Legal Question in Real Estate Law in California
We are located in northeastern California.
We had a 15-year fixed-rate second mortgage on our home on which we made the final payment in July 2011 (our contract called for 180 payments and the payment in July was actually the 181st!). The maturity date of the loan was August 1, 2011. We received a Payoff Statement with a rather substantial balance.
I did not want to mention the name of this mortgage company. I have found that there are a number of consumer complaints regarding them online. Back in May we received notification that the loan would now be serviced by another company. During our attempts at making phone contact, when we reached one company we were told we had to contact the other, not making a difference which company we contacted, we were always told we had to contact the other! We had begun trying to contact a representative back in May with questions about the payoff, but after spending hours on the phone bouncing back and forth between 2 companies, we were told we had an invalid account number! What? We got absolutely no satisfaction from any human we spoke with.
We went through all our financial records and determined that we had evidence of every payment made (either with canceled checks or bank statements, which is how we knew we had actually made an extra payment!). In August we had our first exchange of letters with the mortgage company regarding our dispute with the payoff balance. They replied with statements showing how each payment was distributed to interest and principal going back to 2004. The loan originated in July 1996. They also included copies of the original contract, which we already had. What they sent us looked nothing like the amortization schedule we had adhered to. The amounts paid to interest and principal, instead of steadily decreasing and increasing respectively, were all over the place! Nothing was consistent.
After 2 more exchanges, we were finally informed that, "because your payments were received on different dates from month to month, the application of your principal and interest payments changed monthly." The amount of interest was calculated using "daily simple interest," depending on the number of days between payments. This is totally contrary to the original terms of the loan.
Our contract states, "This Note is payable in 180 monthly installments of $XXX each, of principal and interest commencing on the 21st day of August 1996, and on the same day of each succeeding month, provided, however, that the final payment shall consist of the then remaining principal, unpaid interest and other charges due hereunder and under the Deed of Trust. Payments are calculated on a 15-year amortization basis and shall be first applied to any late charges then due, then to any costs and expenses incurred hereunder or under the Deed of Trust, then to interest then due and then to principal; however, at the option of Lender, late charges, costs, fees, and expenses inclurred hereunder or under the Deed of Trust may be deferred and applied to principal at maturity."
The contract also states, "If any payment is not paid within 15 days of its due date, then a late charge equal to 5.00% of the payment will be imposed."
Note that the Payoff Statement listed only principal. There were no fees, late charges, penalties, or other outstanding costs assessed or defined.
In this third letter we received from them, they state that their records indicate that the loan originated with them, which is also false. We originated this loan through a mortgage broker with a totally different company! This company we are dealing with is the third, or possibly fourth owner/servicer of this loan.
We would never have signed a contract that stipulated using daily simple interest. We were paid only once per month and knew that our payment dates would vary. In this final letter they insist that the payoff amount is valid, and that the amount is the result of the application of daily simple interest.
We have repeatedly asked them for the name and number of a person to contact and they have continually replied with their standard Customer Care number (no person named) and it is when reaching this number we're told we have an invalid account number. We did finally reach a person who could bring up our account, but this was only after we received a letter stating that our loan was 2 payments behind! After our payment in July, we received no further monthly statements from them. There were no further payments due!
They have altered the terms of the originally agreed upon contract. We are concerned that retaining an attorney would cost us more than what they say we owe, but we really don't want to see them getting away with this and we would like this loan declared paid in full. We have, after all, actually paid them more than the total repayment amount agreed upon. Any advice or suggestions would be greatly appreciated. Thank you.
2 Answers from Attorneys
In your entire long statement of facts you do not mention anything that is a violation or change in the terms of the contract. I would have to look over your documentation to be sure, but it sounds like the lender is right in spite of how messed up their organization is. The key words in the section of your loan documents that you quote is "on the same day each month." You admit you didn't pay on the same day each month. That changes how much interest you owed at the time of each payment. If you borrowed $50,000 for 15 years at 5.25% payable monthly and paid it on the 21st of each month when due, it would be paid off exactly on July 21, 2011. But if you made just your second payment late by five days and every other payment exactly on time, you would owe an additional $36.32 for the five extra days interest in September 1996. That means on your next payment in October 1995, you would not pay down as much principal as scheduled because you would pay interest on the $36.32 principal that was not paid down in September, so that even if it was on time, you would pay more interest on the October payment, and every month thereafter. Because you paid more interest and less principal that second month, you will owe and pay more interest and less principal for every payment thereafter. Ultimately that one payment, five days off schedule, would leave you owing $79.38 at the end of the loan. It is not because of any additional fees or charges. You simply kept the borrowed principal for a few extra days and you owe interest on that for the life of the loan. Had you paid on the day due you would have owed interest on less principal for those five days, and so your next principal pay down and all that followed would have been right. It sounds, however, like you often paid within the five-day grace period but after the exact due date, probably even more often than not. As a result, month after month you owed more interest than if you had paid on the date the payment was due. In some months you may even have paid a day or two early? Great, that would result in less interest and more principal paid. It also explains why your principal and interest allocations were all over the place from month to month. The simple fact, though, is that you owed interest on whatever principal balance you held, every day from each payment to the next. The 15-year, 180 payment schedule assumed you would pay as agreed on the exact same day every month. When you chose not to do that, it meant interest was charged on more days than the 15-year/180-payment plan called for. Your principal therefore was never reduced per schedule, resulting in even more interest the next month. The cumulative effect of that is the balance they say you owe.
You may not need a lawyer; you need someone with an MBA in quantitative methods. I agree that the lender's calculations are likely correct, but you need a "pencil head" to run the numbers and either verify their correctness or give you a firm numerical argument why they are wrong. Interesting to get a question from the Honey Lake area; my partner and I used to be involved in deal proposals with SIAD and Honey Lake Power.
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