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If Your Bank Fails, What Happens to Your Mortgage If You Are in Foreclosure?

 


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It is no secret that lenders nationwide are struggling with financial problems just like the average homeowner. Nearly 400 lenders (public and private) have folded as a result of the current foreclosure and credit crisis. Many homeowners facing foreclosure are watching as their mortgage company goes out of business. So a big question that every homeowner, but especially ones struggling or already facing the loss of their property, is, “Do I have to keep paying for my mortgage if my lender goes out of business?"

When a lender fails, another investor, lender, or servicing company will take over your loan very shortly. The terms of your loan and your responsibility to repay the loan are still in place. The terms of the original loan can not be changed by the new owner and they can not impose addition fees or raise your interest rate, unless it was authorized in the original agreement. In effect, your original loans stays in place, but a new company takes over the administration of it.

If a few rare cases, a property in foreclosure may not be claimed by the buyer at the auction (which is usually a bank). This can happen for different reasons, but it is generally because the property is not worth assuming. In many neighborhoods throughout the country, the property value has dropped so far that it renders the property nearly worthless. The lender may not want to take on the expense of taxes and property upkeep. These properties are considered derelict properties and become a burden of the state and county governments and taxpayers.

In these unique situations, a foreclosure victim may have the ability to claim the home by paying any back taxes and continuing to live in the property for the required length of time to become the legal owner under adverse possession laws. This would essentially eliminate the mortgage on the property and the foreclosure victim would own the home free and clear of any liens. In some states, the property would be sold at a public sale, but if the lender did not want the home, there is a good chance no one else would be willing to purchase it after the auction.

Except for this rare occurrence, and a few other legal foreclosure loopholes, if your lender goes out of business, you will have to continue to make your monthly mortgage payment if you want to remain living in the property. In cases where the bank is bought out or taken over by the government and you do not know who to send the payment to, just save it away and make sure you have it if another lender can show they own the loan now and demand payment.

If you were in foreclosure when your lender went out of business, your new lender will pick up where the old one left off, and the foreclosure will happen just as fast. However, your new lender may have different policies on helping their foreclosure victims out of foreclosure, so do yourself a favor and call your new lender to find out about their policy to help their clients out of foreclosure.

The ForeclosureFish website has been created to help homeowners stop mortgage foreclosure on their properties while they still have time available. The site describes various methods to save a home, including foreclosure loans, deed in lieu, cash for keys, stopping a sheriff sale, and more. Visit the site to read more about how foreclosure works and how to recover after facing a financial hardship: http://www.foreclosurefish.net/

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