make the required payments on a home loan, the lender or current loan owner (called the "bank" in this article) will likely eventually start a foreclosure. Both before and after the foreclosure begins, the servicer may charge specific fees to the borrower's account. These fees increase the total amount that the borrower owes on the loan.
Late Fees: Once You Fall Behind in Payments
If you stop making your mortgage payments, the first fee you’ll likely encounter is a late fee.
How Late Can You Be On Your Mortgage?
Most mortgages have a grace period. So, the servicer shouldn’t charge a late fee immediately if you miss your payment's due date.
Most mortgages and deeds of trust include a provision (a clause) that says you have a ten- or fifteen-day grace period after the due date before the servicer can charge a late fee.
How Much Is the Late Charge?
The promissory note that a borrower signs as part of a home loan transaction typically describes the late charge amount and when the servicer may charge the fee. A typical late fee is around 4% or 5% of the overdue payment.
State Law Limits on Late Charges
State laws often limit the amount a servicer may charge for an overdue payment. If the state limit is lower than the promissory note, state law overrides the promissory note.
Property Inspection Fees: Making Sure You Aren’t Neglecting the Property
When you sign a mortgage or deed of trust, you give the lender a security interest in the property, which means the property acts as collateral for the debt. Because the lender may foreclose (that is, sell the collateral to repay the debt) if you don’t make the payments, the lender wants to protect the home's value.
So, the terms of the mortgage or deed of trust permit the lender to conduct property inspections to ensure the borrower is properly maintaining the home.
How Property Inspections Work
After you stop making payments, the servicer will hire a property inspection company to do regular inspections to determine if you are still living in the home and taking care of the property. This type of inspection is usually cursory—the inspector drives by the home and takes a quick look.
The cost is usually somewhere around $10 to $50 per inspection. Because inspections are usually conducted repeatedly, generally monthly, these charges can add up.
How Many Property Inspections Are Reasonable?
One inspection each month after you stop making payments and during the foreclosure is customary. But some courts have said that inspections aren't necessary if the servicer is in communication with the homeowner, is aware that the property is occupied, and doesn't have reason to be worried about the property's condition.
For example, Fannie Mae says the servicer shouldn't order property inspections for a delinquent mortgage loan if the servicer is in contact with the borrower and the borrower is trying to resolve the delinquency or is in Chapter 13 bankruptcy and performing under the bankruptcy plan. (See Fannie Mae Servicing Guidelines, D2-2-10: Requirements for Performing Property Inspections (11/17/2021).)
The bank can’t require you to pay a fee for a monthly reappraisal or inspection of the property if the mortgage documents don’t provide for it, if you were current on your payments when the inspection was made, or if the overall number of inspections or the inspection fee itself is unreasonable.
Property Preservation Costs
Property inspection fees are different from property preservation costs. If an inspection reveals that the homeowner has abandoned the property or isn’t appropriately maintaining the home, the lender may take whatever steps are necessary to prevent the property from deteriorating or decreasing in value.
What Is the Meaning of Property Preservation?
Usually, the servicer (on behalf of the lender) hires a property preservation company, sometimes called a "field services company," to either handle property preservation services or manage a network of people who complete the work. To preserve the property, the field services company or its subcontractor might:
- take photos to document the condition of the home
- secure a vacant property by replacing the locks and boarding up the windows
- do lawn care or snow removal services
- repair damage to the home
- winterize an empty home, or
- clean up trash, debris, or abandoned personal property.
The cost for these services varies, depending on the type of work performed. On the low end, it might cost around $30 each time the company takes a set of photos. On the higher end, repairing a significant issue like replacing a bad roof might cost as much as several thousand dollars.
Property Preservation Companies Sometimes Make Mistakes
Sometimes, field services companies mistakenly think an occupied home is vacant. When that happens, the company might prematurely lock the homeowners out of their home, illegally remove personal property, and damage the home itself in the process.
Broker’s Price Opinions: Like An Appraisal, But Cheaper
A "Broker’s Price Opinion" (BPO) is a property valuation that a real estate broker or other qualified person conducts. A BPO is an alternative to a full appraisal.
The valuation is typically based on:
- public data sources
- a drive-by or exterior-only examination of the home, and
- recent comparable sales.
A BPO, like a property inspection, is used to evaluate the physical condition and value of the property. A BPO often costs somewhere around $100 to $200.
Appraisals
Lenders also sometimes use appraisals to figure out the property's value. Because an appraisal is a more extensive process than a BPO, usually involving both an interior and exterior inspection, the cost is ordinarily higher than for a BPO. An appraisal might cost $200 to $1,000 or more.
Corporate Advances
"Corporate advances" are costs the servicer paid with its own funds (not out of an escrow account). These advances include bankruptcy fees and lender-placed insurance, for example.
Foreclosure Fees and Costs
Mortgages and deeds of trust usually require a borrower who defaults on the loan to pay the bank’s fees and costs in a foreclosure action. Foreclosure-related fees and costs usually include:
- Attorneys’ or Trustees’ fees. To be collectible from a borrower, attorneys’ fees and foreclosure trustees’ fees must be reasonable and actually incurred. Some states have laws that limit the amount of attorney or trustee fees to a specific dollar amount.
- Foreclosure costs. Foreclosure costs vary widely depending on state foreclosure requirements and whether the foreclosure is judicial or nonjudicial. Foreclosure costs might include title search costs, court filing fees, process server fees, recording fees, mailing costs, publishing costs, and posting costs. Like attorneys’ and trustees’ fees, foreclosure costs must also be reasonable and actually incurred to be collectible from the borrower.
Getting Help
The lender may only recover fees and costs from a borrower if the amounts directly result from the borrower's default or breach of the loan documents. If you are going through a foreclosure and think the servicer is adding improper or unreasonably high fees to your account, consider talking to a foreclosure attorney.