Bank failure won’t stop foreclosure
By Jan Lindsey
Federal regulators go to great lengths to ensure a smooth transition
whenever a bank fails. Most often, a failed bank will close late on
a Friday and its assets will be transferred to another bank before
opening time on Monday. Depositors have access to their money
over the weekend via checks and ATM and debit cards.
“They try to make it as seamless as possible,” said Jim Eberle,
vice president of communications for the American Bankers
Association. "They're trying to make it as easy and as safe as
possible for people using the bank.”
That’s great for most people. But if you are in the middle of
a foreclosure when the bank that loaned you the mortgage
money fails, you might be hoping for a hiccup. It probably
won’t happen. You should expect the foreclosure proceedings
to continue, Eberle said. If the new bank has a different thres-
hold for filing a foreclosure, it is possible that they will pause to
see if a mortgage modification is possible, he said, but "I would
think as a general rule that, if they are in the middle of it, the
foreclosure proceedings would continue."
Loans – including mortgages – transfer just as deposits do,
so due dates, payment amounts and loan terms generally are
unaffected – although borrowers will get a new address to
which to send those payments if they have been paying the
bank and not a third-party servicer hired to administer the loan.
If the original lender – the bank – fails and you have been
paying a servicer, you must continue to make your payments
to the servicer. Mortgage servicers who go out of business or
file bankruptcy generally transfer the servicing of your loan to
another company. You will be notified of the change by your
old lender as well as your new lender. The Federal Trade
Commission recommends calling the new servicer before you
send a payment to protect yourself from being scammed by
someone pretending to be a new servicer. By law, the FTC
says, the notices must include:
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The name and address of the new servicer
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The date your current servicer will stop accepting
your payments
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A statement on whether you can continue any option insurance,
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such as life or disability coverage, whether you need to do any-
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thing to maintain coverage and whether the insurance terms
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will change
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A statement that the transfer will not affect any terms or
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condition of the mortgage contract, except for those directly
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related to the servicing of your loan. If the mortgage contract
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has an escrow account to pay property taxes and insurance, it
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can’t be closed.
Those who have been preapproved for a mortgage but learn their
lender has filed for bankruptcy should call the lender and ask if the
company still will make the loan, the FTC says. If the lender can
no longer make the loan or has gone out of business entirely, you
will have to start shopping for another mortgage.
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Source: The Federal Trade Commission Web site, ftc.gov