Mortgage Foreclosure Surplus

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I’ve had a couple of clients recently who had similar stories that I wanted to share. They both took out a mortgage to finance purchasing their home. The loans were originally escrowed, meaning property taxes and insurance were bundled together as part of the mortgage payment. Many lenders and mortgage servicers require this depending on credit scores, how much of a deposit is put down when originally taking out the loan, and how long the borrower has been making payments on the loan. It’s not necessarily a bad idea – one bill each month that includes all the other incidentals associated with taking out a mortgage. The alternative is to pay each month a bill from your mortgage servicer for the principal and interest, a separate bill from your insurance provider, and put a little money in savings each month for when the property tax bill comes due. Many of you might see the appeal of simplifying your mortgage payments by having your loan escrowed. However, I want to explain the unfortunate situation two of my clients found themselves in because their loan was escrowed.

For both clients, the bank initiated a foreclosure action against them – not because the borrowers stopped paying their mortgage, but because of accounting errors on the banks end. You see, when the loan is escrowed, the bank or mortgage servicer works with your insurance provider to determine how much you need to pay in premiums each year to stay insured. This amount is broken up into monthly or sometimes quarterly payments. That amount is then tacked on to your mortgage payment so the servicer can build up your escrow account, and when the insurance premium is due, you’ll have enough in the escrow account to pay the insurance. This is the same idea of your property taxes – the mortgage servicer gets an estimate as to how much will be owed at the end of the year and rolls that amount into your monthly payment. The problem is, by having an escrowed loan, you’re giving the mortgage servicer more work to do on your behalf. You’re trusting or assuming that they will calculate the right figures, properly charge you that amount, and pay the insurance and taxes on time. But that’s not always the case.

For my two clients, the bank had some sort of accounting issue, whereby they started to charge my client’s far more money each month to cover taxes and insurance, then what was really required to pay these accounts. The result was that though my clients could afford their normal mortgage payment of principal, interest and the correct amount of escrow, they eventually couldn’t afford the artificially inflated amount. They would call the bank, try to get them to correct these mistakes, point out what the actual payments should be, etc. All to no avail. So, unfortunately, the bank put these clients into foreclosure for a mistake they did not make.

Thankfully, after we stepped in, we were able to sort this mess out and after several rounds of negotiations, we were able to come up with loan modifications that gave them better terms than the previously had, and removed the loans from escrow – meaning the client only pays principal and interest to the bank and pays their own taxes and insurance directly to their insurance provider and the tax collector. While it’s a couple more bills the clients have to deal with each month, they know that they are in charge of it, and there is no option for the bank to accidentally put them in foreclosure for mismanaging their accounts. If you can, I strongly recommend you try to have a non-escrowed loan. You might save yourself a huge headache in the future.

If you believe the bank has wrongfully put you in foreclosure, contact us to set up and appointment to go over your options. For more information about foreclosure defense, contact us to see how we may be able to help you.