After all your work choosing a mortgage lender, filling out the application, supplying documentation, and getting the loan approved, you might be surprised to find out that your relationship with that lender is a relatively short one. Mortgage lenders often sell the loans that they originate to bring in income so that they can turn around and—no surprise here—make more loans. If your mortgage loan is sold, the new owner must, by law, notify you. This kind of notice is different from the notice that your mortgage servicer must send you if the servicing rights are transferred.
Read on to learn more about the different parties involved in the mortgage servicing industry, when the new owner or servicer of your loan will send you notice about a transfer, and what happens if you send your payment to the wrong party in the middle of a transfer.
First, let's define the terms "lender," "servicer," and "investor" when it comes to the mortgage business.
If the holder of your mortgage loan sells the debt to a different entity, federal law requires the new owner or assignee of the debt to notify you about the change of ownership no later than 30 days after the sale, transfer, or assignment. (15 U.S.C. § 1641).
If your mortgage debt is sold and you get an ownership transfer notice, this doesn't necessarily mean that the servicing rights to the mortgage were also sold or that you'll get a new servicer. But if your mortgage loan is transferred to a new servicer, your current servicer and the new servicer must, if your case is a typical one, each provide you with a notice.
In most situations, your old servicer must provide you with a notice of servicing transfer not less than 15 days before the effective date of the transfer, and your new servicer must provide a servicing transfer notice not more than 15 days after the transfer date. Or the servicers might choose to send a combined notice not less than 15 days before the transfer. (12 C.F.R. § 1024.33).
Under federal law, you're allotted a 60-day period starting on the servicing transfer date, during which you can still send your mortgage payments to the old servicer rather than the new servicer—even though the new servicer is the proper recipient. During this time, you won't be assessed a late fee, and your payment won't be reported late to the credit bureaus if the old servicer receives your payment on or before the payment due date, including any grace period you get under the mortgage loan documents. (12 C.F.R. § 1024.33).
The old servicer is then supposed to forward the payment to the new servicer or return it to you. In rare cases, though, the old servicer might lose track of the money or deposit the payment in its account but neglect to send the funds on to the new servicer. For this reason, it's best to take careful note of any changes in your loan servicer and start sending your payments directly to the new servicer once the transfer date occurs.
After you start sending your mortgage payments to the new servicer, you should monitor at least two payments to make sure the new servicer is correctly applying them to your account.
If a payment you sent to the old servicer isn't credited to your account, call your new servicer. If you can't clear up the problem, send a notice of error to both the new servicer and the old servicer, along with copies of any relevant supporting documents. Under federal law, both the new servicer and old servicer must then investigate and respond to your notice of error, so long as the servicing transfer occurred less than a year ago. In the meantime, you should continue to make your regular payments while the issue is being resolved. Otherwise, you could risk going into default and face a possible foreclosure.
If the new servicer still refuses to credit your account or starts a foreclosure, talk to an attorney.