What Is the Grace Period When a Mortgage Is Sold?
Discover how federal rules protect your mortgage payments during a servicer transfer, ensuring a smooth transition without penalties.
When a mortgage is sold, it means the ownership of the loan or the right to collect payments, known as servicing rights, transfers from one financial institution to another. This is a common practice, and borrowers may find their loan serviced by a new company without changes to their loan terms. Understanding how these transitions occur and the protections in place for borrowers is important for managing payments during such a change.
Notification Requirements for Mortgage Transfers
Federal regulations mandate specific procedures when a mortgage servicing is sold. The Real Estate Settlement Procedures Act (RESPA) requires servicers to inform borrowers about these changes. This notification ensures borrowers are aware of who will be collecting their mortgage payments.
Borrowers receive a transfer notice from both the old and new servicers. This notice must contain information to guide the borrower through the transition. It specifies the effective date of the transfer.
The notice also provides the name, address, and toll-free telephone number of the new servicer. It must state the date the old servicer will stop accepting payments and the date the new servicer will begin accepting them. This notice must be provided at least 15 days before the effective date of the mortgage servicing transfer.
The Payment Grace Period
Federal law establishes a grace period to protect borrowers when their mortgage servicing is sold. This protection prevents a borrower from being penalized if they mistakenly send their mortgage payment to the old servicer instead of the new one. This grace period acknowledges that transitions can cause confusion regarding payment addresses.
The grace period is 60 days, starting from the effective date of the transfer. During this time, a new servicer cannot treat a payment as late, impose a late fee, or report it negatively to credit bureaus if the payment was sent to the old servicer. The purpose is to allow borrowers ample time to adjust to the new payment arrangements without financial repercussions.
If a payment is sent to the old servicer within this 60-day period, the old servicer is obligated to accept the payment and forward it to the new servicer. The new servicer must then treat this payment as if it was received on time. This provision ensures that payments made in good faith during the transition are properly credited.
Handling Payments During a Mortgage Sale
Upon receiving a transfer notice, borrowers should review the details provided by both servicers. It is advisable to update any automatic payment arrangements, such as auto-debits or online bill pay setups, to reflect the new servicer’s information. This proactive step helps avoid any potential issues with payment delivery.
If a payment is inadvertently sent to the old servicer within the 60-day grace period, the borrower does not need to take corrective action. Federal regulations require the old servicer to forward the payment to the new servicer, and it must be credited as timely. However, it is prudent for borrowers to verify that the payment was received and correctly applied by the new servicer.
Borrowers should maintain records of all payments made during the transition period. This includes keeping copies of checks, payment confirmations, and the transfer notices. Verifying the new servicer’s details directly from the official notification before making any payments ensures funds are directed to the correct entity.