Real Estate & Mortgage Insights

Undeserved Mortgage Late Charges

You own a house, you have a mortgage and you always make your payment on time. Then one month you receive a notice that you are behind.

How does this happen?

Quite commonly, your payment was misapplied. This happens for a number of reasons -- an early payment, a few pennies too much, your loan was transferred, and so on.

Any of those can mess with the automatic payment system. Mortgage companies often handle billions of dollars in loans and if your payment is the correct amount and on time, no human person ever touches your check -- or even sees your check. It is all handled automatically.

If there is something a little bit wrong, the automatic system may not know what to do with your payment, so it gets rejected. That way, a genuine person can decide what to do and sometimes that individual may misapply your payment in a variety of ways.

People are only human

Later, you receive a notice that you your missed your payment. Of course, you know you didn't miss a payment so you call up the loan service department and tell them so.

The entry-level clerk you speak to is staring at a computer screen with a history of your loan payments on it -- a very confusing screen, with numerical codes for each transaction - and there are LOTS of transactions, all in chronological order.

Your payment arrives each month, and there is one code for that. Then, part of the payment is applied to pay down your principal, and there is a code for that. Part of it goes to interest. Another code.

If your account is impounded for taxes and insurance, there are lots more transactions and lots more codes. This further confuses your clerk.

Part of the payment gets put into your "escrow" account. Another code. Then money gets moved out of your escrow account to pay your property taxes, insurance, mortgage insurance, disability insurance and all these other things you might have the mortgage company pay on your behalf. Each of them has their own numerical code.

Plus, the loan history screen references the "paid to" date, which isn't the same thing as your due date, which makes it even more confusing. To top it all off, if there is extra money no one can properly apply to anything - it goes in your suspense account (which has even another code).

Finally, the clerk looking at the computer screen isn't always the most experienced worker in the Loan Service Department.

Normally, your payment problem does get corrected, but...

Next month your billing statement still says you owe a late fee.

It didn't get fixed all the way.

So you call again.

You're probably upset, but never let the clerk feel your anger. Be very calm. Repeat yourself often.

The clerk pulls up your loan history screen and it is even MORE messed up than before. Not only does it show the "reversal" of the misapplied payment (another code) and the proper reapplication of that payment (more codes). But it doesn't show these transactions when you originally made the payment. It shows them when they were fixed.

So the computer still thinks you were late. The clerk looking at your loan history screen still thinks you were late.

Hopefully, now that we've explained how this error often occurs, you can explain to the clerk why he thinks you owe a late fee, but you really don't.

The clerk will learn from you.

If not, talk to a supervisor. That person is more experienced.

� November 2004 by RealEstate ABC

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