Paul McInnes Investigates Illegal FHA-Insured Mortgage Loan Post-Payment Interest Charges
The Federal Housing Administration (“FHA”) offers mortgages through private lenders and banks that have a low down payment and are very popular with borrowers. From August 2, 1985 until January 21, 2015, people who took out FHA-insured mortgages were charged interest by the banks even after they had paid off their mortgages in full or refinanced their loans. Banks were allowed to collect interest for a full month if the borrower paid off the mortgage on any day other than the first day of the month so long as it followed strict guidelines. The bank had to give the borrower an FHA-approved form that explained at least three things to the borrower:
- It had to tell the borrower they could pay off the loan on the first day of the month and not pay any post-payment interest.
- It had to tell the borrower that if they paid off the loan on any day other than the first day of the month, they would be charged interest for the remainder of the month.
- It had to tell the borrower how the post-payment interest was calculated.
These disclosures are mandatory. That means, banks don’t have a choice whether to give them or how to give them. In fact, banks must use the form approved by the government. It looks like this:
MORTGAGEE NOTICE TO MORTGAGOR
(In response to prepayment inquiry, request for payoff or tender of prepayment in full)
This is in reply to your (date) inquiry/request for payoff figures or offer to tender an amount to prepay in full your FHA-insured mortgage which this company is servicing.
This notice is to advise you of the procedure which will be followed to accomplish a full prepayment of your mortgage.
The (mortgagee name) will:
(a) [ ] accept the full prepayment amount whenever it is paid and collect interest only to the date of that payment; or
(b) [ ] only accept the prepayment on the first day of any month during the mortgage term; or accept the prepayment whenever tendered with interest paid to the first day of the month following the date prepayment is received
. . .
NOTE:It is to your advantage to arrange closings so that the prepayment reaches us on or before (as close to the end of the month as possible) the first work day of the month.
If you have any questions regarding this notice, please contact (name and/or department) at (telephone number)
Attachment (Pay off Statement)
This Form is provided when a borrower requests a “payoff statement.” You would request a payoff statement if you wanted to pay off your mortgage before the term ended; you sold your house and bought a new house; or if you refinanced your loan with another company.
If you paid off an FHA-insured mortgage or refinanced on any day other than the first day of the month, you might have paid post-payment interest that you didn’t have to pay.
You May Have a Claim Even if You Haven’t Paid Off Your Mortgage/Refinanced Yet:
Beginning January 21, 2015, banks are no longer allowed to collect post-payment interest at all. That means anyone who took out a mortgage after January 21, 2015, would not have a claim. But, if you took out a mortgage between August 2, 1985 and January 20, 2015, and ended up paying off the mortgage early or refinancing, you must have received the Form shown above at the time of pre-payment or refinancing.
Here is an article from the LA Times explaining more about the change in the law:
There are many individuals who could be subject to the collection of post-payment interest when paying off their mortgage. If you paid off your FHA-insured loan on any day other than the first day of the month and paid interest at the time of payoff, you may have a claim.
Litigations Already Going On.
There have been several class action lawsuits filed in federal courts against some of the biggest banks, including JP Morgan Chase Bank, Bank of America, Wells Fargo, US Bank, and SunTrust. We believe that this is an industry-wide problem and that other banks have also been charging interest after people paid off their mortgages or refinanced. If you believe that you were charged interest when paying off an FHA-insured mortgage or refinancing an FHA-insured mortgage, please call our office at 816-984-8100 or email Ashlea Schwarz at email@example.com.