QUESTION: My sister just closed on a condo. During the closing she received a document about mortgage servicing that indicated her lender usually transferred its loans to another entity to manage. Why didn't she just go to the company that is going to handle her loan in the first place? Can they change the terms of her loan?
ANSWER: It sounds like your sister's loan is going to a mortgage servicer. A mortgage servicer is responsible for collecting monthly payments due on the mortgage loan. The servicer also maintains the borrower's escrow account (if any) and makes the requisite distributions. They do not lend money directly.
As part of their servicing, your sister will receive an annual statement of her account that will indicate how her monthly mortgage payments were applied to principal, interest, taxes and insurance. This statement will also give notice of any adjustments to the monthly payment necessary to cover taxes and insurance in the following year.
Your sister was entitled to the notice of the transfer she received at closing before the transfer could take place. The borrower usually receives notice from the original mortgage servicer and also from the new mortgage servicer. The notice(s) must indicate the date of the transfer and the contact information for the new mortgage servicer.
The new mortgage servicer is bound by the terms of your sister's original loan. They cannot make changes. By the way, your sister is entitled to a 60-day grace period following the transfer during which she cannot be charged a late fee if she forgets about the transfer and makes her payment to the original company.
Mortgage servicing companies are not in the business of originating loans so it would not have been possible for your sister to approach one for financing in place of the lender she chose. Servicers are in the business of managing loans. Although they are professionals in what they do, your sister should carefully examine all mortgage statements to make sure that her taxes and insurance have been paid on time and that all her payments have been credited to her account. If she has any difficulty, she should seek the advice of a mortgage attorney.
Attorney Sylvia Heldreth is a Certified Specialist in Real Estate Law. Her office is located at 1215 Miramar Street in Cape Coral.
This article is not intended as specific legal advice to anyone and is based upon facts that change from time to time. Individuals should seek legal counsel before acting upon any matter involving the law.