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What Happens If Your Mortgage Lender Goes Bankrupt

Posted By Jim On 04/03/2007 @ 4:16 pm In The Home | 19 Comments

What happens if the bank that has my mortgage goes under?

In short… nothing (except the sender’s address on your payment) New Century Financial, subprime lender to the stars, just filed Chapter 11 bankruptcy and so everyone who normally makes payments to them must now mail their payments to whoever buys up all those loans from New Century Financial. For the borrower, what happens next will be no different than if your lender sold your loan to another bank – you just make payments to a new lender. See, a lot of “lenders” make their money by setting up the loan (originating it) and then selling it to another bank so that they can free up that cash and originate more loans. The big banks are willing to sit on the loan and collect the interest payments because they have tons of money, the smaller lenders rely on originating loans to make their money.

In the end, your home is already paid off. As long as you continue to make payments, you live in that house. If by some weird reason the company that owns the loan just disappears (and you are able to recover the title, which they will hold), you still own the home (of course, this will never happen). So, if your lender does go bankrupt, keep an eye out for who is now going to be doing the collecting and make sure to keep current.

This is just my opinion and I’m a novice at this, probably just like you, please consult a professional before doing anything (and please correct me if you know for sure).


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