What to Do If Your Mortgage Company Goes Out of Business

Right smack in the middle of our refinancing process, our mortgage representative fell off the face of the Earth. We gave her the benefit of the doubt, that perhaps she had other clients and we weren't her priority. When we didn't hear back for a few weeks, I called the main office. No response. Days later, we get the message on the image to the left: The company is no longer taking applications-they are yet another mortgage company going under.

This all-too-often event can affect folks currently in the application process, as well as those who are currently paying on a mortgage. Here are some things to keep in mind should your mortgage company fold, too.

Fact #1: If you mortgage company goes out of business, keep making payments!

According to the trusted financial advice website, BankRate.com borrowers should continue making their monthly mortgage payment if and when the lender goes out of business. These mortgage payments are still considered an asset to the company, so if the lender is filing bankruptcy, a new company will most likely purchase these assets. During the transition, third parties (Fannie Mae, for instance) will step in and oversee transactions until the sale is complete. So, to make a long story short, someone is still expecting that monthly mortgage payment. A mortgage lender going out of business does not mean a temporary relief from payments.

Fact #2: Your Loan Term Will Not Change if Your Mortgage Company Goes Under

According to the blog, Finance Buff when a mortgage company goes out of business the terms of a borrower's mortgage will not change. If someone had a fixed rate mortgage, it will remain a fixed rate mortgage. If the loan was an adjustable rate mortgage, the rate will adjust to the terms specified. So, when a mortgage company goes out of business, the original terms of the current mortgage will not change. The check may be going to a different address, but that's all that should change in this circumstance.

Fact #3: If You Are Close to Satisfying Your Mortgage- Keep Your Paperwork

Realtor James Boyer of New Jersey gave some good advice on a recent blog post at RealEstateWebmasters.com. He encouraged borrowers whose mortgage company went out of business save any and all documentation, most importantly the statements which show that the loan has been satisfied. This really pertains to those who are ready to pay off their mortgage during the transition of a lender going out of business .

Boyer states that if a lender goes out of business, they may very well fail to record a mortgage satisfaction. Without the proper documentation, he explains that it can become very difficult for a closing attorney and title insurance company to determine that all leans against your home are satisfied. So, if your mortgage company is going out of business, they may not be quick to cross all their T's, so be sure to cross them yourself.

Also, according to Bankrate.com your state's attorney general's office can point you in the right direction should you need to obtain a mortgage satisfaction document from a mortgage company that went out of business.

Fact #4: You Have Rights When Your Mortgage Company Goes Under

According to BankRate.com, when a lender sells your mortgage, you should receive a letter from the company within 15 days stating so. This letter should provide the new mailing address as well as any change in payment due date. Additionally, you should be given a customer service number should you have any questions about the change in ownership of your mortgage. Additionally, BankRate.com states that borrowers should be eligible for a 60-day grace period to ensure payment is going to the proper place. Keep in mind that the owner of the loan and the loan servicing company could be two seperate entities.

Fact #5: If You Are in the Midst of an Application When the Company Goes Out of Business, You are Out of Luck

I saved my situation for last. We were in the process of an application with a lender when they went out of business. We left a message to obtain our paperwork, appraisal and other documents but did not hear back yet. I was hell bent on not paying for an additional appraisal now that we need to go with a new company.

However, according to an article TheStreet.com by Tracy Byrnes, if you are in the application process when the mortgage company goes under, you are simply out of luck. To quote the writer, "There's basically nothing you can do but move on to another lender. Any fees you paid, for credit applications, appraisals, etc., are all sunk ... lost ... gonzo. Not to mention the time you invested in trying to get the loan." You're telling me, Tracy!