"I bought my house in June. In October, I made my mortgage payment to XYZ Mortgage as usual. A few weeks later, the payment was returned with a note saying that my mortgage had been sold to ABC Mortgage. However, when I contacted ABC, they said they had no record of my mortgage. I have not made my payment for October or November, and my December payment will shortly be due. I have an escrow account for the payment of taxes and insurance, but I just received an overdue notice from the tax department … What should I do?"
When mortgages are sold, bad things occasionally happen, but I have never heard of a mortgage disappearing entirely. I’m glad you are not entertaining the possibility that the mortgage will never be found and you will be relieved of the necessity of paying it off. It will be found, of that you may be sure, and when it is you will be expected to make all the payments you missed.
Here is what I would do if it happened to me. First, I would pay the taxes and insurance as they come due, even though you have already made payments into escrow accounts, out of which the lender is supposed to make the payments on your behalf. The lender is responsible for making these payments — that was part of the deal under which you agreed to fund an escrow account under the lender’s control. But make the payments anyway; it may save you a lot of future grief.
For example, if your insurance policy lapses and subsequently you have a costly fire, the lender who finally acknowledges that he owns the mortgage probably will not acknowledge responsibility for the failure to pay the insurance. Obtaining recourse will require taking the lender to court, which you want to avoid if possible.
Second, I would create a segregated bank account in the name of my mortgage and make my payments into it. This maintains your budgetary discipline — you will have the money to pay when you need it. It also demonstrates your good faith in the event that, despite your best efforts, your case ends up in court, which is always possible.
Third, I would keep a record of how your loan would be amortizing had the payments been going to the lender rather than into a special account. This is to assure that the loan balance they finally get around to recognizing is correct; it should give you full credit for all principal payments, and there should be no late fees or other charges tacked on. Any interest earned on the special account should belong to you.
Fourth, I would create a file folder containing a chronology of events, including all the evidence of my attempts to find the owner of my mortgage, including what I was told by each of the parties, and when. Get them to put it in writing if they haven’t yet done so.
Fifth, I would immediately get a copy of my credit report, and update it every month until the affair is settled. If a report is being submitted to the credit bureaus about my loan, I would know which lender is reporting it. I could use this information to prod the lender to recognize that somewhere in the bowels of the firm is a person (or a computer) that knows about my mortgage.
Sixth, if nothing appears on my credit report, I would go to a higher level at the lender claiming they sold the mortgage, insisting that I be given documentation evidencing the sale. I would then present this evidence at a higher level of the buying firm. "Here is the evidence that you purchased my mortgage; now how about finding who swallowed it in your organization?"
When the responsible party finally emerges, they must accept the payments made to my bank account at face value, making my mortgage current in line with the amortization schedule. In addition, they must refund from my escrow account the tax and insurance payments that I had advanced. They ought to pay me interest on the advance, but they won’t.
Your communications with the responsible party should take the form of "qualified written requests" under Section 6 of the Real Estate Settlement Procedures Act (RESPA). Full instructions on how to submit such requests can be found in "Is There Recourse Against Bad Mortgage Servicing?" on my Web site. Following this procedure puts the lender on notice that you know what you are doing and will be vigilant in protecting your rights.
The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com.
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