John Woodard says the notice from his new mortgage company looked like typical junk mail.
But it wasn't. It was a letter telling him that his recently refinanced loan had been sold to another lender.
By the time the Rosedale homeowner realized he had been paying the wrong lender, he owed thousands of dollars in late fees and he soon racked up more in lawyer bills from fending off foreclosure.
"My mortgage company never notified me to send the checks somewhere else," he said. "I did get something in the mail from the new company, but it looked like an advertisement so I thought it was junk."
Woodard's story is a cautionary tale in the age of bankrupt mortgage companies and failing lenders.
Mortgages have long been packaged and sold to investors as securities, sometimes just weeks after they are issued. But a crisis brought on by record loan defaults in the subprime market has led more than 100 lenders - including American Home Mortgage and New Century Financial, two of the largest subprime lenders - to file for bankruptcy or close up shop.
Many of these lenders end up selling their loans, which means there are a lot more mortgages passed onto others, sometimes more than once within months.
Industry professionals say homeowners, even those who do not fall in the subprime category and whose lenders appear solvent, need to be vigilant since it is the borrower's responsibility to ensure their mortgages, and their insurance and taxes, are paid on time even if their loans are sold.
Homeowners should read their mail and e-mail and listen to phone calls notifying them of a change of lender or a late payment. They need to read all their statements for inaccuracies and keep records of their payments in case of a discrepancy.
In Woodard's case, good recordkeeping and swift action upon news of the foreclosure, as well as some financial help from his daughter, saved his house, said his lawyer, Mark F. Scurti.
Woodard had refinanced his $89,000 Rosedale house in January, seeking a lower payment. But soon after, his new lender sold its entire mortgage business to another lender.
Although he continued to pay, Woodard ended up in foreclosure because the payments were not getting to the right place.
Scurti said borrowers should keep statements and copies of checks, stamped with the dates they were cashed. As an additional precaution, homeowners could send payments by certified mail. That would provide further proof that a payment was made on time, even if the lender doesn't deposit payments promptly, and would also help avoid large late fees that can hurt those on a fixed income. Those who are delinquent and can't pay should ask for a payment plan from the lender, who generally doesn't want the borrower to default.
If there is a problem, homeowners shouldn't wait for someone else to resolve it - even if it means a lot of phone calls and time on hold, Scurti said. They should also ask for everything in writing, from a rate quote to a special payment plan, so the lender can't change the terms.
When problems are resolved, they should also seek a letter of apology and acknowledgment that the trouble wasn't the borrower's fault. That paper will be necessary if the borrowers' credit has been affected by the mix-up and they seek another loan, or even a credit card.
"The trouble usually begins when your loan is sold," Scurti said. "These days, some companies have purchased debt from bankrupt lenders and then they file for bankruptcy, so the loans are sold again right away."
Scurti knows firsthand what he's talking about. He bought a house in North Baltimore last year and, two months later, the loan was sold to another, troubled, lender that never got the payments from the first lender. Through his records, Scurti was able to prove he had been paying on time. He was also able to get a refund when both lenders paid his taxes to Baltimore City - but the process took five months and a lot of persistence, he said.
Mortgage professionals say most people have no problems when their loans are sold because many mortgages are handled by servicing companies that don't change when the lender does. But homeowners should not rely on the odds, they say. In states such as Maryland, the foreclosure process happens quickly.
Other problems can arise when mortgage payments are on time but taxes and insurance are not, said Bruce Marks, chief executive of the Neighborhood Assistance Corporation of America, which provides loans to low- and moderate-income people.
Many loans today include the items in one monthly check. The extra money goes into an escrow account and the lender or servicing company makes the payments.
But sometimes they don't. For example, Baltimore city and county tax officials said on Sept. 14 that American Home Mortgage Investment Corp. bounced checks for more than 70 homeowners. The county said it would notify homeowners, but the city said the borrowers would get a notice saying they are delinquent in November, if the issue is not resolved before then.
The company, which filed for bankruptcy protection in August, has not offered an explanation. But homeowners risk late penalties even if they made escrow payments and should call local property tax offices to see whether they owe money.
Marks said homeowners should also call others paid from escrow accounts, such as insurance companies and homeowners associations if one recipient notifies them that a payment is overdue.
He said another problem is some companies don't process checks promptly, even if they were sent on time by the homeowner. Marks recommended contacting state regulators, who can intervene with lenders that are involved in disputes. In Maryland, borrowers can complain in writing to the Department of Labor, Licensing and Regulation, which will determine whether the lender or broker has followed state law.
There isn't anything homeowners can do to stop a mortgage company from selling a new or refinanced loan. But, they can possibly avoid trouble at the start by choosing a lender that is in good financial condition, said Felix M. Torres, executive director of the Neighborhood Housing Services of Baltimore, which works to increase homeownership.
Others, such as Greg McBride, a senior financial analyst with Bankrate.com, advise borrowers starting the loan or refinance process to deal with multiple lenders. That way borrowers can find the best rate and ensure there is a backup if one loan becomes unavailable - something more common today because lenders have less to loan.
"If your lender folds up its tent the day before your closing, you're not left on the floor without a dance partner," he said. "You had previously applied to two other lenders and the process is a little along the way."
The professionals say when borrowers have questions or doubts, they should ask their lender or the person who sold them the loan. Just don't wait, said homeowner Woodard.
"I'm still in my house," he said. "But it cost me a lot of money."
TIPS FOR BORROWERS
Keep records of your payments.
Check statements closely.
Be alert to changes in your lender or servicing company.
Contact regulators if your payments aren't being processed in a timely manner.
Respond to discrepancies immediately to avoid foreclosure.
When refinancing, work with multiple lenders to ensure the best rates and a backup if one goes out of business.
Ask your mortgage broker or a trusted financial adviser about the financial status of your lender; pay attention to business news.
Mortgage and foreclosure information is available online from the state Department of Labor, Licensing and Regulation at dllr.state.md.us.