FTC FACTS for Consumers

FOR THE CONSUMER 1-877-FTC-HELP

ftc.gov FEDERAL TRADE COMMISSION

Defaulting on 

Your Mortgage 

Has Costly 

Consequences

I f you don’t pay your mortgage on time or if your payment is for less than the amount that’s due, you’re in default on your loan. The consequences of default can be costly.

The Federal Trade Commission (FTC), the nation’s consumer protection agency, says it’s 

important to understand the costs of default. The agency also stresses that if you’re having trouble 

making your mortgage payments, contact your loan servicer to discuss your options as soon as you 

can. The longer you wait to call, the fewer options you have. 

What happens if I default on my mortgage?

Defaulting on your mortgage can add the cost of various fees to the amount you already owe. It 

also can damage your credit score. Ultimately, it can lead to you losing your home.

Late Fees. If your payment is late, you may be charged a late fee. Late fees can add hundreds of 

dollars to your mortgage bill.

Default-Related Fees. Your mortgage servicer is the company that manages your mortgage loan 

account. If you’re in default, your servicer may charge you for “default-related services,” which 

can add hundreds or thousands of dollars to your loan over time. 
Facts for Consumers

Default-related services can include:

•	 Property inspections to make sure you are 

living in the home and maintaining the 

property. 

•	 Property preservation services, including 

lawn mowing, landscaping and repairing or 

boarding up broken windows and doors. 

•	 Foreclosure costs, which may include 

attorneys fees, property title search fees and 

charges for mailing and posting foreclosure 

notices.

Damage to Your Credit Score. Mortgage 

servicers provide information about your payment 

history to credit reporting companies, including 

whether you’ve been late with a payment or 

missed any payments. Even one late payment 

lowers your credit score, which affects whether 

you can get a loan in the future – and what your 

interest rate will be.

Foreclosure. If you are in default, your servicer 

may start the foreclosure process. Not only will 

this add to the costs you will have to pay to bring 

your account current, but the foreclosure filing 

will be a matter of public record. This will make 

it tougher for you to get credit and buy another 

home in the future. If you aren’t able to bring 

your loan current or work out another solution, 

your home could be sold at a foreclosure auction. 

In many states, you also may be responsible 

for paying a “deficiency judgment.” That’s the 

difference between what you owe and the price 

the home sells for at the foreclosure auction.

What should I do?

Pay close attention to your mortgage loan 

account. Review your account regularly to make 

sure your payments are credited on time and that 

there aren’t any unexpected or unusual fees or 

charges. If you don’t get monthly statements, 

check with your servicer to see if you can access 

your account online. Be assertive. Question any 

items you don’t understand and keep good records 

of communications with your servicer. Among the 

items to monitor: 

•	 Posting of Payments. Keep a record of 

the amount you pay and when. If you have 

made a full payment, your loan servicer must 

credit that payment to your loan account 

as of the day it is received. If you make a 

partial payment, the servicer is not required 

to credit the payment to your account. The 

servicer might return your payment to you or 

put it into a “suspense” or “hold” account: 

the payment sits in limbo until you provide 

the funds to equal a full payment.

•	 Improper Late Fees. Most mortgage 

contracts include a “grace period” – the 

time you have to pay your mortgage without 

incurring a late fee. If you make your 

payment during the grace period, there 

shouldn’t be a late fee. The day your servicer 

gets your payment is the day that counts, not 

the day you send it.

•	 Too Many Late Fees. You should be 

charged a late fee only if you don’t make a 

mortgage payment in full and on time. Some 

servicers have charged borrowers late fees 

on payments that were made in full and on 

time because the borrower didn’t include 

a payment for a previously unpaid late 

charge. This practice is called late charge 

“pyramiding,” and it’s against the law. 

•	 Default-Related Fees. Review your account 

for default-related fees. Make sure you 

understand what they’re for and why you’ve 

been charged. If mystery fees appear on your 

statement under headings like “other fees” or 

“corporate advances,” contact your servicer 

for an explanation.
Facts for Consumers

•	 Escrow Account. If you have an escrow 

account with your mortgage for payment of 

real estate taxes and homeowner’s insurance, 

review your annual escrow account 

statement. Make sure the amount for taxes 

and insurance on the statement are correct 

and that your tax and insurance payments 

have been made on time. If you have an 

escrow account, your monthly mortgage 

payment will increase if the amount you 

owe for taxes or insurance increases. If the 

escrow amount is short, adjust your monthly 

payments to cover it. 

•	 Bankruptcy Servicing. Some borrowers 

choose to file a Chapter 13 bankruptcy to 

stop foreclosure and stay in their homes. In 

Chapter 13, the court generally approves 

a repayment plan that allows you to pay 

your debts over three to five years. Your 

bankruptcy plan may include your past 

due mortgage payments, but it does not 

affect your obligation to make your current 

mortgage payments. You must continue to 

make those payments in full and on time or 

you may be in default. If default happens, 

you could be charged late fees and defaultrelated fees, and the loan servicer may ask 

the court for permission to foreclose on your 

home. 

Where can I get help?

If you are struggling to make your mortgage 

payments or you’re in default, contact your 

mortgage servicer right away. Many people find 

it embarrassing to talk with their servicer about 

payment problems, or they’re hopeful that their 

financial situation will improve and they’ll be able 

to catch up on payments. Keeping the lines of 

communication open is critical to resolving issues 

with your loan. Options to help you bring your 

mortgage loan current and save your home from 

foreclosure include loan modifications, repayment 

plans, or a temporary reduction or suspension 

of payments. If you’re not eligible for any of 

these options, your servicer may be able to help 

you find a solution other than foreclosure, like a 

short sale or a voluntary transfer of the property 

through a “deed in lieu of foreclosure.”

Staying in touch with your servicer also could 

save you money and make it easier to bring your 

mortgage loan current. For example, although 

servicers have different policies about when 

they will order default-related services, some 

may not order property inspections or property 

preservation work if you let them know each 

month that you are still living in the home and 

maintaining the property. They also are more 

likely to delay a foreclosure sale if they are 

working with you to find a better solution. 

It is important to continue to 

monitor your mortgage account, 

even during bankruptcy. Make 

sure your payments are credited 

properly and on time. Watch for 

any inappropriate late charges 

or fees, and keep an eye on your 

escrow account.
Facts for Consumers

1-877-FTC-HELP FOR THE CONSUMER

FEDERAL TRADE COMMISSION ftc.gov

June 2010

Federal Trade Commission

Bureau of Consumer Protection

Division of Consumer and Business Education

If you are having a hard time reaching or working 

with your loan servicer, talk to a certified 

housing counselor. Call 1-888-995-HOPE for free 

personalized guidance from housing counseling 

agencies certified by the U.S. Department of 

Housing and Urban Development (HUD). This 

national hotline – open 24/7 – is operated by 

the Homeownership Preservation Foundation, a 

nonprofit member of the HOPE NOW Alliance of 

mortgage industry members and HUD-certified 

counseling agencies. For free guidance online, 

visit www.hopenow.com.

For More Information

The FTC also has free information about dealing 

with mortgages and debt. Visit ftc.gov/yourhome

to read the following publications:

Mortgage Servicing: Making Sure Your 

Payments Count

Mortgage Payments Sending You Reeling? 

Here’s What to Do

Foreclosure Rescue Scams: Another Potential 

Stress for Homeowners in Distress

The FTC works to prevent fraudulent, deceptive 

and unfair business practices in the marketplace 

and to provide information to help consumers 

spot, stop and avoid them. To file a complaint 

or get free information on consumer issues, 

visit ftc.gov or call toll-free, 1-877-FTC-HELP 

(1-877-382-4357); TTY: 1-866-653-4261. 

Watch a new video, How to File a Complaint, 

at ftc.gov/video to learn more. The FTC 

enters consumer complaints into the Consumer 

Sentinel Network, a secure online database and 

investigative tool used by hundreds of civil and 

criminal law enforcement agencies in the U.S. 

and abroad.

To learn about the President’s 

plan to help homeowners, visit

www.makinghomeaffordable.gov.