Learn about the common practice of transferring mortgages and the protections in place for your loan.
These days, it is not uncommon for mortgages to be sold or transferred. Many mortgages start out with one company and are almost immediately transferred to a different bank or loan servicing agency. In fact, most homeowners who finance through a mortgage, are probably not paying the same company who originally provided the loan. You may be asking yourself, why does this happen, and how does it affect the average homeowner?
Anyone who has applied for a mortgage can attest to the fact there is no shortage of paperwork to fill out during the process. Very few people actually take the time to read the fine print. In fact, most simply verify the important terms then sign and initial as applicable. However, in most, if not all mortgage contracts, there is a clause stating whether or not their mortgage will be sold or transferred. This language is required by Title 12 Chapter 27 § 2605 of the U.S. Code.
Generally speaking, there are two parts of a mortgage that can be transferred or sold. The two components do not even have to be owned by the same company. However, to most homeowners the distinction is non-existent except in name. The first component is the actual mortgage, also called the note. The note is what sets forth the terms of loan, including the amount owed and when. The note is almost always secured by a deed of trust on the physical property. In Arizona, this is what allows banks to foreclose on homeowners who fail to pay their mortgages. This is what’s known as a non-judicial foreclosure.
The second part of a mortgage that can be sold are the servicing rights. Servicing rights are often sold to a third party who specializes in such transactions. Common servicing transactions include the right to collect mortgage payments monthly, set aside taxes and insurance premiums in escrow, and forward interest and principal to the mortgage lender. Selling mortgages has become a common practice for lenders as a means to making more cash available for additional loans.
Although most homeowners won’t see a difference, there are programs in place to help ensure homeowners get the appropriate notice. Specifically, the Truth in Lending Act which provides various protections for homeowners. Such protections include: the right to receive notice of transfers, information about the new creditor or servicer, the date of transfer, how to reach a party having authority to act on behalf of the new creditor or servicer, and recordation of the debt.
The last important point is in regards to the transfer of servicing and what affect it may have on your mortgage. A transfer of service does not affect any term or condition of your mortgage. In other words, the new owner or servicer of your loan cannot change any terms on your loan other than your payment procedures or servicing elements.
As you can see, mortgages can be sold and transferred in a variety of ways. The important thing to note is that while servicing may change, this should not have any effect on the actual terms of the actual loan. If something has changed on your loan, you will want to consult an experienced attorney. Platt & Westby has offices in Phoenix, Arrowhead, Litchfield Park, Scottsdale and Gilbert Arizona. If you are interested in discussing or even simply to ask some clarifying questions, please contact our office at 602-277-4441 or www.plattwestby.com for a free consultation with one of our experienced attorneys.