A mortgage “servicer” is the company to which the borrower is instructed to make periodic payments. It is quite common to both sell mortgage loans and sell the right to collect or “service” loans. The consumer is entitled to written notice of both a transfer of ownership of a mortgage loan (15 U.S.C. §1641(g)) and a transfer of servicing of a mortgage loan (Real Estate Settlement Procedures Act, 12 U.S.C. §2605).
Mortgage servicers frequently commit errors in servicing loans. Some of these are accidental, whereas some are not.
Borrowers do not have the right to select who will service their loans. Mortgage servicers compete for the business of mortgage owners. They compete by offering to service the loans for a fee; the servicer offering to service for the smallest fee gets the business. In addition, the servicers get to keep the “servicing income” generated by the loans. The servicing income includes late fees, fees generated by the “forced placement” of hazard insurance, property inspection fees, and similar fees. Mortgage companies therefore have an incentive to increase the servicing income—the fees charged to the borrowers—in order to reduce the amounts paid by the mortgage owners. This situation—called reverse competition by economists—is very bad for borrowers because it gives the mortgage servicer an incentive to impose unauthorized, improper, or inflated charges.
To curb some of the abuses, the law gives certain rights to borrowers.
TIP
Submit a qualified written request or notice of error to a mortgage servicer every time you get a statement or document that you do not agree with or fully understand.
A borrower has the right to submit a “qualified written request” or “notice of error” to a mortgage company (12 U.S.C. §2605). You must send such a notice or request to the address specified for that purpose on the monthly statement, not to the place where payments are sent or to a general correspondence address. Include your name, address, Social Security number, and loan number. State in as much detail as possible what you think the mortgage company has done wrong; however, do not delay sending a request or notice while you collect documentation supporting your position. It is generally helpful to request an account history from the inception of the loan if the problem concerns fees, charges, or the crediting of payments.
The mortgage company has five days to acknowledge the request and must respond substantively within thirty days, either correcting the error and explaining why or stating reasons why it disagrees that there is an error. There are statutory damages for noncompliance.
In addition, the mortgage servicer may not take any adverse action with respect to the subject of a request or notice, including adverse credit reporting, until it responds substantively. For this reason, if you receive a series of statements or notices repeating the same error—for example, a balance that does not credit a payment that you have made, send a request/notice in response to each.
This right may be exercised with respect to a past servicer—where one company has transferred servicing to another or where a loan is paid off—for one year after the transfer of servicing.
Servicers need not respond if a request is duplicative, overbroad, or untimely or is not related to the borrower’s mortgage loan account.
Certain Internet sites offer very long and detailed request forms, usually dealing with loan origination and disclosures rather than servicing issues. We advise against submitting such requests. Courts regard them as harassing and illegitimate, and lawsuits based on such requests get a very negative reception. If you have a specific issue, address it, explaining what the problem is.
CAUTION
Do not use elaborate qualified written request forms obtained on the Internet.
Summary
You have the right to challenge in writing anything done by or received from a mortgage servicer that you disagree with. You should exercise that right promptly and consistently.