FTC FACTS for Consumers

FOR THE CONSUMER 1-877-FTC-HELP

ftc.gov FEDERAL TRADE COMMISSION

How to Manage Your Mortgage 

If Your Lender Closes or 

Files for Bankruptcy 

hen a mortgage company closes or files for bankruptcy, its customers may 

be left wondering about the impact on their own loans. The Federal Trade 

Commission (FTC) says consumers should continue to make their mortgage payments 

as usual. The nation’s consumer protection agency has several situation-based tips for 

consumers who need to know what to expect in today’s mortgage market: 

If your lender files for bankruptcy after your loan closes: Loans and the rights to service 

them often are bought and sold. A mortgage servicer collects your monthly loan payments, 

credits your account, and handles your escrow account, if you have one. If your mortgage 

servicer is different from your original lender — and your original lender goes out of 

business — continue to make your payments to the mortgage servicer by the date they’re 

due. 

If your mortgage servicer files for bankruptcy or goes out of business: It’s very likely that 

a mortgage servicer that files for bankruptcy will sell its assets under the supervision of the 

bankruptcy court to another financial institution and transfer the servicing of your loan to 

another company. A mortgage servicer that simply goes out of business probably would 

transfer the servicing of your loan to another company as well. 

W
Facts for Consumers 

How will you know if your loan has been 

transferred? Read your mail and your email 

— and pay attention to phone calls and 

messages that deal with a change of lender, 

a late payment, or a payment that wasn’t 

received. To avoid a scam, the FTC says, 

review the notices and call to confirm the new 

loan servicer before you send a payment. 

If your loan is transferred to another 

servicer: Regardless of the reason for a loan 

transfer, you should get two notices: one from 

your current servicer and one from the new 

servicer. The current servicer must notify you 

at least 15 days before the effective date of 

the transfer — unless you got a written notice 

at your settlement. The effective date is when 

the first payment is due at the new servicer’s 

address. The new servicer also must notify you 

within 15 days of the transfer. 

By law, the notices must include particular 

information:

• the name and address of the new servicer;

• the date your current servicer will stop 

accepting your payments;

• the date the new servicer will begin 

accepting your payments;

• telephone numbers for both the current 

and the new servicer that you can use 

to call toll-free or collect for more 

information about the transfer; and

• whether you can continue any optional 

insurance, like life or disability insurance, 

whether you need to do anything to 

maintain coverage, and whether the 

insurance terms will change.

The notices also must include a statement 

that the transfer will not affect any terms or 

conditions of your mortgage contract, except 

those directly related to the servicing of your 

loan. For example, if your mortgage contract 

has an escrow account to pay property taxes 

and insurance premiums, the new servicer 

can’t close the escrow account. 

In addition, you have a 60-day grace period 

after a transfer to a new servicer. That means 

you can’t be charged a late fee if you send your 

mortgage payment to the old servicer by mistake 

— and your new servicer can’t report that 

payment as late to a credit bureau. 

The FTC advises all mortgage holders to read 

their monthly statements. If your statement 

is late — even by just a few days — call the 

mortgage company to track it down. Keep 

records of your payments, including billing 

statements, canceled checks, bank account 

statements, or online account histories if 

appropriate. If you have a dispute, continue to 

make your mortgage payments, but challenge 

the servicing in writing and keep a copy of 

your letter and any enclosures for your records. 

Send your letter by certified mail, and request a 

return receipt, or send it via fax, and keep the 

transmittal confirmation. 

If you have an escrow account: An escrow 

account is a fund held by your servicer. You pay 

into the fund to cover charges like property taxes 

and homeowners insurance. Typically, your 

payments are included as part of your monthly 

mortgage payment, and the servicer pays your 

taxes and insurance from this fund as they come 

due. Even if your servicer files for bankruptcy 

or goes out of business, it is responsible for 

making the escrow payments in a timely way. 

The Real Estate Settlement Procedures Act 

(RESPA) covers escrow accounts. If your 

mortgage servicer administers an escrow account 

for you, it is required to make escrow payments 

for taxes, insurance, and any other charges when 

they are due. The mortgage servicer also is 

required to give you a free statement every year 
Facts for Consumers

that details the activity of your escrow account. 

This statement should show your account 

balance and reflect payments for your property 

taxes, homeowners insurance, and other 

charges. But it is your responsibility to review 

the statement to make sure the appropriate 

entities and payments are made. 

If one recipient of escrow funds lets you know 

that a payment is overdue, call the others that 

are supposed to be paid from your escrow 

account — for example, state or county 

governments for property taxes, insurance 

companies, or homeowners associations — to 

make sure the funds are being transferred in a 

timely way. The Department of Housing and 

Urban Development (HUD) enforces the Real 

Estate Settlement Procedures Act. Contact 

HUD with questions or comments about 

RESPA by email (hsg-respa@hud.gov) or 

by phone (202-708-0502).

If your lender files for bankruptcy before your 

loan closes: If you’ve been pre-approved for 

a mortgage and learn that the lender has filed 

for bankruptcy, call to find out if or when the 

company intends to make good on your loan. 

If the lender can’t — or has gone out of 

business altogether — start shopping around 

for another mortgage immediately. 

The FTC works for the consumer to prevent 

fraudulent, deceptive, and unfair business 

practices in the marketplace and to provide 

information to help consumers spot, stop, and 

avoid them. To file a complaint or to get free 

information on consumer issues, visit ftc.gov 

or call toll-free, 1-877-FTC-HELP (1-877-382-

4357); TTY: 1-866-653-4261. The FTC enters 

Internet, telemarketing, identity theft, and 

other fraud-related complaints into Consumer 

Sentinel, a secure online database available to 

hundreds of civil and criminal law enforcement 

agencies in the U.S. and abroad.

RESPA-related Inquiries and Disputes

Under the Real Estate Settlement 

Procedures Act (RESPA), your mortgage 

servicer must respond promptly to your 

written inquiries. If you think you have 

been charged a penalty or a late fee that you 

don’t owe — or if you have other problems 

with the servicing of your loan — continue 

to make your regular monthly mortgage 

payment, and contact your servicer in 

writing in a separate communication. 

Send your letter — including your account 

number and an explanation of why you 

think your account is incorrect — to the 

customer service address. Don’t write your 

note on your payment coupon.

Timeline: The servicer must acknowledge 

your inquiry in writing within 20 business 

days of receiving it, and take action within 

60 business days. The servicer must 

correct your account or determine that the 

accounting is accurate, and then send you a 

written notice of the action it took and why, 

and the name and phone number of someone 

to contact for more information or help.

In any case, do not subtract the disputed 

amount from your mortgage payment. 

Some mortgage servicers may refuse to 

accept what they consider a “partial” 

payment: they could return your check and 

charge you a late fee, or claim that your 

mortgage is in default and start foreclosure 

proceedings.
Facts for Consumers

1-877-FTC-HELP FOR THE CONSUMER

FEDERAL TRADE COMMISSION ftc.gov

December 2007

Federal Trade Commission

Bureau of Consumer Protection

Division of Consumer and Business Education

The Federal Trade Commission (FTC) is the nation’s consumer protection agency. Here are some tips 

from the FTC to help you be a more savvy consumer.

1. Know who you’re dealing with. Do 

business only with companies that clearly 

provide their name, street address, and 

phone number.

2. Protect your personal information. Share 

credit card or other personal information 

only when buying from a company you 

know and trust. 

3. Take your time. Resist the urge to “act 

now.” Most any offer that’s good today 

will be good tomorrow, too.

4. Rate the risks. Every potentially 

high-profit investment is a high-risk 

investment. That means you could lose 

your investment — all of it. 

5. Read the small print. Get all promises in 

writing and read all paperwork before making 

any payments or signing any contracts. Pay 

special attention to the small print. 

6. “Free” means free. Throw out any offer that 

says you have to pay to get a gift or a “free” 

gift. If something is free or a gift, you don’t 

have to pay for it. Period. 

7. Report fraud. If you think you’ve been a 

victim of fraud, report it. It’s one way to get 

even with a scam artist who cheated you. 

By reporting your complaint to 1-877-FTCHELP or ftc.gov, you are providing important 

information to help law enforcement officials 

track down scam artists and stop them!