In the most straightforward scenario, a home loan transaction involves two parties—a company, usually a bank, that loans the money and a borrower who takes out the loan. But after a loan is made, other companies often become actively involved with the loan. A company separate from the lender, called a “servicer,” frequently handles the day-to-day management of the loan, while a foreclosure trustee might become involved if the borrower stops making payments and a nonjudicial foreclosure becomes necessary.
To learn about the difference between a servicer and a foreclosure trustee, and when knowing the difference is important, read on.
Many lenders contract with third-party companies, called servicers, to handle the administrative duties related to loans that the lender owns.
A servicer’s duties ordinarily include receiving payments, providing customer service, managing escrow accounts, and pursuing collections, as well as processing modifications and other workouts to avoid foreclosure. (Learn more about how mortgage servicing works.)
While borrowers are free to choose a lender that best meets their needs, lenders are equally free to contract with a servicer that best meets their needs. A lender’s needs, which likely include efficiency and cost savings, often don’t align with the borrower’s priorities when choosing a lender. So you might end up with a servicer you don’t like.
To further complicate matters, lenders are generally free to sell home loans they originate to other companies, called investors, at any time after closing. The investor then owns the loan. Investors frequently prefer to use another servicer—one that’s different from the servicer the lender picked—which means you might get a new servicer if your loan changes hands. (For more information about what happens when your home loan is sold or the servicer changes, see What Happens If My Mortgage Is Sold to a New Owner? and What Happens If My Mortgage Servicer Changes?)
In some states, the borrower signs a deed of trust when taking out a home loan, rather than a mortgage. The deed of trust names a trustee who gets legal ownership of the property, in trust, until the loan is paid off. Most of the time, the trustee has no involvement with the loan. But if the borrower defaults on the loan, the trustee is responsible for administering a nonjudicial foreclosure. In most cases, though, the original trustee won't handle the foreclosure. Instead, the servicer, lender, or investor will substitute a new trustee, and that trustee will manage the foreclosure.
Foreclosure trustees, in theory, are supposed to handle foreclosures in an independent and unbiased manner; however, because the servicer or lender (or investor) hires the trustee, it tends them during the foreclosure process. (In a judicial foreclosure, on the other hand, the court, rather than a trustee, provides more truly independent, unbiased supervision of the foreclosure process. But this benefit usually comes at a greater monetary cost to the borrower and lender, and judicial foreclosures normally take significantly longer than nonjudicial foreclosures.)
Trustees are frequently companies established specifically for the purpose of handling the various requirements during the foreclosure process. Some companies that act as foreclosure trustees have the word “service” or “services” in their company name. But even if a foreclosure trustee company uses the word “services” in its name, trustees are not servicers.
Title companies and attorneys also sometimes act as foreclosure trustees.
Homeowners who understand the various types of companies involved in the administration of their home loan—lenders, investors, servicers, and trustees—will know who to contact to address specific concerns. For instance, if you need general information about your loan account, like the monthly payment amount, the next due date, or late fee information, call your servicer. If you’re facing a nonjudicial foreclosure and you want to get a reinstatement or payoff statement, you’ll generally need to call the foreclosure trustee.
If you’re facing a foreclosure and need help dealing with the servicer or trustee—or if you need information about the foreclosure process or potential defenses to a foreclosure action—consider talking to a foreclosure attorney. If you want to learn about options to avoid a foreclosure, contact a HUD-approved housing counselor.