Wednesday, October 31, 2012

Ask Erin: What happens to my short sale if my loan servicing is transferred to another company??

I listed a short sale in Orangevale a few weeks the time I listed the house, the loan was serviced with Bank of America and the sellers and I were navigating our way through their "Co-Operative" short sale listing process (where we complete a few steps in advance in order to list the property with a pre-approved short sale price). Then something happened...we were notified of an upcoming "Service Transfer" and the loan would be moved from Bank of America to another lender for servicing. Huh?

This does happen from time to time. Bank of America, like many other large lending institutions, services mortgage loans for hundreds of investors. An "investor" could be Fannie Mae, Freddie Mac, a hedge fund, another bank, etc. As a part of normal loan servicing, these investors may opt to release or transfer servicing from one company to another company.  In most cases, once the servicing transfer occurs, the short sale process ends with Bank of America and the homeowner must contact the new servicer to start navigating that company's short sale process.

When I list short sale property, I generally talk about the possibility of this happening with the seller. This is not a really common occurrence mid-transaction (this has happened only 4 times out of all of the 100+ short sales I have worked on), but a servicing transfer is a risk that may occur at any time during the short sale process -- EVEN after a short sale has been approved! This is one of the reasons why it is important to move as quickly as possible to facilitate a short sale.

Generally, if your loan is going to be transferred from one servicer to another, the current servicer will send the homeowner a letter 15 days before the servicing transfer date. The lender may or may not contact the listing agent -- so short sale sellers PLEASE open your mail and keep your agent in the loop as far as what the communications say! The new loan servicer will send a introduction letter to the seller with a new loan number and payment or collection info. One thing to note -- before you send ANY payment or personal information to the new servicer, please call them to verify that your service has been transferred and the new mailing address. Some fraudsters will send bogus letters in an attempt to get you to mail them money or steal your identity! If an offer has already been accepted on your short sale, a closing has been set and an approval letter issued, the new servicer will determine if the short sale will continue. Unfortunately the new servicer may not be obligated to honor the approval.

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