FTC FACTS for Consumers

Part 1: How to Manage Your Mortgage If Your Lender Closes or Files for Bankruptcy

When a mortgage company closes or files for bankruptcy, its customers may be left wondering about the impact on their own loans. The Federal TradeCommission (FTC) says consumers should continue to make their mortgage payments as usual. The nation’s consumer protection agency has several situation-based tips for consumers who need to know what to expect in today’s mortgage market:

If your lender files for bankruptcy after your loan closes: Loans and the rights to service them often are bought and sold. A mortgage servicer collects your monthly loan payments, credits your account, and handles your escrow account, if you have one. If your mortgage servicer is different from your original lender – and your original lender goes out of business – continue to make your payments to the mortgage servicer by the date they’re due.

If your mortgage servicer files for bankruptcy or goes out of business: It’s very likely that a mortgage servicer that files for bankruptcy will sell its assets under the supervision of the bankruptcy court to another financial institution and transfer the servicing of your loan to another company. A mortgage servicer that simply goes out of business probably would transfer the servicing of your loan to another company as well.

How will you know if your loan has been transferred? Read your mail and youremail- and pay attention to phone calls and messages that deal with a change of lender, a late payment, or a payment that wasn’t received. To avoid a scam, the FTC says, review the notices and call to confirm the new loan servicer before you send a payment.

If your loan is transferred to another servicer: Regardless of the reason for a loan transfer, you should get two notices: one from your current servicer and one from the new servicer. The current servicer must notify you at least 15 days before the effective date of the transfer – unless you got a written notice at your settlement. The effective date is when the first payment is due at the new servicer’s address. The new servicer also must notify you within 15 days of the transfer. By law, the notices must include particular information:

• the name and address of the new servicer;
• the date your current servicer will stop accepting your payments;
• the date the new servicer will begin accepting your payments;
• telephone numbers for both the current and the new servicer that you can use  to call toll-free or collect for more information about the transfer; and
• whether you can continue any optional insurance, like life or disability  insurance, whether you need to do anything to maintain coverage, and whether  the insurance terms will change. The notices also must include a statement that the transfer will not affect any terms or conditions of your mortgage  contract, except those directly related to the servicing of your loan. For example, if your mortgage contract has an escrow account to pay property taxes and insurance premiums, the new servicer can’t close the escrow account. In addition, you have a 60-day grace period after a transfer to a new servicer. That means you can’t be charged a late fee if you send your mortgage payment to the old servicer by mistake- and your new servicer can’t report that payment as late to a credit bureau.

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Categories : Loans, Real Estate

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