Q: I often listen to your show on my way home from church. A couple of days ago, my brother, who lives in Las Vegas, called me and said he received a letter saying that his mortgage company had filed for Chapter 11 bankruptcy protection.
Earlier this year, my brother was downsized from his job. Because of the loss of his income, he had contacted his mortgage lender and they had agreed to accept him in the Hardest Hit Program (under the HAMP Program). The paper work was still being processed. Unfortunately, because he recently started a new job (less money) he was not making his mortgage payments. What does the bankruptcy mean for my brother’s mortgage?
A: It’s hard to know what a mortgage company bankruptcy means for your brother. His loan is clearly not being serviced by one of the major lenders. Therefore, it’s probably a smaller company and it’s unclear who will pick up the pieces and the servicing of the loan.
Typically, what happens is that the governing body with oversight powers will step in and sell off chunks of the servicing portfolio to other mortgage servicers or another servicer will step in and buy the rights to service all of those loans. Sometimes, information goes up a website that informs people who owns their loan servicing rights. Sometimes the borrowers hear nothing and then suddenly get a letter in the mail.
If your brother wants to be proactive, he should contact his state’s department of finance (or other department that regulates mortgage lending in the state your brother live in), which will oversee all mortgage lenders in that state. The office may have an ombudsman, who your brother should call for more information. It may be possible to be put on an email list that will provide more information. The department of finance may be able to give your brother a timeline when the dispossession of assets (including his loan) will be complete.
We’re sure this isn’t what you were hoping to hear, but Nevada has been extremely hard hit during this real estate depression that I’m sure the Nevada Department of Business and Industry, Division of Financial Institutions, is overwhelmed with work and complaints. But he should get in touch with them as a starting point.
The next issue is what to do about his loan. If he has a job he may no longer qualify for the “hardest hit” HAMP program, but in any case, he will likely have to reapply once his loan is acquired. It’s unfortunate, but we haven’t often seen cases where paperwork that isn’t fully processed is just transferred over.
You can imagine the volume of paperwork a lender must have for the many borrowers applying for consideration in the many loan programs that a servicer might have. Now consider that the lender stops doing business and those files are sitting in offices and those files and the papers inside have not been organized in a way that a different person can easily come in and step into the shoes of the person handling those files.
We presume that some companies will take over borrower loan files and will find it easier to tell those borrowers that they don’t have access to the prior files and that they need to start over.
Good luck, and let us know what happens.