It all starts out innocently enough. You buy your home in the usual way, borrowing from a reputable lender such as National City (NYSE: NCC ) , Bank of America (NYSE: BAC ) , Wells Fargo (NYSE: WFC ) , E*Trade (NYSE: ET ) , J.P. Morgan Chase (NYSE: JPM ) , Citibank (NYSE: C ) , or Wachovia (NYSE: WB ) . But many big lenders don't keep these loans on their books -- instead, they sell them to others to service. That's why, though you may stay in your home for the full 30-year term of your mortgage, you might end up making out your mortgage payment check to several different entities over the years.
Still, there seems to be no problem, right? Well, for most of us there probably are indeed few problems, as long as we're able to keep making our payments. But a reader recently wrote in to alert us to how a lot of home buyers are apparently being taken to the cleaners and losing their homes in the process because of what sure seems like dastardly fraudulent behavior on the part of some servicers.
Click over to www.msfraud.org and draw your own conclusions. But before you do, permit me to offer an excerpt from the website, describing the problem:
"It begins with things like adding an unsubstantiated fee here and there for services you have never heard of, and/or late fees for payments you actually made on time. If you attempt to dispute these charges to your account, they may go to the next level by having a 'collection attorney' or an outside law firm start acceleration procedures and you will be expected to pay for that too. Now the fees rapidly multiply like a virus and in a very short period, you 'allegedly' owe thousands! What did you do wrong? Nothing! You have no say in who services your mortgage and you just happened to end up with a company operating this well crafted system of racketeering and extortion."
The folks at msfraud.org note that likely victims (a) don't understand the mortgage documents, the laws and regulations or their rights, (b) are easily intimidated over the phone, (c) have enough other credit flaws to make putting false late payment data into the credit bureaus plausible, and (d) have equity in their home that can be recaptured into the loan principal.
What can be done about this problem? Well, awareness is a good start. It seems that several attorneys general are looking into this practice -- ones from Texas and Florida, reportedly. Several government agencies may be investigating it, too. In the meantime, readers are urged to "confront elected officials with the problem and let them know it is an issue that will have an important role in [elections]."
Another good defense may be to keep your credit record clean. Learn how in our Credit Center, which also offers a special deal on getting copies of your credit report so you can make sure it's correct. (Astonishingly, there's a very good chance that your report has errors on it.)
Read about all things credit-related on our Consumer Credit / Credit Cards discussion board. And if you're mired in credit card debt, don't despair -- you can get out of debt and build a beautiful credit score.
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LongtimeFoolcontributorSelena Maranjian does not own shares of any companies mentioned in this article.