How Many Days Notice Must a Lender Give for a Servicing Transfer?

Mortgage loan servicing involves managing a mortgage, including collecting monthly payments, maintaining escrow accounts for property taxes and insurance, and handling borrower inquiries. A servicing transfer occurs when these responsibilities shift from one company to another, meaning a different entity will take over the collection of payments and overall administration of the loan.

Understanding the Servicing Transfer Notice Period

When a mortgage loan’s servicing rights are transferred, federal regulations dictate specific notification timelines. Generally, the existing servicer must send a notice to the borrower at least 15 days before the effective date of the transfer. The new servicer must also send a notice within 15 days after the transfer’s effective date. Often, both servicers coordinate to send a single, combined notice, which must still be delivered at least 15 days prior to the effective date.

The “effective date of transfer” refers to the specific date when the borrower’s mortgage payment is first due to the new servicer. These notification requirements are established under the Real Estate Settlement Procedures Act (RESPA). While the 15-day rule is standard, certain exceptions allow for a delayed notice, such as when a transfer results from a servicer’s bankruptcy, termination of a servicing contract for cause, or proceedings by a regulatory authority. In these cases, notice may be provided no more than 30 days after the effective date.

Key Information in the Notice

A servicing transfer notice must contain specific details to inform the borrower about the change. The notice should state the effective date of the servicing transfer. It must also provide the name, address, and a toll-free telephone number for both the old servicer and the new servicer, facilitating communication during the transition. The notice will specify the date the old servicer will stop accepting payments and the date the new servicer will begin accepting them. Additionally, the notice should include information regarding the borrower’s rights during the initial 60-day period following the transfer, particularly concerning payment handling.

Borrower Actions and Protections During a Servicing Transfer

Upon receiving a servicing transfer notice, borrowers have specific actions and protections. A protection is the 60-day grace period following the effective date of the transfer. During this period, a borrower cannot be penalized or charged a late fee if a payment is mistakenly sent to the old servicer instead of the new one, provided the payment is made on or before its due date. The new servicer cannot treat such a payment as late or report it as delinquent to credit bureaus.

Borrowers should review the notice, noting all contact information and the exact dates for payment changes. It is advisable to update contact details with the new servicer and establish new payment methods, such as setting up online bill pay or automatic drafts.

If the notice is not received, is late, or appears suspicious, borrowers should contact their original servicer to confirm the transfer. Any discrepancies or issues, such as payments not being properly credited, should be promptly addressed by contacting the servicer. If a phone call does not resolve the issue, borrowers can send a “notice of error” to the servicer, which triggers a formal investigation process under federal regulations.