When a mortgage company ceases to operate or when it declares bankruptcy, it is very likely that its customers will wonder what the impact on their own loans will be.
The commission says that in these cases, consumers must continue to pay their mortgage payments as usual. The national consumer protection agency has several recommendations applicable to various situations to exemplify what consumers should know in the current mortgage market:
If your lender files for bankruptcy after you have granted the loan
Frequently, both the loans and the rights to manage them are bought and sold. A mortgage servicer is responsible for collecting the monthly payments on your mortgage, credits the payments to your account and, in case you have established an escrow or escrow account, also manages it.
If your mortgage is managed by a company that is not related to your original lender – and the original loan entity that granted the loan stops operating – continue to pay your mortgage administrator fees on the established dates.
If the administrator of your mortgage goes bankrupt or stops operating
It is very likely that a mortgagee declaring bankruptcy will sell your assets and transfer the administration of your loan to another financial institution under the supervision of a bankruptcy court. It is also likely that a mortgage servicer who simply closes and ceases operations transfers the administration of their loan to another company.
How will you find out that your loan has been transferred? Read all correspondence and emails you receive – and pay attention to calls and phone messages referring to a loan entity change, late payments, or missed payments. The commissions recommend that in order to avoid a scam, examine all the notifications that you receive and that before you send your payment, call the new administrator of your mortgage.
If your loan is transferred to another mortgage servicer
Whatever the reason for which your loan is transferred, you should receive two notifications: one from your current administrator and one from the new administrator. Your current administrator must notify you at least 15 days before the effective date of the transfer – unless you have been notified in writing at the time of closing the loan transaction.
The effective date is the day on which you must receive your first payment at the address of the new administrator. The new administrator of your mortgage must also notify you within 15 days from the date of the transfer of your loan.
By the legal provision, notifications must include the following information:
- The name and address of the new administrator.
- The date from which your current administrator will stop accepting your payments.
- The date from which the new administrator will begin accepting their payments.
- The telephone number of the current administrator and the new administrator, both numbers must correspond to free or chargeback lines so you can communicate at no cost to consult more information about the transfer of your mortgage loan.
- A paragraph explaining whether or not you can continue to have some optional insurance, such as life or disability insurance, if it is necessary to do some paperwork to maintain insurance coverage, and if the terms of your insurance policy will change or they will remain the same.
The notifications must also contain a statement stating that the transfer of your loan will not affect any of the terms or conditions of your mortgage contract, except those terms or conditions that are directly related to the administration of your loan. For example, if a mortgage or escrow account is established in your mortgage contract that will be used to pay your property taxes and insurance premiums, the new administrator can not close the escrow account.
Also, after your loan is transferred to a new administrator, you have a 60-day grace period. This means that you will not be charged any late fees in case you mistakenly send your payment to the previous administrator – and your new administrator can not report the late or late payment to a credit reporting company.
The commissions recommend that all mortgage borrowers carefully read their monthly account summaries. If you do not receive your account statement on the due date – even if it takes only a few days – call the mortgage company to find out the reasons for the delay. Keep all payment vouchers, billing statements, paid checks, bank account statements, or online account records where applicable.
If you have a dispute, continue to pay your mortgage installments but send a letter to your mortgage administrator stating your dispute, keep a copy of your letter and any accompanying documents needed to substantiate your dispute. Send your correspondence by certified mail with acknowledgment of receipt, or send it by fax and keep the transmission confirmation form.
If you have an escrow account
An escrow account is a money fund maintained by your mortgage servicer. Payments that go to your escrow account are deposited in the fund to cover expenses such as real estate taxes or owner’s insurance premiums. Usually, payments from your escrow account are included in your monthly mortgage payment, and the administrator pays your taxes and insurance with the money deposited in that fund on the corresponding due dates.
The administrator of your mortgage is obliged to make payments corresponding to the concepts established in the escrow account in time and form even if you declare bankruptcy or cease operations.
The act is applicable to escrow accounts. If your mortgage administrator manages an escrow account on your behalf, you are required to make the corresponding payments for taxes, insurance and other charges on the corresponding payment dates. The mortgage servicer must also give you a free annual summary that details the movements of your escrow account.
In this account summary, the administrator must indicate the balance of your account and it must reflect the payments made for property taxes, property insurance, and other corresponding charges. But it is your responsibility to review the account summaries sent by your administrator to ensure that the administrator has made the payments owed to the corresponding entities.
If one of the recipients of funds in your escrow account informs you that you are reporting a default, call all other entities that are supposed to receive payments from your escrow account – for example, state or county authorities to verify if they have received payments of their taxes on real estate, insurance companies and associations of homeowners to check if they have transferred their payments in a timely manner. The law is executed by the housing and urban development.
If your lender files for bankruptcy before you have granted the loan
If you have preapproved your mortgage loan application and find out that the lender has declared bankruptcy, call the company to find out if they can make it and on what date they plan to do so. If the lender informs you that they will not be able to grant you the loan – or has stopped operating altogether – start looking for another mortgage immediately.