What do I do when my lender collapses?

August 25, 2009 10:11 AM

Mortgage switcharoo: My lender just went bankrupt and we haven't been able to pay the August mortgage. There's an additional wrinkle with an escrow account for taxes. What do I do? (lots of detail inside)

I bought my house almost 2 years ago using a 30-year fixed mortgage from Taylor Bean & Whitaker. They've been servicing my loan ever since, and I pay every month. With a 30 year fixed mortgage, I expected my payments to stay the same, but I got a letter at the end of June saying my payment was about to go up 33% because of a problem with our tax & insurance escrow account. There's a piece of paper at the signing that authorizes the mortgage company to create an escrow account to pay for property tax and insurance as an option. I mistakenly signed the wrong paper which told TB&W NOT to create the account (i.e. I'd be responsible for paying taxes & insurance on my own). Even though I'd signed the paper saying "Don't create the account" TB&W did, but didn't collect the initial funds for it. Thus when they went to pay our property taxes, the escrow account went negative. This went on for 18 months before they caught it, and now I owe several thousand dollars in order to make the escrow account correct. In order to catch up they were going to raise my mortgage by 33% (which I can't afford) in order to recollect the shortfall within 12 months. I spoke with a rep, and the extended the payback to 24 months and said it would be reflected in my August bill.

Ok still with me?

August 1st, and my bill shows the 33% increase. I attempt to call them repeatedly, but the phone system keeps dropping me, sending me to dead ends, giving me bizarre options. Emails to the company bounce. After 2 weeks of trying to get ahold of anyone at TB&W I google search the news, and discover that TB&W is under investigation for fraud and has been shut down by a judge. They declared bankruptcy last week. Reports from other TB&W customers say that payments aren't clearing, and the instructions from the state and fed regulators seem to contradict.

So: What do I do? Call a lawyer? Wait for whomever picks up the loan to contact me? Call the feds for advice? Will I have to renegotiate my repayment schedule again with a new bank?

posted by gofargogo to work & money (13 comments total)

Definitely call a lawyer that specializes in real estate.
posted by electroboy at 10:17 AM on August 25

Document, document, document. Everything. Write down the dates and times of phone calls, and the result. Save email bounces. Send registered letters and make sure you keep the receipts.
posted by TheNewWazoo at 10:18 AM on August 25

A large part of TB&W's loan portfolio was sold to Bank of America recently. There is a good chance that after the loan is "boarded" at B of A (boarding could take several weeks, especially of the cumbersome B of A/Countrywide mothership) you will receive a "welcome letter" giving your new loan servicing company and where to send the payments.
Hang on to the payment for now.
posted by Cookbooks and Chaos at 10:24 AM on August 25

To reiterate what has been said already:
Document everything.
Call and talk to a real estate lawyer.

But also:
Continue to pay your mortage... to yourself if necessary until this is sorted out and you know where to send your payments. Maybe even open a separate savings account for that purpose to stash the money and to reduce temptation to spend it.
posted by Hairy Lobster at 12:01 PM on August 25

You need to ensure that the tax liability (local property taxes?) that was supposed to be paid out of your unfunded escrow account is indeed current and satisfied.

Bank of Ameriwide will likely be reticent to foreclose on you for several missed mortgage payments and may even offer you a modification.

However, your local municipality is not as forgiving and may place a tax lien or even kick you out of your home and hold a sheriff's auction if the taxes are not paid.

Take care of the taxes first, then worry about principal/interest on the mortgage.

This is assuming you want to keep the house.

A lawyer will likely help, but you can call on your local tax assessor yourself.
posted by de void at 12:14 PM on August 25

BTW, forgot to mention this - TBW was likely shut down for fraud, and it is not unheard of for unethical servicers and/or escrow companies to abscond with/redirect escrow funds that were supposed to pay for taxes/insurance.

If you have any accounting at all for the escrow account (did you ever receive statements?), see if you can verify that this didn't happen in your case. You may want to collect all records you have of payments made to TBW and have them readily available.
posted by de void at 12:27 PM on August 25

You can try calling your township. From what you said your real estate taxes should be overpaid (i.e. you paid and the bank paid). With a written explanation they will usually be able to refund you the overpayment. You can hold onto that and pay back whoever buys your mortgage, if necessary.
posted by Busmick at 12:49 PM on August 25

Sorry, on preview, what de void said....
posted by Busmick at 12:51 PM on August 25

Either you have an escrow account or don't. If TBW didnt create an account, they wouldnt have been paying your taxes. If they did create an account, it sounds like theres a serious clerical error or they just weren't collecting enough monthly to cover the taxes coming due and its finally caught up with you when the taxes were paid and it caused the escrow account to go into the negative. Even if you don't have enough money in your escrow account, most mortgage servicers will pay the taxes but increase your payment to cover the short fall. They'll also increase the amount of taxes they're collecting as part of your mortgage payment based on the estimated taxes due for the next year.

As far as your payment goes, taylorbean.com provides instructions on who to sent your payment to. Bank of America has not loaded the TBW accounts into their system yet so their customer service will not be able to help you as far as your escrow account goes. You should be getting a welcome letter from B of A with your new account number and further instructions. Once you have that, get on the phone with B of A ASAP to sort out the escrow account. You probably dont want to hear that you will need to pay this. If TBW did not collect enought up front or monthly, it's still money you owe. At some point the shortfall has to be made up. By you, since its your tax liability. You just got to hang on to the money for 18 months. You need to get B of A to go through your mortgage history thoroughly to make sure that all of the money going in and out of the escrow account is accounted for.

I have seen some really goofy things happen with TBW escrow accounts so if I was in your position, I would stop thinking about foreclosure and lawyers and just get on the phone with B of A as soon as you get the welcome letter.

Also.....your payments can always flucuate depending on your property taxes and changing insurance needs. Typically they reset once a year when the new tax bill is issued. What remains the same on a fixed mortgage is your principle and interest. And the above may not apply to all states...
posted by SassafrasSweetCharity at 7:21 PM on August 25

Thank you for the good advice!

SassafrasSweetCharity: Yes we have an escrow account, but there was a clerical error and they didn't seed it enough at the beginning or collect enough during the first year. I have no ethical problem with paying it back I just can't afford to make up the shortfall in 12 months.

I'm not worried about foreclosure. I've got my August payment in the bank, but I don't want to send it in and have it disappear in the shuffle. I've never been through this kind of event before and I want to make sure I'm not making some critical mistake that will hurt me down the road.

BofA is only taking on the FHA loans (as I understand it), do you know how to find out if my loan is FHA? I'd normally call TB&W, but that's not possible.
posted by gofargogo at 10:08 AM on August 26

Your mortgage statement should show what kind of loan you have. If you dont have that, what was your down payment? If it was 3% and you pay monthly mortgage insurance, you have an FHA loan.

If your down payment was 5% or more, It'll be a Freddie or Ginnie loan and you'll probably just have to wait to get your welcome letter from the new servicer.

Whoever ends up with your loan will have an insane number of problems and complaints to weed through. Thousands of people will be calling them with time critical issues. Just stay on them and try to work out a payment plan with a longer term. A 33% increase seems really unreasonable unless your property taxes are incredibly high and they were collecting an extremely low amount so the new servicer will need to check the math.

If you're afraid of the tax man knocking at your, you can generally google the tax assessor's website for your county and search by your address or parcel number to verify that your property taxes are current. They will be because its in your mortgage companies best interest to keep the taxes current. They don't want a tax lien on your property that could trump them.

Setting the escrow account issue aside, the long term damage will be the new servicer reporting a mortgage late to the credit bureaus since you havent made your August payment. That will seriously impact your credit. You could probably fight it down the line but thats a huge headache. On the other hand, I dont know that the new servicer would be in a position to report anything to the bureaus since they dont even have the loans uploaded to their systems. Get the welcome letter, get on the phone and tell the first person you talk to that you want to make your August payment over the phone immediately. For now, unfortunately, you're in a sit and wait position. Good luck! And I dont mean that sarcastically...
posted by SassafrasSweetCharity at 9:48 PM on August 27

Oh, and I would never recommend NOT making your payment in a timely manner, but I understand your not wanting to mail it into a black hole of payment processing....
posted by SassafrasSweetCharity at 9:57 PM on August 27

Thanks to all this great advice, I've documented everything, called the new lender (and documented those calls), and I'm now working out the details with them. It's still a work in progress, but at least I'm no longer in total limbo.
posted by gofargogo at 12:25 PM on September 24