Servicing Guide

Published September 9, 2020

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What actions must the servicer complete when referring a balloon mortgage loan to a law firm for bankruptcy proceedings?

The following table lists actions to be completed by the servicer when referring a balloon mortgage loan to a law firm for bankruptcy proceedings.

The servicer must…
 

Determine whether the balloon maturity date will occur while the bankruptcy action is pending. This includes any repayment period under a confirmed reorganization plan.

 

Inform the law firm of the approaching balloon maturity date when it refers the case.

 

Contact the applicable mortgage insurer to confirm whether the bankruptcy proceedings will have any effect on the MI coverage if they continue beyond the balloon maturity date.

Note: This is particularly important in connection with a Chapter 13 bankruptcy since the confirmed reorganization plan may permit the mortgage debt to be paid over a five-year period.

For more information please see: E-2.3-05: Bankruptcies Involving Balloon Mortgage Loans.

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