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Fee escalation describes the process of a borrower discovering more and more expense items that he would have pay at the close of the mortgage as the closing date approaches.
This is the result of the classic sales strategy of hiding cost items until as late as the law allows.
This is so that by the time the borrower learns about the impact of these closing costs on the loan, he would already be so deep into the loan process, that turning back would mean all that time and energy wasted.
Even worse, applying for another home loan with a different lender would mean that he has to go through the tedious process of applying for a loan all over again.
Sometimes, borrower might be more than willing to go to another lender. But closing is approaching, there is simply not enough time to do so as a loan approval process takes some time.
Fee escalation can come in the form of higher fees on specific items than first quoted or additional cost items that seemingly appear out of thin air such as junk fees.
To combat such predatory practices of lenders, government authorities have introduced documents that lenders are required to deliver to borrowers within a specified time period before loan closing.
- Loan estimate form
- Closing disclosure
- Good faith estimate
To avoid becoming a victim of fee escalation, borrowers should ask for prices from the start of application. Then keep track of them meticulously.
When lenders spot a perfect victim, there is a bigger likelihood of them acting on it in bad faith.