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Mortgage Servicing Scams to watch out for

Mortgage servicing scam is one of the biggest scams in the mortgage industry. Servicing involves collecting loan payments at regular intervals, handling escrow accounts, annual statements, dealing with borrowers’ loan problems etc. Any lender or mortgage company may originate a loan and then sell it off to an investor company or another lender.

The primary reason behind selling off mortgage loans is that many lenders don’t have enough cash to keep on originating loans; they need more money to stay in business as a result of which these lenders sell off their loans to investors for a discount.

What’s the scam all about?

In case your loan is sold off, what you need to do is, watch out for mortgage servicing scams and avoid being a prey to such scams. For instance, you may have taken out a loan from ABC Company and within a few weeks you receive a letter from PQR Company stating that you should now be making your new payment to the latter. Unaware of what’s happening, you start making payments to PQR until a few months later you come to know that it is a scammer. After receiving monthly payments for a few months, the fraud company then goes into another county or state in order to start its operation there.

At times, unscrupulous lender/companies get the names and addresses of homeowners from the public records at the County Clerk’s office and then sends them a letter stating that the latter should henceforth send monthly payments to the former. It may happen that borrowers get payment invoices from their original lender as well as the unscrupulous individual and then they are at a fix as to what should be done and to whom they should send in the payment.

How do you avoid mortgage servicing frauds?

In order to help borrowers avoid servicing scams, the Congress in 1990 formulated laws regarding the assignment, transfer or sale of mortgage loans and added provisions to the RESPA in this regard. As per the laws, lenders should disclose their policy on assigning or sale of loans to borrowers at the time of loan application. The disclosures should mention date of transfer, name, and contact details of the new servicer/lender and original lender so that the borrower can ask questions if any. Also, the disclosure statement should mention that the loan transfer in no way affects the original terms and conditions of the loan.

Moreover, if you send in the payment to the lender even after your loan has sold off, then for the first 60 days of the transfer, your payment will not be reported as late to the credit bureau. Also, none of the lenders can ask you for a late fee or penalty. And, just in case you don’t get a notice of loan transfer from both lenders, you need to contact both of them and get something in writing prior to sending in your next payment check. This is to ensure that the loan transfer isn’t involving you in a scam.

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