Special to The Washington Post
This week, we begin a series answering your real estate-related legal questions. Got a question about a situation you’re in? Send it to firstname.lastname@example.org.
Q: I recently refinanced. Although I knew my mortgage would be sold to another company, I was put off when I found out that the new holder of my mortgage is a company with an F rating on the Better Business Bureau's Web site, appears to have a lot of consumer complaints and an alert that the government has filed suit against them, alleging deceptive practices.
I haven't had any specific problems with them at this early stage, but I'm nervous. Do I have any options here, or am I stuck with this sketchy company?
The loan documents that you signed at the refinance permit the originator of the loan to sell it to a subsequent investor. No matter how sketchy.
You may look at your note to see the words “pay to the order of.” These words, among others, assure the lender that they can in fact sell, “negotiate” your promissory note, obtain fresh cash and continue to originate mortgage loans to other borrowers. This liquidity is essential to the free flow of mortgage money. Without it, the entire mortgage lending industry would come to a grinding halt.
Having said that, there are very few lenders that still make what are called “portfolio loans,” i.e., those loans that they will keep in their own portfolio and never intend to sell to third-party investors. Your only recourse at this point is to again refinance with a lender that will make you a portfolio loan.
Credit unions are often the type of lender that will make portfolio loans. There are also some older, smaller, often very conservative banks that still make portfolio loans.
However, one other cautionary note: Even if the portfolio loan remains in the hands of the originating lender, you need to be concerned if they sell the servicing rights to third-party servicing companies.
Borrowers often confuse the lender with the servicer. A servicer is the company that sends the monthly statements, receives your monthly payments, maintains your escrow account, if any, pays the taxes and insurance when due, reports to the IRS, assesses and collects late fees, makes the nasty collection calls if your payment does not arrive on time. Essentially, the loan servicer is the company that does all the accounting work. It is often that entity, the servicer, that gets failing grades from the consumers’ perspective.
So if you decide that you really want to refinance with a portfolio lender, better also make sure that they handle their own servicing as well.
Harvey S. Jacobs is a columnist for The Washington Post Real Estate section and a real estate lawyer in the Rockville office of Joseph, Greenwald & Laake. He is an active real estate investor, developer, landlord and lender. This column is not legal advice and should not be acted upon without obtaining your own legal counsel.