Bankrupt lender and implication on its customers - Posted by Brocky

Posted by Michelle on September 03, 2003 at 10:11:30:

It sounds like he doesn’t like the terms of his mortgage and wants out. Unfortunatly, this isn’t it.

Bankrupt lender and implication on its customers - Posted by Brocky

Posted by Brocky on September 03, 2003 at 04:17:57:

If my mortgage lender goes bankrupt, will my mortgage and its terms remain unchanged (e.g., my loan is sold to another lender who will honor the same terms), or am I forced to get a new mortgage with another lender and be subject to new terms and rate? Does the answer of this question depends on if my lender is properly insured and/or licensed? If so, how would I find out if my lender is properly insured/licensed?

BK does not negate the loan - Posted by Michelle

Posted by Michelle on September 03, 2003 at 10:08:08:

Just because your lender went BK, it does not negate the loan. Your original lender probably has a BK trustee that is now handling their affairs as do most corporations. They’ll sell their assets to another lender before they roll over and play dead with your loan. This does not release you from the loan to find another lender of your choice. You signed a contract with this lender and a promissory note to repay the loan on certain terms; ie prepayment penalties, late fees etc. The new lender should uphold the contract and they usually do, (I haven’t seen an instance where they haven’t) but if the event they do not, you would need to seek legal advice .
Without looking at your paperwork, I can’t give you a definite answer but this is how it usually works.

You sure like to worry, don’t you? - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on September 03, 2003 at 09:51:50:

Brocky-------------------

Boy, you sure like to worry don’t you? You sound like my paranoid friend, Sam, the real estate multimillionaire.

Probably a mortgage company in trouble is going to be bought out by some other company. And even those not in trouble get bought out. Household Finance bought out Beneficial a couple of years ago.

If not bought out, I think you are right, the mortgage lender will probably sell off loans.

Now, understand that most loans are not held by the original lender. They are sold in the secondary mortgage market. They are bought by Freddie Mac and Fannie Mae and the big insurance companies and pension funds. The original lender may retain the servicing rights for the loans, for a small fee.

So, most loans are held by big entities which are very unlikely to go under.

You can tell if your loan has been sold by looking up your name in the county land records from the time you took out the loan to yesterday. Often the sale is actually accomplished in the same escrow where you got the loan, so the assignment of the loan is recorded right after your security instrument in the records.

If a mortgage company were to go under, I think that the state governmental agency that oversees them would step in and liquidate the operation, rather than a bankruptcy being filed. The loans would be sold to some other company or companies. You woulg get a notification in the mail to make payments to the new company.

I suppose after reading this you are going out to check that there is enough air in your vehicle tires, right?

Good Investing************Ron Starr***************

Contract is with original lender - Posted by Michelle

Posted by Michelle on September 03, 2003 at 08:52:56:

This is what Ron and I were going back and forth with on the other forum. Your contract is with the original lender, and a contract is consideration for consideration regardless of the “new lender”. Chances are the new lender will buy all the pre-existing loans from the original lender, being your loan as well. You’ll get a letter in the mail stating your loan has been purchased and please start making your payments to this address and payable to this company. You need to read over your mortgage and note agreement to see what it says with regard to heirs, assigns etc. Your new lender will probably uphold the same contract but like I told Ron, it’s the mortgage company’s problem not yours. Just keep making your mortgage payments as you did before and should the contract be changed, I would consult a lawyer.