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So who owns the property when the lending institution fails?

Allthingznew

Contributor
Aug 26, 2007
408
51
As more and more lending institutions go under, I was wondering what happens to your loan if the institution that holds the note on your house goes under?

If you default the bank gets your house back, what if the bank "defaults" so to speak?

Just wondering if anyone knew.
 
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Russ H

Gold Contributor
Read Fastlane!
Speedway Pass
Jul 25, 2007
6,474
1,367
61
Napa Valley, CA
According to our mortgage broker, many of these institutions have just stopped lending-- they haven't gone under. So for them, it just means existing loans get serviced, and they close down their loan divisions.

By far the LARGEST number of lenders wind up selling off their loans anyway-- they only secure it, then they sell it to someone else to service. So if a company like this closes down its loan division--or even goes BK-- the loans are still serviced by the company that buys them.

When there are BKs of big companies that typically service the loans as well, these loans are sold below value (what is sometimes called "pennies on the dollar"). For instance, a $300K loan might be sold to a servicing bureau for $240K (20% less). That way, the servicing bureau makes their money both in payments, and if the loan is refi'd, they get the $60K profit.

I'm not a certified mortgage guy, nor have I ever worked in an RE office, so take this info with an appropriate grain of salt.

We've just done a lot of different loans (17 in the past 2.5 years).

-Russ H.
 

kurtyordy

Bronze Contributor
Aug 28, 2007
2,367
284
45
PA
Russ is correct in his summary.

The thing to look for is properties dropping through the cracks due to the mayhem. i.e. scooping up REOs from an overworked loss mitigation manager who just had his/her workload double. Or banks failing to pay tax bills because the notices did not get forwarded to the new servicing company.

The individual borrowers will not see a gain from the fiasco i.e. their mortgage disappearing, but the may see headaches when they go to sell and they need to track down the correct contacts.

However, for those with cash, the next 2-3 years are going to be awesome:smx6:
 

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