The Michigan ‘Junk Fee Trap’ in 2026: How Servicers Turn $30 Charges into a Foreclosure

Junk fees that mortgage servicers charge Michigan homeowners are not just an annoyance; they are a major foreclosure problem. By increasing costs and charging exorbitant fees and interest, servicers are making it harder for people to afford their homes — all at a time when the cost of homeownership continues to rise across the country.

The Consumer Financial Protection Bureau (CFPB) has discovered that junk fees are a nationwide problem, to. Since October 2023, the CFPB has refunded more than $260 million to borrowers who were charged junk fees by their mortgage servicers. 

Unfortunately, borrowers in Detroit, Grand Rapids, Flint and other parts of the country simply can’t choose to switch their mortgage servicers. This makes paying attention to what fees are being charged, and calling out any illegal fees, imperative for homeowners everywhere.

What Counts as a Predatory ‘Junk Fee’ in Mortgage Servicing?

In 2024 the CFPB began to crack down on junk fees — a move that was part of a larger initiative at the federal level that was focused on increasing transparency and reducing late fees.

Part of the crackdown focused specifically on mortgage servicers who were charging illegal fees including prohibited or unauthorized property inspection fees, late fees that were higher than allowed in the contract and fees that should have been waived after modifications took place during the COVID-19 era.

There are legal fees that mortgage servicers can charge, such as those pertaining to origination, underwriting, credit report, appraisals, title insurance and recording, and escrow/prepaid items. 

Those fees cross the line into illegal, though, when they don’t follow investor guidelines, when they exceed state law caps and when they are categorized as UDAAP — or unfair, deceptive, or abusive acts or practices.

Some of the common default-related fees that Michigan homeowners see include property inspection, property preservation and broker price opinion (BPO) fees. They may also see force-placed insurance and escrow “shortage” add-on fees.

Some mortgage servicers may try to charge “corporate advances” for things such as legal, title and foreclosure costs that aren’t clearly explained in the contract.

The Michigan Angle: Who Actually Polices Servicers Here?

The Michigan Department of Insurance and Financial Services (DIFS) is the state regulator that is responsible for overseeing mortgage servicers in the state. It issues licenses to mortgage lenders and servicers so they can operate, and also provides oversight for these types of businesses.

When DIFS receives consumer complaints, they investigate the entities to ensure that they are complying with all state laws. If they find a pattern of abuse, they may take regulatory action that includes license sanctions and/or fines.

Junk and “pay-to-pay” fees have been a particular focus for Michigan Attorney General Dana Nessel, who has pushed to completely eliminate these fees. She has specifically called out mortgage convenience fees in the past as being exploitative of consumers in the state.

Nessel has contacted the CFPB directly, asking them to stop junk fees such as phone or online payment fees, which include the servicer charging a fee to borrowers for making their payments in any way other than a mailed check.

According to the Consumer Guide to Mortgage Rights in Michigan, servicers can’t charge for any service that they don’t provide, can’t levy additional hidden fees, can’t charge any excessive fees and can’t misrepresent the costs they have.

In general, the state expects all mortgage fees to be reasonable and contract-based — not created and applied after the mortgage has already been signed.

How ‘Junk Fees’ Push Michigan Homeowners into Default Faster

The big problem with junk fees is that they can push Michigan borrowers into default faster. These fees make owning a home less affordable, and the compounding nature of the fees and interests makes it very hard to catch up if a borrower falls behind.

When late fees, inspection fees and corporate advances are charged, the borrower’s “amount due to reinstate” the loan becomes higher and higher. It becomes harder and harder to catch up once a borrower has fallen behind, because all money added to the mortgage balance is charged compound interest, increasing the loan’s total cost in time.

For instance, $100 in fees charged today becomes $110 next month, $121 the month after and $133.10 the month after that, assuming 10% interest. In other words, the amount gets exponentially greater every month, making it increasingly more difficult to make things right.

These fees really do occur, too. In fact, the CFPB shared in its Winter 2023 Supervisory Highlights that many mortgage servicers were charging $10 to $50 inspection fees over and over again at “bad addresses.”

If the servicer forecloses on the home and has an inaccurate default amount, it can become a legal issue in a foreclosure-by-advertisement state such as Michigan. In this case, the sale can become voidable, but the homeowner must prove that there was clear prejudice, irregularity and/or fraud.

It could also result in the homeowner losing out on claiming surplus funds if there are any that result from a foreclosure sale.

Red-Flag Fees on a Michigan Mortgage Settlement (2026 Checklist)

As a homeowner in Michigan, you should look out for these red flags when it comes to junk fees from mortgage servicers …

• Inspection & preservation fees: These could include monthly “drive-by” inspections on homes that are clearly occupied or multiple inspections at the same wrong address.
• Late fees & convenience fees: This could include “convenience” fees for paying online or over the phone, or late fees that are larger than your mortgage’s stated percentage or dollar cap.
• Escrow, insurance & tax-related fees: This could include “tax service” or “agency” fees that keep appearing in your escrow history, or force-placed insurance that gets charged even if you already have that coverage.
• Corporate advances & “other”: These are most commonly vague fees that don’t have any detailed explanation in your monthly statement, or large jumps in your payoff or reinstatement quote with no breakdown of what it’s for.

How Michigan Homeowners Can Dispute Junk Fees (Step-By-Step)

If you believe you’re being charged junk fees by your Michigan mortgage servicer, you should take the following steps to dispute them.

1. Request a breakdown from the servicer

First, ask for a transaction history as well as an itemized list of all the fees and corporate advances that you have been charged. Then, compare those fees to your note, mortgage and escrow disclosures.

2. Send a federal Notice of Error and Request for Information

To challenge junk fees you have been charged, it’s a good idea to follow the CFPB template language and attach copies of your mortgage statements. Use rights laid out under the Real Estate Settlement Procedures Act (RESPA)/Regulation X to challenge these specific fees.

Also realize that servicers have a deadline to acknowledge that they’ve received your challenge and respond in writing to you regarding the challenge.

3. File a complaint in Michigan

If you are unable to resolve the dispute with your mortgage servicer directly, then it’s time to head to the DIFS’ online portal to file a complaint with the Michigan DIFS.

You also might want to alert the state Attorney General’s Consumer Protection division if you’ve been the subject of any scams, deceptive practices, financial issues or more.

4. Use junk fees as leverage

Finally, use the illegal junk fees that have been levied on you as leverage in negotiations. This could include demanding credits or fee waivers as part of a loan modification, building a record for potential claims in court, and/or arguing that the inflated fees make the “amount due” incorrect.

Using Junk Fees in Litigation and Foreclosure Defense (Michigan-Specific)

In Michigan, illegal or inflated fees often show up in a foreclosure file as corporate advances that are rolled into the amount claimed due as part of the sheriff’s sale notice. 

Per MCL 600.2431 of Michigan state law, certain foreclosure expenses must be taxed as court costs. This could include filing fees, sheriff’s fees, statutory attorney fees and publication costs.

When these fees get padded, the total amount due increases, since they are all taxed.

If you’re facing foreclosure and believe these junk fees have been assessed on your mortgage, the experts at Babi Legal Group can help. We have many avenues we can explore for you, including asserting RESPA claims for improper servicing and notice failures; using evidence of junk fees to argue unfair, deceptive or abusive practices; and negotiating principal or arrearage reductions by challenging these bogus fees.

If you need to file bankruptcy to reset your finances and stop foreclosure on your home, Babi Legal Group can help you use the federal court oversight process to force more accurate accounting of any possible junk fees that have been charged.

Think Your Michigan Mortgage Statement Has Junk Fees?

Do you believe that you are being charged junk fees in Michigan? Make sure to re-read over our checklist of red flags above to see whether you might have been subjected to these illegal fees.

If you believe that you may have, you should reach out to Babi Legal Group for help. We can devise a strategy for proving you’ve been charged these junk fees, and use it to rectify the problem.

If you’re facing foreclosure, we can also help you with various strategies, including filing for bankruptcy, if appropriate.

To learn more, please contact us today.