What Happens to My Mortgage If My Bank Fails?

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Since the abrupt collapse of Silicon Valley Bank, questions around the safety and integrity of all things banking have been swarming. One of those questions is: “What happens to my mortgage if my bank fails?” There’s good news here. If the bank that holds your mortgage goes under, the status of your loan won’t change because it will be acquired by a new lender, according to reporting from The Wall Street Journal. So there’s no cause for stress. That said, you do need to be diligent and take certain steps to protect your finances in the event that your mortgage lender goes belly up. 

Check Your Mortgage for a Section on ‘Sale’ or ‘Assignment’

According to Freedom Law Firm, you’ll want to check your mortgage loan for a section that explains what happens in the case of a “sale” or “assignment.” This document should state that the terms of the mortgage remain in force regardless of bankruptcy of the lender.

Keep Up With Monthly Payments as Usual 

If your lending institution goes bankrupt, that doesn’t mean you get a break from your obligation to your mortgage. You must continue payments as normal. Do not miss a month. 

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Maintain Diligent Records 

If your mortgage provider is in trouble, its customer service wing will probably take a beating, making it difficult to get a hold of someone to walk you through the goings on. Make sure you have all your ducks in a row by keeping track of all documents your lender is sending you to keep you in the loop. Keep a paper or digital record of your mortgage payment history just in case an issue arises down the road (e.g., your bank hasn’t been paying off the loan properly on your behalf). 

Check That Your Payments Are Clearing 

Check that all your previous payments have cleared. According to Freedom Law Firm, one worst-case scenario is that your new lender doesn’t have receipt of your payment history and doesn’t believe you made a payment to your old lender — which may have neglected to forward your payment on to the new lender. 

Make Sure This is Really Happening — and Isn’t a Scam 

Your mortgage will be bought out by a new lender, but check to be sure that everything adds up. Just because you receive a letter saying your account has been sold doesn’t mean it has been. A scammer could be trying to dupe you into sending money to a sham organization. Do your homework and make sure your financial institution has indeed collapsed and that the new lender is who it says it is. 

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Understand: What Happens to Your Money if Your Bank Fails?

If You’re in the Process of Buying a Home, Take This Step 

If you’re in the process of purchasing a home, there is an extra step you can take to protect your deposit on the property you are looking to buy. Request that the purchase agreement include a provision for the event the lender goes under or can’t provide the loan for reasons beyond your control. This is called a funding contingency and is a perfectly reasonable ask. 

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About the Author

Nicole Spector is a writer, editor, and author based in Los Angeles by way of Brooklyn. Her work has appeared in Vogue, the Atlantic, Vice, and The New Yorker. She's a frequent contributor to NBC News and Publishers Weekly. Her 2013 debut novel, "Fifty Shades of Dorian Gray" received laudatory blurbs from the likes of Fred Armisen and Ken Kalfus, and was published in the US, UK, France, and Russia — though nobody knows whatever happened with the Russian edition! She has an affinity for Twitter.
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