When a mortgage lender, bank, or company files for bankruptcy or closes down, its borrowers may be left in the dark about what will happen with their own mortgage loans. The
Federal Trade Commission (FTC) states that these borrowers should continue to pay their mortgage loan payments as usual. The United States consumer protection agency has tips based on multiple
situations for these borrowers who must be aware of what to expect in the mortgage market in today's lending environment:
If your lender files for bankruptcy after the closing of your loan:
Mortgage loans and the rights to service them are often purchased and sold. A mortgage servicer collects your loan payments every month, handles your escrow account, and credits your loan account, if you have one. If your mortgage servicer is not the same as the original mortgage lender, and your original lender shuts down or goes out of business, continue to send your payments, by the due date, to the mortgage servicer.
If your mortgage servicer goes out of business or files for bankruptcy:
Most likely a mortgage servicer who files for bankruptcy will sell its assets under the supervision of the bankruptcy court to another lender, bank or financial institution and transfer the servicing of your loan to another company. A mortgage servicer that simply goes out of business would most likely transfer the servicing of your loan to another company as well.
How will you know if your loan has been transferred?
Make sure to read your email and check your mail. Pay close attention to messages and phone calls that deal with a late payment, a payment that was not received, and a change of lender. To avoid scams, the Federal Trade Commission states, review the notices you receive and call to confirm the new loan servicer before you make a payment.
If your mortgage loan is transferred to another servicer:
You should get two notices in regards to the reason for the transfer of your loan. One notice should be from your new servicer and another notice from the current servicer. Unless you received a written notice at your settlement, the current servicer must send you a notification at least fifteen days before the effective date of the transfer. The effective date is when the first payment is due at the new servicer's address. The new servicer also must provide you with a notification within fifteen days of the transfer of the mortgage loan.
By law, the notices must include particular information:
1) The address and name of the new servicer.
2) The date the new servicer will begin accepting your payments.
3) The date your current servicer will stop accepting your payments.
4) The phone numbers for both the new servicer and current servicer that you can use to call collect or toll-free for additional information about the transfer.
5) Whether you can continue any optional insurance, like disability or life insurance, whether the insurance terms will change, and whether you need to do anything to maintain coverage.
The notices must also include a statement that the transfer will not affect any conditions or terms of your mortgage contract, except those directly related to the servicing of your loan. For example, the new servicer can't close the escrow account if your mortgage contract has an escrow account to pay insurance premiums and property taxes.
After a transfer to a new servicer, you get a grace period of sixty-days. This means if you send your mortgage payment to the old servicer by mistake, you are not allowed to be charged a late fee, and your new servicer can't report that payment as being received late to a credit reporting agency.
The Federal Trade Commission advises that mortgage holders should carefully read their monthly mortgage statements. You should also contact the mortgage company, if your statement is late (even if it's late by only a few days), to track it down. Keep accurate and detailed records of your payments, including canceled checks, billing statements, bank account statements, or online account histories if appropriate. Continue to make your mortgage payments if you have a dispute, but challenge the servicing in writing and keep a copy any enclosures and your letter for your personal records. Send your letter by certified mail, and request a return receipt, or you can send it by fax, but keep the transmittal confirmation.
If you have an escrow account:
A fund held by your servicer is called a escrow account. You pay into the fund to cover charges such as homeowners insurance and property taxes. Normally, your payments are included as part of your monthly mortgage payment, and the servicer pays your insurance and taxes from this fund as they become due. Even if your servicer goes out of business or files for bankruptcy, it is their responsibility for making the escrow payments in a timely manner.
The Real Estate Settlement Procedures Act (RESPA) covers escrow accounts. If your mortgage servicer administers an escrow account for you, it is required to make escrow payments for insurance, taxes and any other charges when they are due. Every year, the mortgage servicer also is required to give you a free statement that details the activity of your escrow account. This statement should reflect payments for your homeowners insurance, property taxes, and other charges, and show your account balance, but it is your responsibility to review the statement to make sure the payments and appropriate entities are made.
If one recipient of escrow funds lets you know that a payment is overdue, call the others that are supposed to be paid from your escrow account. For example, county or state governments for property taxes, homeowners associations, or insurance companies to make sure the funds are being transferred in a timely manner. The Real Estate Settlement Procedures Act in enforced by the The Department of Housing and Urban Development (HUD). If you have any comments or questions about RESPA, contact HUD by emailing them at ([email protected]) or by telephone at (202-708-0502).
If your lender files for bankruptcy before the closing of your mortgage loan:
If you were pre-approved for a home loan and then find out that the lender has filed for bankruptcy protection, call to find out if or when the company plans on making good on your home loan. If the lender is unable to, or has completely gone out of business, immediately begin to shop around for another mortgage.
RESPA-related Disputes and Inquiries
Under the Real Estate Settlement Procedures Act (RESPA), your mortgage servicer must promptly respond to your written inquiries. If you think you have been charged a late fee or a penalty that you don't owe, or if you have other problems with the servicing of your loan, continue to make your regular monthly mortgage payment, and contact your servicer by writing them in a separate communication. Send your letter, that includes a explanation of why you think your account is incorrect along with your account number, to the customer service address. Don't write your note on your payment coupon.
Timeline: The servicer must acknowledge your inquiry in writing within twenty business days of receiving it, and take action within sixty business days. The servicer must correct your account or determine that the accounting is accurate, and then send you a notice in writing of the action it took and why, and the phone number and name of someone to contact for further help or information. In any case, do not subtract the disputed amount from your mortgage payment. Some mortgage servicers may refuse to accept what they consider a partial payment: they could return your check and charge you a late fee, or claim that your mortgage is in default and start foreclosure proceedings.