9 top bank loan abuses to look out for

Robo-signing is one type of mortgage fraud that has received a lot of attention -- it involves the automatic generation of mortgage foreclosure documents that have unfairly threatened or caused people to lose their homes -- but loan companies can find many ways to rush foreclosures or generate fees at a homeowner's expense.

Here are nine of the top loan servicing abuses, according to Kathleen Day, spokeswoman for the Center for Responsible Lending, a nonprofit dedicated to eliminating abusive financial practices in banking services.

1. Misapplied payments
Even when a payment is made on time, the company can mistakenly apply it to the wrong account or mistakenly send it back. "It's a huge headache for homeowners and a chance for extra income for the loan servicer in penalties and late fees," says Day. First you might get a call or letter that your loan is in arrears, but you might not. And, even if you do find out there's a problem, the person you are talking to often works from a computer that is blocked off from many documents that could verify if what you are saying is true, warns Day.

2. Illegal or excessive fees
When a homeowner defaults on his mortgage or is behind on payments, the bank can't charge excessive fees for property monitoring. That's when monitors are sent by the bank to check if your property is being maintained -- that is, whether the lawn is being mowed or the roof is intact. There are no standard charges for property monitoring fees and you'll have to ask an attorney what may seem excessive.

3. Two-faced 'help'
Many homeowners in arrears who are actively working in good faith with their mortgage servicer to bring an account up to date are surprised to learn that the company is also actively pursuing foreclosure (this is called "dual tracking"). Try to work with one representative dedicated to your case and keep track of all telephone conversations, dates, advice and follow-up information, says Day.

4. Blocked refinances
Many loan servicers can stall your attempts to refinance with a different bank. "They don't like to lose the steady income flowing from their mortgages and may drag their feet about providing loan payoff information to the new lender," Day says. If you believe you are being given the runaround, be persistent and if necessary get an attorney.

5. Squelched legal rights
Loan companies often include waivers with their loan modifications, which essentially say, "If you accept this modification, you give up your right to sue the bank regardless of what egregious acts it may have committed," Day says. She advises speaking with a lawyer before signing a loan modification, if possible.

6. Botched taxes and insurance
Many mortgages have an escrow account for taxes and insurance that the loan company manages -- or not, warns Day. When the company fails to pay expenses on time, the homeowner can be stuck with penalties.

7. No communication
When a homeowner is late on a mortgage payment, the loan servicer usually sends a notice or makes a call. But sometimes they don't, says Day. "Just because you haven't heard from the bank doesn't mean there's not a problem. Be proactive and call your bank if you can't make the payment, she says. And, if you have made your mortgage payment, check your bank account to verify that the check has cleared. It's possible you sent your payment to the wrong address, or that it got lost in the mail, or there was an online error or delay.

8. Whirlwind foreclosures
Each state has its own laws governing the foreclosure process and when a lender can begin foreclosure. In the rush to foreclose, some loan companies ignore key steps required by law. The banks have to follow the letter of the law and can't confiscate property prematurely, says Day. It's vital to have a lawyer who can make sure the servicer of the loan is following the law and providing proof of essential documents. "The documents are often in disarray or missing, and the servicer may not know who owns the loan despite having sworn to a court of law that they do," says Day. It's almost impossible for an average homeowner to know what documentation each state requires and may be missing. Again, a good lawyer on your side is your best bet.

9. Crazy foreclosures
This one is hard to believe, but it happens disturbingly often, says Day. The loan servicer begins foreclosure proceedings even though the homeowner is current. If you find yourself in this situation, call for legal advice immediately.