Here, learn what to do if your mortgage servicer files for bankruptcy or goes out of business. The FTC suggests staying on top of your mail, email, phone calls, and messages to confirm the identity of the new loan servicer before making payments.
This article is excerpted from If Your Mortgage Lender or Services is Closing or in Bankruptcy by the Federal Trade Commission.
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.
Read If Your Mortgage Lender or Services is Closing or in Bankruptcy from consumer.ftc.gov.
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 your email—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.
The FTC advises all mortgage holders to read their monthly statements. If your statement is late—even by just a few days—call the mortgage company to track it down. Keep records of your payments, including billing statements, canceled checks, bank account statements, or online account histories if appropriate. If you have a dispute, continue to make your mortgage payments, but challenge the servicing in writing and keep a copy of your letter and any enclosures for your records. Send your letter by certified mail, and request a return receipt, or send it via fax, and keep the transmittal confirmation.
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