It's been a six-year battle for Mike Dillon, who is trying to save his home from a foreclosure the courts say should never have happened.
It began in 2001, when the company servicing Dillon's loan was sold. According to Dillon, he made a payment in 2001 to his servicer, but it had been sold to Fairbanks Capital, Dillon said. Fairbanks told him his payment was not received.
"The payment disappeared," said Dillon of Manchester, N.H. "The check never came back to me, and the first notification that I ever got from Fairbanks was a default notice saying that you owe us $2,000 plus. From there it was all downhill."
Dillon admits to paying late but said he always paid the late fees. He contends he landed in loan default and on the doorstep of foreclosure because of deception by Fairbanks Capital.
In 2005, a New Hampshire judge barred Fairbanks from foreclosing on Dillon's home, saying that Fairbanks created a "predatory scheme of penalties that generated the default." Dillon said that while the ruling helped keep his house safe for now, he ultimately didn't consider it a victory.
"It didn't make up for the years of illegal fees they charged me," Dillon said. "It didn't make up for the damage to the credit report, it didn't make up for anything."
Fairbanks disagreed with the court's ruling, but said it complied. Still, the company said, Dillon has refused to pay into a mandated escrow account, leaving him behind on years of mortgage payments, taxes, and insurance. He remains locked in litigation with the company.
Fairbanks has been sued before. In one case in 2003, the company voluntarily agreed to a $40 million settlement with thousands of Massachusetts customers, after the Federal Trade Commission and the U.S. Department of Housing and Urban Development said the company "assessed and collected improper or unwarranted fees."
The FTC charged the company with failing to post mortgage payments on time, then charging customers late fees; charging customers for homeowner's insurance when the homeowners already had a policy in place; and misrepresenting the amounts customers owed.
Since the settlement, the company was sold, changed management, and changed its name to Select Portfolio Servicing, or SPS. It says it's now a leader in responsible servicing.
But many homeowners continue to find themselves in the same situation with their servicers. Some of them file for Chapter 13 bankruptcy, which protects them from creditors while allowing time to restructure their debt.
Bankruptcy Boot Camp
Attorney Max Gardner said bankruptcy courts have become an unlikely ally in exposing loan-service abuse.
At his idyllic rural retreat set in the gently rolling hills of western North Carolina, lawyers from around the country come to Gardner's estate northwest of Charlotte to learn how to dissect their client's records -- rooting out the hidden fees mortgage servicers charge. Those fees can add up to tens of thousands of dollars and according to Gardner, are not only unreasonable but sometimes illegal.
"The fees are unreasonable fees, they're unnecessary fees, they're improper fees, and I'm saying they're illegal fees because they're not approved by the bankruptcy courts," said Gardner. "The problem with these fees is that, you know, they're secret fees, they're secret charges."
He believes this is just the tip of the iceberg, and that some homeowners might be getting taken advantage of, paying the fees when they don't have to.
"These guys are smart and they are playing the odds," said Gardner. "And the odds are that 95 percent of the people will have no idea exactly what's going on. That 95 percent will just go ahead and pay it."
Gardner's goal is ambitious. He's training an army of lawyers to go out onto the complex battlefield of credit servicing, and hopes that they in turn will train fellow lawyers in the same thing, spreading the knowledge to thousands.
"There is no way I can train 10,000 lawyers," Gardner acknowledged. "But maybe 200 can train 2,000 and they can train 2,000 more and then 4,000 more and keep going."
Bringing in the 'Forensic Accountants'
Sometimes the legion of lawyers is not enough to sort through mortgage-service fees. Gardner says some fees seem so innocuous that often he has to bring in a forensic accountant to uncover what is legitimate and what is not. According to Gardner, the accountant almost always uncovers "bogus" fees.
"I don't know of a case that he's looked at that he didn't find fees that shouldn't have been charged," Gardner said of the accountant, adding that the fees can range from "about $500 after a case is first filed, up until $28,000 or $29,0000 in cases I have had."
And he's not alone. When Katherine Porter, a professor at the University of Iowa studied 1,700 bankruptcy cases, she found that questionable fees had been added to almost half the loans looked at, and that they were missing important pieces of documentation, making it difficult to know what the homeowner is being charged for.
"The problem is, without that documentation, it is very hard for the homeowner or his bankruptcy attorney or the bankruptcy court to make sure that the debtor is being charged the right amount," said Porter. "The law requires that documentation for a reason, because without that documentation you can't be sure that you are being charged fairly."
Bankruptcy judges have begun to respond. Gardner has a wall covered with copies of checks from judgments he's won against a variety of mortgage-servicing companies.
"We display these checks on the wall to sort of give my boot campers some encouragement," Gardner said. "That even though it's very difficult, there is some financial incentive for them to do it."
And he cautions that it's not just financially distressed homeowners who find themselves the victims of mortgage servicing fraud. He warns all mortgage holders to be cautious.
"If you have a home mortgage you need to do the same thing whether you are in bankruptcy or not," Gardener warned. "Whether you are AAA credit or single D credit. And you need to write your servicer at least once every six months and ask for your transaction history."
He says the fees often are very small -- $25, $100, $200 -- but if they happen to thousands of customers they add up to millions of dollars in revenue for servicing companies. And, critics warn, with less business coming in from new loans, mortgage servicers will be even hungrier for other ways to make money.