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Like many homeowners, I got my escrow analysis recently on one of my investment properties (and it wasn’t one that I was doing especially well with in the first place). I’ll tell you right off the bat that it’s got a negative cashflow to begin with. Perhaps one of these days I’ll go into the whole story on why and what the long term exit strategy is.

Long story short, the payments went from $2285.84 to $2811.67.

Oh yeah… and the HOA went from $500/quarter to $533/quarter. I know this doesn’t sound like a lot, but every dollar starts to add up.
So, as of January 1, 2008, the payments have increased from $2452.61 to $2989.34. This means that my payment went up $536.73 every month. And keep in mind, I was upside down every month before. THIS HAD NOTHING TO DO WITH THE MORTGAGE ADJUSTING and I have owned this property for 19 months so there’s no first year adjustment for taxes to take into account.

My first reaction was to get angry – I mean really angry. Are you kidding me? How did this happen? So I quickly called the bank to try and figure out what was going on. They were collecting around $714 per month for taxes and insurance. This is DOUBLE what my taxes and insurance should be.

Well, heck, it’s no wonder that people are falling behind and losing their homes and having their American Dream snatched out from underneath them. The interest didn’t increase. I didn’t have one of THOSE kinds of loans. So, them my blood began to boil. I told them that if they didn’t want to help me solve the problem, I’d just stop paying and they could simply take it back.

I’m on the phone trying to figure this out with the customer service person that answered the phone initially, and I’d have had more success banging my head against a cement wall. Finally, I got to a manager who brought me to tears and just said, “It’s too bad. You can submit a request to have your escrow shortage extended an extra year, but that’s about it. You just don’t know what kind of loan you got.”

I went on to explain that there must be a problem when the loan was sold to him and asked to go through what he had in front of him. He said it wasn’t his problem. Finally, I told him that as far as I was concerned he could have the house back because there’s no real explanation that’s going to do any good.

And how in the heck was a normal person supposed to handle that when they are getting squeezed in every direction?

What’s more, is that while I try and figure out what’s going on and get to the bottom of it, I have to pay the increased amount or my credit gets dinged with a 30 day late pay – even IF it’s ultimately an error on their end.

So, I cried for a few minutes and seriously contemplated giving the house back. Heck, the Donald’s filed bankruptcy a handful of times. A short sale’s not the end of the world. My credit’s been bad before. I could deal with that. I also thought about taking a quick loss and selling it for a drop dead price and taking money TO the closing table so I could just be done with it and keep my credit in tact.

But, when the emotions settled down a little bit, I started to look at my escrow “analysis” statement and something STILL didn’t make any sense to me. So, I called the bank (Chase) back. First, I was routed to someone in a foreign country. Surely, you’d think by now, they’d realize that maybe homeowners should be speaking with someone in their own country while they all sort out this mess they got themselves into. But I’ll save that soapbox for another post.

So anyways, I call back and get someone in the states. She tells me that it’s just the way it is and that with the loan I got, I had to pay it. I explained to her that I got a loan that I didn’t have to pay PMI on. The interest was higher so I didn’t have a monthly payment. She told me that didn’t exist and could see in the account where they’d been paying nearly $160/month for PMI.

She told me the company that sold the loan had a lot of messed up loans and it’s just too bad. She told me I’d been lied to and that I could sue HomeBanc (the original lender who is now bankrupt), but that I wouldn’t get anything so I might as well just deal with it.

She also had the nerve to tell me I was either lying or stupid – I couldn’t figure out which! You see, she was having me read a statement and the line item she was telling me to read to her WASN’T THERE. She told me it was, and that I was wrong. It was a line item proving that they’d made the payment for PMI. Of course it wasn’t there because I wasn’t paying it.
I then went on to explain that it didn’t matter because they bought what they bought, like it or not. They cannot change the terms of the loan. She gave me instructions on how to request a longer period of time to pay back the shortage. I took them down, but I wasn’t satisfied with the answer, so I kept digging.

I pulled out every single solitary statement since I bought the property and tracked the escrow for 19 months. I looked at the HUD and the note that I had saved to my computer and there was nothing…

I called back a 5^th time and spent 30 minutes with a girl on the phone who understood my frustration, but couldn’t find anything to help me on her end. She sent me to a manager, who then sent me to voicemail.

HOLY COW!!! How is a regular homeowner supposed to deal with this garbage?

And why aren’t the lenders held accountable when THEY make mistakes?

It all falls on the consumer… It’s no wonder people throw their hands up and wave the white flag. They are fighting a battle they can’t win and no one will help them.
When all was said and done, I found the document that I signed that says the loan has LENDER paid PMI (LPMI) which is different than BORROWER paid PMI (BPMI). LPMI is a part of the note and you pay a higher interest rate for it.

When Chase bought the loan, they conveniently misplaced this piece of paper and have been adding the PMI to my payment. Consequently, they’ve been paying out most of my monthly escrow payment to PMI which they should have been paying out of the interest on the loan. (FYI, this is why we chose this option… in order to have the tax deduction).

Now I’ve figured out the problem. Unfortunately, in order to have it corrected, I’ve got to fight them to make the adjustment. It’s like I’m guilty until proven innocent. And until such time, I have to make the increased payment or they will report me to the credit bureaus.

But, let me ask you…

• What if I didn’t know what questions to ask when I bought the loan?
• What if I didn’t understand the type of loan that I had?
• What if I didn’t have all of my statements from day one?

Now… I have to get something from them showing me where every nickel of my escrow has gone since they purchased the loan.

Then, I have to fax the document I have that proves that what I said all along was correct.

Next, I have to get them to credit back my account for the amounts taken out.

Oh yeah, and while this is all going on, I have to make over-payments or risk reporting to the credit bureaus.

So, the lesson for you is this… Keep all of your loan documents and contact new lenders immediately to make sure they have the right documents and that your loan payments are being applied correctly. Chase is so far the worst I’ve seen when it comes to escrow issues. I’ve had problems on multiple accounts.

It’s a shame that lenders are able to hurt consumers and get away with it. They are not held accountable. If you’re so much as 30 seconds late on your payment, they hurt your credit and affect all your bills. Credit card interest rates go up. Car insurance rates go up. And there’s nothing you can do.
Sure, once you resolve the issue, they may agree to correct it, but you have to follow up and make sure they do and they have 60-90 days to do it. In the meantime, your other bills have increased. It was their fault all along. And you’re he one that’s stuck paying the price.

I wrote this long-winded rant to make you aware of what’s out there and remind you that you need to be proactive when it comes to your loans. If you’re looking at working in the foreclosure market, there may be ways to help homeowners save their homes. Seriously consider looking into loan modification as an income stream.

It’s not always the case, but if you could help 1 in 10 people save their homes, wouldn’t that be incredible?

So… pay attention to your loan documents. Know what you’re signing. Get your mortgage broker or lender to explain everything to you – and maybe even go the extra mile and have him/her sign something or even record the explanation. If they refuse, find out what they’re hiding. It’s time the consumers and homeowners take back some control. It’s time for investors to stand up and make a difference.
There are plenty of homeowners that do need you to buy their homes, so if you’re working foreclosures and short sales, there will be no shortage of business. But there are many people that are just a few dollars away from being able to make their payments – and what if you can find a bank error that allows them to stay in their home?

Use the information you have to help people keep their homes. Use the knowledge that you’ve acquired for the greater good and if you don’t’ understand mortgages, now’s the time to learn them… really learn about them because as banks go out of business and notes get sold, it’s surely just the beginning of the bloodbath that’s about to come down the pike. And if we’re not a part of the solution, we’re a part of the problem.

In a couple of days, I’ll share a story where we were able to head it off on the front end and save a borrower 10s of 1000s of dollars over the life of the loan.