Lenders’ closings open up troubles for homeowners

Within the next few weeks, customers of Smyrna-based Sunshine Mortgage will be wondering where to send their February payments. Like thousands of homeowners across the country, they’ve been hearing through news reports that their lender — like so many others — is closing down.

Most of the time, experts said, when lenders close or file for bankruptcy, loans are transferred to another company with minimal disruption. But problems can happen, especially if the consumer is behind in payments already.

SPOTLIGHT: BY ALISON YOUNG

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HELP WITH LENDERS
If you have problems with a mortgage lender, here are some agencies that may be able to help:
• Georgia Department of Banking and Finance: While the department stopped handling individual consumer complaints last summer due to budget cuts, its Web site provides a variety of resources. http://dbf.georgia.gov
• U.S. Department of the Treasury: www.helpwith mybank.gov/national_banks/index.html
• U.S. Department of Housing and Urban Development: This federal agency is responsible for enforcing the Real Estate Settlement Procedures Act (RESPA), including rules governing how mortgage companies handle consumers' escrows. To file a complaint, write to: Director, Office of RESPA and Interstate Land Sales, U.S. Department of Housing and Urban Development, Room 9154, 451 7th St. S.W., Washington, DC 20410. Or call 202-708-0502. For information about HUD-approved housing counseling services, call: 1-800-569-4287.
• U.S. Federal Trade Commission: This agency has published a useful consumer guide: "How to Manage Your Mortgage If Your Lender Closes or Files for Bankruptcy." It's available at: www.ftc.gov/bcp/edu/pubs/
consumer/homes/rea12.pdf

Other issues can arise with the company’s handling of escrow funds homeowners pay each month, in addition to their mortgage payments, to cover property taxes and insurance premiums.

In 2007, some Baltimore-area customers of American Home Mortgage Investment Corp. were surprised to learn the checks the company sent to cover their property taxes had bounced. Some Georgia closing attorneys were left in the lurch the same year when settlement checks from HomeBanc Corp. bounced before the company filed for bankruptcy protection.

Such problems aren’t common, experts said, but, with more companies going out of business, consumers need to be watchful.

So far, Sunshine Mortgage hasn’t notified its customers — which include this reporter — what its closure means for future payments on the mortgages it services and the company’s handling of escrows.

Company spokesman Daniel McKee did not respond to voice mail messages last week asking about the loans it services and those consumers caught short of closing on new houses or in the middle of refinancing. In a brief statement to The Atlanta Journal-Constitution on Jan. 9, McKee said Sunshine Mortgage is closing “due to a lack of available funds necessary to continue.”

Officials at the Georgia Department of Banking and Finance, which still lists Sunshine Mortgage as having a valid lender license, said they can’t comment on what’s happening with the firm’s closing.

As of Jan. 1, there were 2,259 mortgage lenders and brokers doing business in Georgia — 153 fewer lenders and 602 fewer brokers than this time last year, said Rod Carnes, the department’s deputy commissioner for non-depository financial institutions.

With so many mortgage lenders closing, merging or filing bankruptcy, here’s what experts say consumers should know to protect themselves:

• Keep making payments: If the mortgage company servicing your loan closes or files bankruptcy, keep sending your check where you always have — until you receive official notice with new instructions, Carnes said. It’s a good idea to keep good records of these payments, including canceled checks or proof of automatic payments.

• Watch your mailbox: Under federal law, lenders are required to notify homeowners in writing of any transfer of their loan, including instructions for where to send future payments. Regardless of whether the loan transfer is part of the normal course of business or due to a closure, the

homeowner should receive two notices, according to the Federal Trade Commission. The current servicer must notify you at least 15 days before the effective date of the transfer (unless the transfer was announced at closing, which sometimes happens). The new servicer also must notify you within this period.

• You’re protected against late fees: For 60 days after a transfer to a new servicer, according to the FTC, consumers can’t be charged late fees if they send timely payments to the old lender. “As long as they can show proof they made the payment in a timely manner, they can’t be charged a late fee, nor can anything adverse be put on their credit report,” Carnes said.

• Your lender is responsible for escrow payments: Even if a lender closes or files bankruptcy, it is responsible for making timely property tax and insurance payments out of your escrow, according to the FTC. Cobb County Tax Commissioner Gail Downing said from time to time there may a delay in tax payments when mortgage service is transferred from one company to another. But she said her office works with homeowners to address the glitches, and there haven’t been significant problems.

• Keep tabs on your escrow balance: Keep good records of your escrow balance before and after your loan is transferred to make sure there are no accounting errors in the process.

• If you’re behind, beware: When a mortgage company closes or is sold, delayed or lost paperwork can create significant problems for homeowners behind in their payments, said Angie Moreschi, an investigator at the Tampa-based law firm of James, Hoyer, Newcomer and Smiljanich, which has sued several lenders. “When the mortgage companies go under, you create this death spiral for the documents,” she said. If a consumer is negotiating with a lender when it closes, confusion during the loan transfer can put the homeowner at risk of foreclosure, she said. Moreschi advises calling both lenders and enlisting the help of a HUD-approved housing counselor.

• New loans may cause a headache: Consumers buying a house may have to scramble for a new loan. “They are in the process of getting a loan and they’re supposed to close on their house next week — and, boom, there’s no lender and there’s not enough time to meet the contract deadline,” said Jeff Ganek, an attorney with the Atlanta firm Ganek Wright Minsk, which specializes in residential real estate. Those in the process of refinancing may not get the same great rate they locked in. In these cases, advises Jennifer Dickenson, partner at the Atlanta law firm Dickenson Gilroy, track down the lender’s loan officer you were working with. “They can pretty quickly turn these things around,” said Dickenson, who specializes in real estate transaction law. The loan officer can transfer the consumer’s file to a new company and save significant time getting the new loan, she said.

Going forward, regulators and industry experts said, it’s important to check out new mortgage lenders to make sure they’re licensed and have good reputations. But they note that Sunshine Mortgage, founded in 1981, had a good reputation and that state regulators hadn’t received any complaints in 2007, the most recent data available.

“The real problem to me is that none of us know who is stable and who isn’t. And that’s frightening,” Ganek said.

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