- The Washington Times - Friday, October 5, 2001

No alarms went off for Strohm Evans when he reached into his home mailbox and pulled out an insurance bill that was supposed to have been paid by his mortgage lender.

As a real estate attorney at a title company, he knew that the mailing represented a mistake, albeit a potentially costly one for himself.

"I just called up my lender, and they said, 'Oh. We had a computer problem,' and it was over," says Mr. Evans, who works at United Title Inc. in Severna Park, Md. "If they had canceled my insurance, I would have had a bigger problem."

In an industry that manages trillions of dollars a year in home mortgages, a few computer errors and administrative oversights might be expected. But for those consumers who have ended up fighting dubious late fees, losing insurance or in rare instances even defaulting on their loans because of confusion over payments, mortgage servicing problems are a major frustration.

Part of the confusion stems from the fact that a mortgage servicer is not necessarily the same institution that originates the loan. After a house is sold, the rights to servicing that loan may be bought and sold several times before the loan is paid off. Each time those rights are sold, somebody else takes responsibility for collecting monthly mortgage payments and handling the escrow accounts that automatically pay taxes and hazard insurance during the year.

Such transfers are so common that, by law, homeowners have been granted a host of rights, all spelled out at settlement. A "service disclosure statement" is among the stack of papers they wade through at closing.

In it are details about Section 6 of the Real Estate Settlement Procedures Act, including information about servicing procedures, transfer practices and complaint resolution. Buyers also get an estimate of the percentage of loans that the lender sells, which can be as much as 100 percent.

"Mortgage companies change all the time. If I made a new loan today and I had a one-year mortgage, I wouldn't bother addressing 12 envelopes to the same company. Save your envelopes because they change all the time," says David Martin, a Riverdale real estate broker. "I prepare clients at the settlement table. I'll say, 'Now, Ms. Jones, this is a temporary payment coupon. Do not be surprised in the least if 10 days or even five days from now you get a letter that says you should send your payment to another address."

But with paper flying and agents presenting one dotted line after another for signature, homeowners are frequently surprised by the notifications that arrive in the mail.

By law, notification from both the old and new mortgage companies must be sent to the homeowner. Problems sometimes occur, however, when a homeowner accidentally sends a payment to the old mortgage company and then gets charged late fees and penalties when the new one hasn't received the payment on time.

Never fear, brokers say. There is a 60-day grace period after the transfer. During that time, a homeowner cannot be charged a late fee if the mortgage payment is sent mistakenly to the old mortgage servicer instead of the new one. According to the law, even if the new servicer received a payment late, it cannot report that to a credit bureau.

"Now, a prudent person would call the company they've been doing business with and make sure there's no scams going on," Mr. Martin says.

Indeed, fraudulent mortgage companies have been known to pop up long enough to collect a month's mortgage from a handful of people. Homeowners are urged to check loan transfer notices for the required toll-free phone numbers that they can call to verify the change. The same also goes for notices informing homeowners of changes in the name of their mortgage company. Each time a bank with a mortgage company consolidates, a new round of notices must be mailed out.

Mortgage broker Richard Miller says he has only rarely encountered mortgage servicing problems, including one that occurred when the lender's notice was sent to a rental property rather than the owner's home.

"It's usually a problem of paperwork," Mr. Miller says.

Other times, escrow payments may lag if a county or state has changed its payment requirements. For instance, when Anne Arundel County changed its tax billing from annual to semiannual two years ago, some lending agents continued to send in the year's payment all at once. What resulted in refunds for homeowners was actually due and often left unpaid later in the year. That's a problem that strikes the pocketbook. If taxes aren't paid in time, a percentage point of interest is tacked on for each month it is late.

"That problem worked its way out in the second year," says Mr. Miller, whose company, Money Market Inc., is based in Annapolis.

"If you think about it, for a servicer in Dayton, Ohio, to have to know what every county and state in the nation does is a lot of information to keep straight," he says.

But it is the servicer's job to keep that information straight. If it doesn't, it could lose its license.

The first place to turn when there is a problem is to the current loan servicing company.

Many times, as Mr. Evans found, a phone call can quickly clear up any confusion.

After that, a letter should be sent, detailing the problem.

The servicer must respond within 20 business days of receiving a letter and correct the mistake within 60 days.

The next step, says Mr. Evans, is to make a call to the consumer protection division of the attorney general's office.

"If you've got a legitimate gripe, you're better off having someone with that kind of clout getting involved than paying some attorney for a job that can take years to clear up," Mr. Evans says.

Consumers may also send their complaints to the Department of Housing and Urban Development, under whose jurisdiction the Real Estate Settlement Procedures Act falls.

Meanwhile, experts advise homeowners to watch the mail and expect changes.

"In 23 years in this business, I've never heard of anyone getting upset about their loan being sold," Mr. Martin says.

"It really shouldn't matter who you send your payment to, right? You just want to be sure you get credit for sending it."

More info:

Books

"All About Escrow and Real Estate Closings," by Sandy Gadow. Now in its sixth edition, this book provides detailed explanations of the laws surrounding settlement. Ms. Gadow also is available by e-mail (sandygadow@realtytimes.com).

Government

The Department of Housing and Urban Development provides four ways for consumers to file complaints: online (hotline@hudoig.gov); by phone at 800/347-3735; by fax at 202/708-2451; or by mail at the Department of Housing and Urban Development, Office of Inspector General Hotline, Assistant Inspector General for Investigations, 451 7th St. SW, Room 8270, Washington, D.C. 20410

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