Mortgage company scam

MarkB_MI

Well-known Member
Location
Motown USA
A couple of months ago I decided to pay off about half the principal on one of our rentals. The payment coupon didn't have a place to specify how the overpayment was to be applied, so I assumed all of the overpayment would go against the principal.

Coincidentally about this time the mortgage company stops sending monthly statements and sends us a bunch of payment coupons. I didn't like this, since we can't see what's going on, so I requested them to switch me back to monthly statements. When I opened my first statement I got a shock: the attached coupon was for December! Then when I looked closer, I saw that the mortgage company had pulled a fast one.

Instead of simply applying the full overpayment against the principal, they took two additional payments out and treated them as monthly payments made in advance. So about $300 went into escrow, even though there was already plenty of money in the escrow account. And they charged about $400 in interest, even though no interest actually accrued! Not only that, but because they charged interest on the principal PRIOR to the prepayment, they got about double the interest which would have been due HAD any interest accrued.

I just sent them a nasty letter telling them to make it right. I was really surprised they tried to pull a fast one, but apparently this is a pretty common scam. Be very careful to check your mortgage statements if you make a pre-payment. It seems most people don't.
 
Same thing happened in the mid 1990's. I paid an extra $200.00 per month on the payment, thinking it would go against the principal. Paid this for two years. Eventually, I got around to checking my pay off. It was still the same pas if I hadn't paid any extra. When I asked about it they informed me that they had coded it 'code 11' and it did not go toward my principle.

They refused to fix it.

That is why I don't use banks any more.
 
The monthly statement on my home mortgage has a box to check if you want any surplus beyond the normal monthly payment to go on the principal. You have to look for the box, you can't just make an assumption.

If the box is there and you didn't see it, I'd say it's your problem and not the mortgage company's.
 
I think the rules on mortgage payments are federally controlled. I was under the impression that any pre-payments had to go to principle or at least the last payments owed. Meaning the over payment did not lower the current payment or even allow you to stop payments but went to the end to shorten the term. This would also lower the interest amount owed too. I would get out the original mortgage documents and see what they say. They are required to spell out how pre-payments are handled. Then the current holder of the note/mortgage has to honor what is spelled out in that document unless you have signed an amendment to that mortgage document.

I had a similar thing happen years ago when a local bank was bought out by a regional bank. We always paid a payment every two weeks when I got paid. In effect double paying the note. In the original note/mortgage paperwork any overage was applied directly to the principle. The new owner/bank wanted to just pay payments on the back side of the note. In effect not lowering the principle amount. I showed the "new" loan officer the original paperwork. They quickly complied to those terms. I do not think there was any intention of wrong doing in my case. It was just a different note/mortgage than they issued.
 
I have one mortgage on two rentals.
8 years paid on a 20 year note.
Every month I send the coupon in and add a few bucks extra assuming it will go to the principal.
So i lost both tenants in September and broke my leg in August so money is kind of short.
I called the bank to talk to them about maybe missing October's payment.
They said no problem. You are paid up in advance till mid 2016. I asked how is that possible. They said the extra payment amount you've been making accrues to the next month's payment not to principal.
GRRR.
There's no box to check or anything on the coupon to specify where the extra $ is to go so their default place is next month.
I have to write in the coupon "extra to principal".
Grrr.
In this case I was glad for the buffer this month but will not be making that mistake in the future.
 
crate78- "The monthly statement on my home mortgage has a box to check if you want any surplus beyond the normal monthly payment to go on the principal. You have to look for the box, you can't just make an assumption."

Where else would I want my 'surplus' payment to go??? I was always told, if you make more than your monthly payment, that it would lower the principle.

Obviously, I was misinformed.
 
I have been on both sides of this with one loan.
The people I took the loan out with just took any over payment and applied it to the next months note.
This worked great for me with the job I had at the time.
I could make a payment for 3 or 6 months while I was working and then not have to worry about it if I got laid off for a while.
Then that bank went out of business and sold out to a big nation wide bank.
Went along fine till I missed a payment and they started sending late notices.

I paid a 30 year loan off in 20 years and it still shows late payments on my credit report.

The loan I have now on some vacant land; the bank sends a statement every month.
Good thing they do as I have been caught with my pants down on this one.
Bill is due on 6th of each month.
Made 1 payment on 4th and another payment 11th one month thinking I now paid 2 months worth.
One before the due date for this month and one after the due date for the next month.
When I got the statement I noticed they applied the second payment to principal for the first month.
I called and ask about it and was told statement goes out on 15th.
Any payment made before 15th will be applied to last month.
So basically I can only make a monthly payment between the 15th and 6th if I want to pay 1 month at a time.
 

I really did not think it was legal anymore to credit future payments. The banks and mortgage companies certainly understand the time value of money and are cheating by applying toward a future payment unless you ask them to do that. My bank will always apply any extra to principal but I always tell them that is what I want and have them verify it.

The bank or mortgage company can certainly go back and credit prior interest if you push them to, each mortgage is just a small part of their cash flow bu tthey sure will nick you if they can.
 
JD Seller- You just described what happened to me. My farm loan was through a local S&L. The S&L got bought by a bigger bank. My original loan...the payment can be made anytime within the monthly due date. I could make the payment on the first or the thirty-first and no problems.

New bank says no we don't like those terms and payments are due on the first of the month and after the 10th they are considered delinquent. I referred them to my original loan papers which stipulated the monthly payment option. The new bank said 'No, we are changing the payment option. No other option'.

Next, I get a call from the 'new' bank saying...'We notice you have a house and barns on the property. You have not sent us "proof of Insurance" for these structures.' I inform them that when the loan was made, it was on 'Vacant' land. I had built the structures since the loan and paid cash to build them. Therefore, I do not need to provide them with 'proof of insurance'. This went back and forth for several months. The 'new bank' started Foreclosure' because I would not provide 'proof of insurance' for the structures on the property.

After months of this, I finally got to talk with a VP of the 'new bank' and told her...'The loan is for the vacant land. I built the structures after the fact and paid cash for them. There is no need for me to provide you with any information on who my structures are insured with'. She read the original deed and contract and finally agreed with me.

Last year, I finally got tired of their stuff and just paid off the remaining balance.

Once again, another reason why I don't like banks. LOL
 
I slept on it and now I think I know how this scam works.

The purpose of the scam isn't to pad escrow accounts, since it just creates an overage they have to refund at the next escrow review. Sure, they get to use your money interest-free for a few months, but current interest rates hardly make it worthwhile.

Nor is the purpose to collect interest that hasn't accrued. You go to jail for doing that. (Well, normal people do. Bankers and mortgage company executives seem to be immune from doing jail time.) So eventually they have to credit you with the interest. Yes, by pushing the payment into the next month they get to collect a little more interest, but the difference between this month's interest payment and the next isn't that much.

The REAL reason they took out two month's payments as advance payments was to collect some interest BEFORE paying down the balance. And they had to take out at least two payments, since one payment wouldn't make any difference. Mortgage interest is paid in arrears, so the next month's interest would be based on the principal before it was paid down. But the interest payment for the second month after the overpayment SHOULD be based on the principal after it was paid down, but this way they were able to collect one additional month's interest based on the old principal. So, in my case they did it to stiff me out of a hundred bucks. Multiply that by a few thousand mortgagees paying down their principal and you're talking real money.
 
>The monthly statement on my home mortgage has a box to check if you want any surplus beyond the normal monthly payment to go on the principal.

There is no such check box on my payment coupons. Nor is there any statement regarding how overpayments are handled, or anything that would suggest I need to give them instructions on what to do an overpayment.
 
>That is why I don't use banks any more.

Must get uncomfortable sleeping on all the cash you have stashed under your mattress.
 
Its been a real long time since I had any type of home loan but when I did have one I would
send in the payment for the month with a check for the payment amount and then if I had extra money to pay on the loan I'd send another check with a note attached to apply that to the principle.No note and they will just apply it to the next payment used to be pretty common knowledge.Banks are like Rattlesnakes gotta always keep in mind what you're
dealing with.
 
send 2 checks, second with a letter telling them where you want it to go.
call the bank directly, hard to believe but sometimes that second check has to be addressed differently.
the monthly payments are handled by an outside firm.

also, just to add, might be different today, long time since I had a mortgage, but some banks will give your credit report a hit if you pay off early.
Technically you didn't honor the contract.
check first.
 
That is how it has always worked as far as I know, the people at the bank do not know how you want the extra money applied if you don't tell them.
 

Advantage with using home town banks: Long years ago when we got a house loan I asked if I could pay it off early, they said fine, after along time I was ble to make extra payments and I would take my payment book in to the bank(no mailing checks for me) and ask to apply some excess to the principle. No problem. I also was wise at that early time to the selling of loans to another bank and asked about that. That bank does not sell loans, so no problem.

KEH
 
>Technically you didn't honor the contract.

This is the third or fourth mortgage servicer for that particular mortgage. At this point, I'd say I have a better idea what's in the mortgage documents than they do.
 
>That is how it has always worked as far as I know, the people at the bank do not know how you want the extra money applied if you don't tell them.

For the record, this is a mortgage servicer, not a bank. And it's the third or fourth one for this mortgage. I had no problem paying down the principal with the previous servicers. Of course, they made it very easy to list on the payment coupon how the payment was to be applied. No way to do that on the current coupon, and there are instructions not to include anything in the envelope other than the coupon and check.

As for them not knowing my intentions, that's absurd. They had no problem applying almost all of the overpayment to the principal. And if they were confused, wouldn't they have just treated the whole payment as a series of advance payments? Of course they didn't, because the average mortgagee is going to smell a rat if they look at their statement and don't see the new balance they expect. But most folks don't scrutinize their statements, and if they do they don't understand the implications of making a couple of advance payments versus a principal curtailment.

As further evidence of the mortgage servicer's disingenuity, I'll point out that they recently switched from monthly statements to payment coupons. It's a lot harder for the servicer to pull a fast one when they're sending monthly statements.
 
I was listening to a radio show on NPR a little while ago, people were getting foreclosed on incorrectly, and they were beating it in court by making the servicing company provide the documentation for the loan. When they could not do that the mortgage was finished (invalidated ??,). After 4 servicing companys they probably cannot PROVE that you owe them anything.
 
>...they were beating it in court by making the servicing company provide the documentation for the loan.

They do not need to prove anything. They have a lien on the property. That tactic has been used with some success to delay foreclosure, but delaying foreclosure is not the same thing as a lien release.
 
I'm afraid I don't know what you're talking about. I've been a card-carrying member of the GOP since '76. It's not my fault our chosen party is incapable of fielding a viable candidate.
 

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