How Servicers Engineer Defaults Using the Escrow Accounts, Forced Placed Insurance and False Projections

Servicers are creating the illusion of defaults by manipulating the escrow accounts even when no escrow account exists. So even where there is no agreement for the “lender” to maintain an escrow account, they will create one anyway and engineer circumstances to make it seem like a default occurred not just in the “escrow account” but in the accounting for principal and interest.



I have two cases involving this right now where I am attorney of record and several dozen where I am guiding lawyers and pro se litigants through the intricate process of showing that no reconciliation is possible between the payments actually made by the homeowner, the taxes that were paid, the insurance that was paid and who paid it or failed to pay it.

In one case in point, the servicer, as part of a modification required my client to fund the escrow in full with a lump sum payment, which they did. The “servicer” (BOA) failed to pay the insurance, which was then canceled and could not be reinstated without having an active policy in force.

My clients had to wait until forced placed insurance was established thus raising their total monthly PITI payment into the stratosphere, with BOA getting its usual kickback from BalBOA. Then my clients got regular insurance at a quarter of the premium that was charged to their account for forced placed insurance. Eventually BOA reconciled the “deficiency” without payment from my clients. But BOA continued to keep their account flagged as delinquent even though they had been paid in full for everything. Eventually BOA stopped accepting payments because the account was “late.” And then BOA filed suit to foreclose. Stay tuned on this one.

I have seen dozens of cases where the escrow is manipulated by either projecting taxes and insurance too high or projecting them too low. In the first case the homeowner instantly can’t afford the payments and in the second case they are suddenly hit with a demand for a large lump sum payment that most people can’t afford. Tens of thousands of homeowners have lost their homes this way even though they were completely current on their payment of interest and principal.

By the way these practices are illegal. But that hasn’t stopped the foreclosures.

Hat tip to Mark Chapin

Here is a more technical explanation for the accountants to ponder.

Re: Engineering default through leveraging projections and ignoring the law.

See Merger Rule

Leveraging the escrow disbursements through projections with assumptions for the future.

The Escrow low point projection makes assumptions into future periods and converts those to real time current cash requirements.

The escrow projection calculation assumes the projected disbursement of the inflated premiums of Force placed Insurance policies are repeated. That calculation incorporates that inflated projected payment into the Low Point Calculation for the Escrow Account by combining the projected with the actual disbursement. The projection is a phantom mirage at the time of the calculation which is converted into a real time cash requirement under the calculation employed by Citimortgage. A full payment of the actual escrow disbursement advance by the mortgagor or even more telling, the placement of mortgagor insurance would extinguish the reality of the base escrow advance. The basis for the calculation of the leveraged projection would not exist, but the real time billing based on the projection would remain.

The leveraged payment increase was in this case used to increase the monthly billing, from the previous monthly principal and interest billing for the note payment, by adding billing for the obligation suspended under the UCC 3 Merger Rule. The suspended obligation of escrow disbursements under the mortgage. The suspended obligation was maneuvered through engineering a default to a presentation as an unsuspended obligation.

The Engineered Default:

The new leveraged payment billing was then used as a measure, to compare regular payments of principal and interest that were maintaining the promissory note in a state of non-default, to make a decision to (1) to misapply payments, which should have been credited first to principal and interest as per TILA servicing requirements and the note itself. The misapplication created the illusion in the servicer records of partial payments, phantom escrow projections; and (2) then return the whole monthly principal and interest payments properly tendered as un-deposited and rejected payments. This action was necessary to further engineer the default by artificially creating the dishonor of the note itself. This action thereby was used by the servicer as a pretext to declare the entire loan: the note and merged, deferred obligation in default. to schedule CONSULT, leave message or make payments.

10 Responses

  1. Reblogged this on California Freelance Paralegal and commented:
    Good blog post by Neil Garfield discussing how mortgage servicers use unfair business practices to put homeowners in default on their mortgage. In some states such as California these tactics could be the basis for a cause of action for unfair and fraudulent business practices under the Unfair Competition Law found in Business and Professions Code section 17200, et seq. Many states have similar laws.

  2. […] article from Neil Garfield today–How Servicers Engineer Defaults Using the Escrow Accounts, Forced Placed Insurance and False Project…— about how the Wall Street wolves got their defaults to trigger the big payoff from the […]

  3. I wonder if they are trying to pull something like that on us. We are in bankruptcy, have been trying to get a mod. since 2012. First they said we have an escrow shortage, and our payments went up 80.00 a month, then statement said escrow overage of about 1200.00, they sent us a check for that amount. Then they said we have an escrow shortage again. Today we got a letter saying due to an escrow overage, our payment is going down by about 100.00 a month. A recent paper we received also stated we are making the mortgage payments through the bankruptcy trustee pay plan, but we have always paid mortgage directly to them (wells fargo, ASC). Amount sent to trustee is not enough to cover the mortgage.I mail them certified, need a signature, because I don’t trust when they say they get them. I have been getting phone calls every so often from a Mr. Byrd in the executive office. You would think an executive officer would know what he’s doing, guess not. One hand doesn’t know what the other’s doing. thanks, Pat

  4. Yeah….I wanted Proof of Who the Owner of the Note Was!!!!-
    In Illinois you should be able to go to the land records office and find out who your mortgage lien holder is as the MORTGAGE FOLLOWS THE NOTE under Illinois Law.

    Guess What??,,,.No Liens. HMMM????

    BOSSES!!!! I wanted to sue their Ass Off#!!!-

    Its Like turning up the Heat on your own Ass @ your Expense.

  5. I had Faith they would Fix Their Error without need of Council …
    I Was Wrong …that was My Mistake

    But at Least I can Admit My Mistakes!!! 😀

  6. Oh…Restatement figures .two years into the loan that..I was bullied & blackmailed into paying was not a 1 year default.the year..BAC refused payment less than $12,000 when they dumped CW to BAC servicing.

    That’s. Right!!! I paid over $24,000 to reinstate a FRAUD!!!!
    Then … I called in My Flying Monkeys!!!

    Just Because the Circus left town,
    Doesn’t Mean the Flying Monkeys Are Off Their Backs..

    Many Blessings to All !

  7. Oh My Heavens!!!
    Its About Time You Admitted It!!!!
    Except I knew dam well at closing their projections were WRONG TOO!!
    The sellers taxes had been frozen for years..EXEMPT

    So I call confirm & verify after the new tax assessment and I tendered the shortage. BUT BUT BUT

    Their Records Showed Default from Payment #1 with an Investors Advance.. ???????? Every Dam payment for the 1st year had been put into a suspense account!!!!

    What happened to My Escrow Shortage Payment??
    Well a 3rd unaffirmef copy of the records were coughed up..
    Hahaha…It was applied in part to Principal,
    Oh ..My 1 day Early Missing May Payment. ??

    Over $12,000 unaccounted for …???
    Oh…1098 that as Interest all in a lump sum in 1 year.

  8. If you, or anyone you know, attempted a Loan Modification within the past 5 years, a Short Sale within the past 2 years, tried a Workout Program or gave back the Bank/Lender your home, via a Deed-in-Lieu within the past 2 years, you may be entitled to a Financial Settlement from your Bank or Lender regardless whether your attempt was successful or not.

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  9. I agree, the FBI should go to town on this ASAP!

  10. By the way these practices are illegal. But that hasn’t stopped the foreclosures.

    Where to get help to redress the illegality in foreclosure? This is where we need the help of FBI.

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