Mortgage contracts generally allow a servicer the company that handles the loan account to charge late fees, inspection fees, foreclosure costs, and other default-related fees to your account under certain circumstances, like when you are late on a payment or are in foreclosure. If the servicer charges fee and costs in excessive or incorrect amounts, this will unfairly increase the total balance you owe on your loan. If this happens to you in foreclosure, you can challenge those fees and costs. If your mortgage payment is late, your servicer may charge you a late fee. But servicers sometimes incorrectly assess late fees either inappropriately or in the wrong amount which can add hundreds of dollars on to the amount you owe on the mortgage loan. The servicer assesses a late charge during the grace period. Most mortgage contracts include a “grace period” of around ten or fifteen days. If you make your payment late, but during the grace period, there shouldn’t be a late fee. The servicer delays posting your payment to your account. If the loan servicer delays posting your payment to your account until after the grace period end, it can also result in an improper late fee. The servicer assesses an incorrect late charge amount. Late fees can only be assessed in the amount specifically authorized by the loan contract. The late charge amount is usually found in the promissory note.
Even then, state law may limit the amount that can be charged. If the state limit is lower than what the contract allows, it will generally override the loan contract. Most prime, conventional loan contracts allow the loan servicer to assess a late fee equal to 5% of the payment due. However, state law may limit the fee to, say, only 4%. If the loan documents and state law allow for different late fees, the servicer can only charge the maximum allowed by state law. In this situation, the late fee would be limited to 4% pursuant to state law. It is up to the borrower to make sure the servicer only charged 4% to the account, not 5%. The servicer illegally “pyramids” late fees. In some cases, servicers charge borrowers late fees on full payments that were made on time because the borrower didn’t include a payment for a previously unpaid late charge. “Pyramiding” occurs when the loan servicer takes the assessed late fees from the regular payment and leaves part of the scheduled payment overdue, which results in the assessment of another late charge. When the servicer does this, more and more late fees accumulate. Federal regulations, state law, and mortgage contracts usually prohibit this practice. According to the Federal Trade Commission, pyramiding of late fees is unfair to consumers. Regulation Z, which implements the Truth in Lending Act (TILA), also prohibits the pyramiding of late fees for mortgages covered by TILA. The servicer assesses post-acceleration late charges. In most cases, the servicer is prohibited from assessing late charges after the loan has been accelerated. (When a loan is “accelerated,” you have to immediately pay the entire balance of the loan, not just the past due amounts. This sets the stage for the foreclosure procedure to begin.) If you default on your mortgage payments (that is, you fail to make the mortgage payments), your loan servicer may assess particular charges to your account.
Default-related fees typically include:
• Property inspection fees
• Property preservation costs
• Foreclosure costs/fees, and
• Miscellaneous corporate advances.
Some states limit the amount of fees that can be charged pursuant to a default. For instance, charges may be limited to reasonable expenses, including costs and fees. Most mortgage contracts allow the servicer to take necessary steps to protect the lender’s rights in the property, including conducting property inspections to determine the physical condition or occupancy status of the mortgaged property. Inspections are generally ordered automatically once the loan goes into default. The charges for the inspections are then added to the total mortgage debt. The amount charged for each inspection, which is generally drive-by in nature). However, inspections might be performed monthly or more often, so the charges can add up quickly. Some courts have found that repeated inspections when the servicer is in contact with the homeowner, knows the property is occupied, and has no reason to be concerned about the condition of the property, are not necessary. The loan servicer may also assess costs for preserving the value of the property. Most courts have held that such fees must be reasonable in order to be collectable from the borrower. Generally, foreclosure costs must be reasonable and actually incurred before they are recoverable against the borrower. Most mortgages require the borrower to pay the lender’s foreclosure attorney’s fees as well. To be collectable, attorney’s fees must be reasonable and actually incurred. Additionally, some states limit attorneys’ fees in foreclosures. Corporate advances are expenses paid by the servicer to be recovered from the borrower. Corporate advances may include bankruptcy fees or force placed insurance costs, for example. If undefined corporate advances appear on your account, you should contact your loan servicer for an explanation to ensure they are appropriate for inclusion in the total amount owed. Borrowers may raise any number of defenses regarding improper late fees or other incorrect default-related fees. While some may constitute a full defense to the foreclosure, others will reduce the amount owed on the debt, thereby potentially decreasing any deficiency owed to the lender. (Learn more about deficiencies after a foreclosure.) If you want to challenge the fees being charged in a foreclosure action, you should speak to a qualified attorney who can advise you what defenses are available for your particular situation. Loan servicing records can be difficult to interpret and reconcile, so be sure the attorney is familiar with how to read loan servicing communication logs and payment histories.
A defendant/mortgagor who prevails in the successful defense of a mortgage foreclosure proceeding may be entitled to recover his reasonable attorney’s fees and expenses under Real Property Law. Whenever a covenant contained in a mortgage on residential real property shall provide that in any action or proceeding to foreclose the mortgage that the mortgagee may recover attorneys’ fees and/or expenses incurred as the result of the failure of the mortgagor to perform any covenant or agreement contained in such mortgage, or that amounts paid by the mortgagee therefore shall be paid by the mortgagor as additional payment, there shall be implied in such mortgage a covenant by the mortgagee to pay to the mortgagor the reasonable attorneys’ fees and/or expenses incurred by the mortgagor as the result of the failure of the mortgagee to perform any covenant or agreement on its part to be performed under the mortgage or in the successful defense of any action or proceeding commenced by the mortgagee against the mortgagor arising out of the contract, and an agreement that such fees and expenses may be recovered as provided by law in an action commenced against the mortgagee or by way of counterclaim in any action or proceeding commenced by the mortgagee against the mortgagor. Any waiver of this section shall be void as against public policy. For the purposes of this section, “residential real property” means real property improved by a one- to four-family residence, a condominium that is occupied by the mortgagor or a cooperative unit that is occupied by the mortgagor. In an appropriate case, where the mortgage provides for the recovery of the mortgagee’s attorneys’ fees and expenses, the above statute applies, and the subject real property constitutes residential real property (one family) that is the mortgagors’ home, the court may award the defendant legal fees and costs.
One of the considerations in deciding whether or not you should hire a lawyer to help you fight your foreclosure is the cost. It’s important to understand how legal fees work to make sure that you don’t end up paying more than you can afford.
Most foreclosure defense attorneys structure their fee agreements with homeowners in one of three ways:
• by charging the homeowner an hourly rate
• collecting a flat fee from the homeowner, or
• charging a monthly rate.
Hourly Rate
Some foreclosure defense attorneys charge an hourly rate for their services. The rate can range from around $100 per hour to several hundred dollars per hour. With this type of fee arrangement, the lawyer generally collects an initial retainer—an advance payment to the attorney before he or she starts to work on your case of several thousand dollars. The retainer amount and hourly rate varies widely, depending on the attorney’s experience and the customary rates in the area.
Pros and cons. The benefit to this type of fee arrangement is you’ll only pay the attorney for the amount of time he or she actually works on your case. The downside is that while the attorney will probably be able to give you a likely range of what you’ll pay in total, you won’t get an exact price as far as what the total cost of the foreclosure defense will be and hourly fees can add up quickly.
Flat Fee
Some attorneys charge a flat fee to represent homeowners in a foreclosure. Generally speaking, the fee can range from $1,500 to $4,000 depending on the complexity of the case.
Pros and cons. The benefit to paying a flat fee is that you know ahead of time exactly what the total cost of your foreclosure defense will be. Whether it takes five months or two years to dismiss the foreclosure or for the lender to complete the process you know that this is all you’ll pay. The downside is that not all foreclosure attorneys offer this option and you’ll have to pay the fee upfront, which is difficult for many distressed homeowners.
Monthly Rate
Some foreclosure attorneys charge an upfront retainer ranging from several hundred to several thousand dollars, and then a monthly fee (like $500) for each month that the foreclosure is pending. In addition, attorneys have been known to charge an extra fee on top of this called a contingent fee—if the case is dismissed as a result of the firm’s efforts.
Pros and Cons. The benefit to paying a monthly fee is that you know exactly what your attorney will cost each month without variation. Also, the attorney has an incentive to keep you in the property for as long as possible (if that’s your goal). The downside is that you must pay this amount each month, even if little activity takes place in your case during that time.
Late Fee Assessments
If your mortgage payment is late, your servicer may charge you a late fee. But servicers sometimes incorrectly assess late fees—either inappropriately or in the wrong amount which can add hundreds of dollars on to the amount you owe on the mortgage loan.
Here are some ways that can happen:
The servicer assesses a late charge during the grace period. Most mortgage contracts include a “grace period” of around ten or fifteen days. If you make your payment late, but during the grace period, there shouldn’t be a late fee. The servicer delays posting your payment to your account. If the loan servicer delays posting your payment to your account until after the grace period ends, it can also result in an improper late fee. The servicer assesses an incorrect late charge amount. Late fees can only be assessed in the amount specifically authorized by the loan contract. The late charge amount is usually found in the promissory note. Even then, state law may limit the amount that can be charged. If the state limit is lower than what the contract allows, it will generally override the loan contract.
Limits on late fees. Late fees are often limited by:
• the dollar amount that may be charged (typically a maximum of $10 or $15)
• the percentage of the payment that may be charged (generally 4% or 5%)
• the date on which the late charge can be assessed, and/or
• the payment amount on which the late charge is calculated. (For example, the late charge may be based on a percentage of the entire amount of the payment due, including principal, interest, taxes, and escrow amounts or it may be calculated based on a percentage of just the principal and interest due.)
The servicer illegally “pyramids” late fees. In some cases, servicers charge borrowers late fees on full payments that were made on time because the borrower didn’t include a payment for a previously unpaid late charge. “Pyramiding” occurs when the loan servicer takes the assessed late fees from the regular payment and leaves part of the scheduled payment overdue, which results in the assessment of another late charge. When the servicer does this, more and more late fees accumulate. Federal regulations, state law, and mortgage contracts usually prohibit this practice. According to the Federal Trade Commission, pyramiding of late fees is unfair to consumers. Regulation Z, which implements the Truth in Lending Act (TILA), also prohibits the pyramiding of late fees for mortgages covered by TILA. The servicer assesses post-acceleration late charges. In most cases, the servicer is prohibited from assessing late charges after the loan has been accelerated. (When a loan is “accelerated,” you have to immediately pay the entire balance of the loan, not just the past due amounts. This sets the stage for the foreclosure procedure to begin.)
Default-Related Fees
If you default on your mortgage payments (that is, you fail to make the mortgage payments), your loan servicer may assess particular charges to your account. Default-related fees typically include:
• property inspection fees
• property preservation costs
• foreclosure costs/fees, and
• miscellaneous corporate advances.
Some states limit the amount of fees that can be charged pursuant to a default. For instance, charges may be limited to reasonable expenses, including costs and fees.
Property Inspection Fees
Most mortgage contracts allow the servicer to take necessary steps to protect the lender’s rights in the property, including conducting property inspections to determine the physical condition or occupancy status of the mortgaged property. Inspections are generally ordered automatically once the loan goes into default. The charges for the inspections are then added to the total mortgage debt. The amount charged for each inspection, which is generally drive-by in nature, is typically minimal ($10 or $15). However, inspections might be performed monthly or more often, so the charges can add up quickly. Some courts have found that repeated inspections when the servicer is in contact with the homeowner, knows the property is occupied, and has no reason to be concerned about the condition of the property, are not necessary.
Property Preservation Costs
The loan servicer may also assess costs for preserving the value of the property. For example, property preservation costs may include fees advanced to:
• winterize the home
• replace locks
• repair windows
• restore utilities, and/or
• landscape the property.
Most courts have held that such fees must be reasonable in order to be collectable from the borrower.
Foreclosure Costs and Fees
Generally, foreclosure costs must be reasonable and actually incurred before they are recoverable against the borrower. Acceptable foreclosure costs include, among others:
• auction advertisements
• sheriff’s costs
• filing fees
• service of process, and
• certified mailings.
Most mortgages require the borrower to pay the lender’s foreclosure attorney’s fees as well. To be collectable, attorney’s fees must be reasonable and actually incurred. Additionally, some states limit attorneys’ fees in foreclosures.
Miscellaneous Corporate Advances
Corporate advances are expenses paid by the servicer to be recovered from the borrower. Corporate advances may include bankruptcy fees or force placed insurance costs, for example. If undefined corporate advances appear on your account, you should contact your loan servicer for an explanation to ensure they are appropriate for inclusion in the total amount owed.
Challenging Fees in Foreclosure
Borrowers may raise any number of defenses regarding improper late fees or other incorrect default-related fees. While some may constitute a full defense to the foreclosure, others will reduce the amount owed on the debt, thereby potentially decreasing any deficiency owed to the lender.
A few of the defenses that could potentially be raised are:
• breach of contract
• violation of state usury laws
• unfair and deceptive acts and practices
• unjust enrichment
• negligent servicing
• breach of fiduciary duty, and
• breach of good faith and fair dealing.
Foreclosure Lawyer Free Consultation
When you need an attorney to help with real estate law or a foreclosure in Utah, please call Ascent Law for your free consultation (801) 676-5506. We want to help you.
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506
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