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ABA Family Legal Guide

Home Ownership

The Financial Side of Home Ownership

Understanding Your Mortgage

What happens when your mortgage is transferred?

Most mortgages are sold soon after the loan is closed. This means that you'll probably deal with at least two and possibly more mortgage servicing agents during the life of the mortgage. The mortgage servicer is responsible for collecting monthly payments and handling the escrow account, such as paying property taxes. The National Affordable Housing Act, passed in 1990, addresses the responsibilities of a mortgage servicer and consumer protection in this area. Under this act, lenders are required to do the following:

  • Notify you at least fifteen days before the effective date of the transfer of your loan servicing. (The servicer has up to thirty days after the transfer to notify you if you have defaulted on the loan, the original servicer filed for bankruptcy, or the servicer's functions are being taken over by a federal agency.)
  • Include the following in the notice: the name and address of the new servicer; the date the current servicer will stop accepting mortgage payments and the date the new servicer will accept them; and a free or collect-call telephone number for both servicers if you have questions about the transfer.
  • Adhere to the contracted terms of the mortgage. The new servicer may not change any terms or conditions, and this must be disclosed to the borrower. For example, if your former lender did not require that property taxes or homeowner's insurance be paid from an escrow account, the new servicer cannot demand that such an account be established.
  • Provide a sixty-day grace period, during which a late fee cannot be charged if you mistakenly send your mortgage payment to your former servicer. Moreover, the new servicer cannot report late payments to a credit bureau.
    • American Bar Association Family Legal Guide
    Copyright © 2004 American Bar Association
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