Clerical error caused a 60 day delinquency on a mortgage-any advice?

Question

My mortgage for my property (FHA, originally owner occupied but I've moved out) got transferred earlier this year. Problem is, I moved last year, and the letters informing me of the transfer went to my old address. I'm certain I updated my information with the old servicer when I moved, as I sat down that weekend with a checklist to update my mortgage, credit cards, insurance, etc., but they claim they were never notified. I would have gone in to their portal and updated it directly online, but don't have a confirmation from them.

Regardless, the mortgage was transferred in January. My property manager paid February 1st, March 1st, and April 1st to the old servicer, who forwarded it to the new servicer without telling anyone. The property manager paid May 1st and June 1st, which was eventually returned by the old servicer. This entire time, I was never informed of any issues.The first time I learned about this was July 2nd, when the new servicer reported me 60 days deliquent on May (June has yet to hit). As soon as I learned about this, I paid May, June, and July at once. Lesson learned: I'll be handling mortgage payments personally going forward.

I appealed with the new servicer, and their position is they're reporting accurately: they weren't paid in May or June. Since I have no paperwork documenting I informed the old servicer of the change in address, there's nothing they can do. Which may technically be true, but I'm not just going to accept that without exhausng every option. The payments were made to the old servicer, it was just a clerical error that the old servicer didn't have my new address (one that I'm pretty certain was a tech error on their end) and so I was never notified of the change.

Any thoughts on how to minimize the impact as I look to make my next acquisition next year (either another owner occupied or conventional)? My credit score dropped 90 points as a result, down to the 600's, with June's 30 day delinquency yet to hit. I have proof that payments were made to my old servicer in May and June, they just weren't forwarded. I know lenders have some discretion if I explain the situation, but how real is that?

Lessons learned:

1. Inform creditors of major changes in writing, not just updating in their portal. My thought is their portal timed out or something when I updated it.

2. Don't allow PM's to make the mortgage payments on your behalf. This could have been avoided if I had known about the May mortgage being returned (granted, it wasn't returned until the wnd of May)

Ray Williams · Answer

I work in mortgage lending. On agency loans (Fannie, Freddie, FHA) there generally is not a lot of true discretion once a 60 day late shows up on the credit report within the lookback window, automated underwriting engines and program guidelines key off the tradeline itself, not the story behind it, so if you go the FHA or conventional route again soon, expect the late to matter, though a written letter of explanation with your dispute and proof of payment to the old servicer sometimes helps at the exception level if you're borderline on approval. Conventional loans underwrite off score meaning it already factors this in if it approves you. Where real discretion exists is more on portfolio and non-QM programs, since those get manually underwritten by an actual person rather than run purely through an automated engine, and a documented one time servicing error with a paper trail (proof of payment sent, forwarded, returned) is exactly the kind of story a portfolio underwriter can factor in that an automated system can't. Depending on the timing of your next purchase, it might be worth having a lender run both an agency and a portfolio/non-QM scenario side by side so you can see the rate and down payment trade off instead of assuming you're locked out of a conventional loan. Also keep pushing the credit bureau dispute since a paid but late due to servicer transfer error notation, even if it doesn't remove the late, sometimes helps future lenders read the file correctly. One clean 60 day late a year out is very recoverable.

Chris Seveney · Answer

You can dispute it on your credit report with explanation mortgage servicer transferred

i am curious why would you have your property manager paying your mortgage? Never heard anyone ever doing that but what benefit would that provide vs just having it auto ach from your bank account?

Erik Estrada · Answer

I second this as well,

Sometimes you can do a credit re-score and dispute the lates if you have proof you were making on time payments and can show you were attempting to contact the servicer to make said payments.

It is very important to call and confirm your payment was made to the correct servicer. I always suggest my clients do this to avoid any potential late reporting. Your current loan could be sold again to a different servicer again.. I have seen it happen numerous times.

Tyler L. · Answer

@Robin Simon glad to hear, hopefully worst case it filters out soon. May's 60 day hit dropped my credit score from high 700's to high 600's and June's 30 day hit will likely knock me down a few more.

I've got all the docs I can muster, but glad to hear this won't take years to recover worst case. My credit history is sparkling otherwise, perfect payments, sub 20% utilization, the only reason it wasn't higher is length of credit history.

Justin Tulman · Answer

Tyler, I agree with most of the advice given here and would definitely keep pursuing the servicing issue and preserve every piece of documentation showing that the payments were actually made to the prior servicer. Work your way up the within the Servicing Department's chain of commands and get to a manager.  Do not settle for the first person that answers your customer service inquiry.

From a lending standpoint, the distinction between a true inability to make the mortgage payment and a documented servicing-transfer problem can be important, although the credit-reporting history itself still matters.

Since you’re planning another acquisition, I’d also look at the financing strategy well before you start making offers. Conventional financing, owner-occupied financing and investor-focused programs can treat recent mortgage lates very differently. If the next purchase will be a non-owner-occupied rental, there may be additional financing options to evaluate that place more emphasis on the property and overall investment scenario. The key is reviewing the credit history and timeline before you find the property rather than discovering the limitation after you’re under agreement.

Robin Simon · Answer

I think you are learning the right lessons and doing the right things - servicing is a nightmare these days with constant errors as well as navigating in a world of constant spam/scam messaging, etc.  Just keep doing what you are doing with documentation, disputes and LOEs - the good news is that these do tend to roll off pretty quickly (a year at most) and can bounce back in terms of loan eligibility, credit score, etc.

Clerical error caused a 60 day delinquency on a mortgage-any advice?

Clerical error caused a 60 day delinquency on a mortgage-any advice?

Most Popular Reply

8 Replies