When you borrowed money to purchase your house, the cash paid to you probably didn’t come from the lender or bank that worked with you. Instead, the money came from an “owner” or “investor.”
Common investors are:
- Fannie Mae
- Freddie Mac
- FHA (Federal Housing Administration)
- VA (Veterans Administration)
- USDA (US Department of Agriculture)
Your investor is rarely going to change throughout the life of your loan.
Lenders (like the bank where you applied for your mortgage) service loans on behalf of these investors as their representatives. This is called “servicing a loan.” Common servicers are the banks we’re familiar with, such as Bank of America, Wells Fargo, Chase, etc.
Mortgage servicers collect your payments on behalf of the investor. They also provide customer service if you have questions or problems, as well as handle escrow accounts, collections, loan modifications and foreclosures.
Unfortunately, lenders are allowed to sell or transfer their servicing rights to other lenders. This is called a “service release.” One lender releases the rights associated with servicing the loan to another lender.
When this happens, the investor stays the same but everything else about the servicing of the loan changes.
For example, Chase sells their right to service a loan on behalf of Fannie Mae to Wells Fargo. Now, the lender is Wells Fargo but the investor remains Fannie Mae.
Just about everything can change when your servicer changes, including:
- Where to send payment
- Payment due date
- Loan number
- Loan representatives/contacts
- Late fees
- Grace periods
- Payment methods
- Available loan modification programs
- Available loss mitigation programs
You may have received a letter stating that your loan is going to be service released. Once a loan is service released, the new lender has to fully upload your original documents into their system, assign a new loan number, and fully input the loan history into their system. This often takes lenders over 30 days to complete, leaving you without a lender for 30-45 days. If you have a mortgage payment due during that period, you may be left without a lender willing to accept it. Your original lender has closed your loan in their system and your new lender doesn’t have the requisite information uploaded into their system to accept your payment.
The problem: You may not know where to send your mortgage payment. If your original lender doesn’t recognize your loan anymore and the new lender is not ready to upload your payment, it may be confusing as to where to send your mortgage payment.
What you need to do: Work with your new lender to get your new obligations in writing. If they tell you to send payment to them, take the name and employee ID number of the representative who told you to do so. If your phone has the ability to record the conversation, record the call. Send your payment by certified mail so someone at the lender has to accept the payment. After you send payment, call your new lender until they can provide you a confirmation number for your payment and the next payment due date. Have them send a new mortgage statement confirming all updated information. If you’re struggling to get information on where and how to send payment, call us so we can talk to them on your behalf.The lender didn’t sufficiently notify you about your service release
Your original lender is required by law to notify you of the servicing change; however, there are no requirements for the quality of information they must provide. You need to know who your new lender is, the date of the service release, your new loan number, where to send payments, your payment options and lender-specific terms for receiving and applying mortgage payments. Homeowners often receive letters with only partial information that leaves them confused about their obligations.
The problem: You may not have enough information to pay your mortgage.
What you need to do: As soon as you hear about a potential service release, have two conversations: one with your original lender and one with the new lender. If your phone has the ability to record the calls, record the calls. Ask them to provide each piece of information needed (listed above). If necessary, escalate to a supervisor and get them to put the information in writing.The original lender may reverse their decision
As you know, lenders have the right to decide to service release a loan. They may send the documentation to you stating the date of the service release and then decide to not move forward with the service release at the last minute. Lenders don’t always notify homeowners in a timely manner when they change their minds and decide to keep a loan.
The problem: You may have sent your mortgage payment to the new servicer not knowing that the loan is staying with the old servicer.
What you need to do: Know the scheduled service release date. Ask your original lender if that information wasn’t provided in a letter. Three days before the date, call your original lender to confirm that the service release is still happening. Call each day from the third day forward until the service release date. Two days (or, more specifically, 48 hours) after the service release date, the new lender should be able to see that the loan is coming to them even if they can’t fully service the loan yet. If the new lender sees it in their system, you can be sure that the original lender hasn’t retained the loan.Any applications in review will be forced to start over from the beginning
You may have an application for a loan modification or short sale in review with your original lender. Lenders who are releasing loans will make statements like “your new lender will pick up right where we left off” or “we will send all of your documents to the new lender for review” or “the new lender will have access to everything that’s happened.” These statements are almost always false. Do not trust your original lender to transfer any information to your new lender.
The problem: You may lose time, you may run up against a foreclosure deadline, the new servicer may not participate in the review programs previously available to you, or you may have to start over.
What you need to do: If you have experienced a service release in the middle of a modification or loss mitigation review, you need to call an attorney. You can’t do much to prevent the timeline from starting over. Most lenders just aren’t capable of picking up the review in the middle. With that said, you can get ahead of the service release. The lender may take 30 days to fully process the loan into their system, and during that time you should be preparing and submitting your loss mitigation package according to the new servicer’s rules. Account for all changes in servicer guidelines, so when your loan is fully uploaded, the new servicer already has your package in review. Waiting for the lender to request items from you or hoping they will know that you’ve applied for something with your original lender will cause your home to end up in foreclosure.The service release does not stop the foreclosure timeline
You would think that changing servicers would require the new lender to re-record a new foreclosure sale date. It doesn’t seem fair that a lender can give up their rights to the loan, sell the servicing rights to someone else, and have the law still allow the new servicer to be able to move forward with the original foreclosure date. Unfortunately, the laws typically protect the lender’s rights.
The problem: A service-release could cause your original review to be invalidated and you could lose your home to foreclosure.
What you need to do: Inform the Trustee of the delays caused by the service release. If you had a complete package delivered to your original lender, share this information with the Trustee to request a postponement of your foreclosure sale date. Trustees owe a duty of good faith to borrowers. It is likely bad faith for a lender to sell a loan right before a decision was going to be issued. You can argue that the original lender’s actions have effectively pushed you into foreclosure. The Trustee may grant you more time to receive a decision from the new servicer.
Make sure you don’t accidently fall into default because of a service release. We see too many homeowners go into default simply because the lender changed their payment process by service releasing the loan.
Bottom line: Stay informed about potential service releases and let us know if you have questions.
Keep in mind that this isn’t tailored legal advice. We would love to help you with your specific situation. Please call 1-800-603-3525 right now, or fill out this form for a free consultation with one of our attorneys.