A Servicing Rights Purchase Agreement, which is generally used in the mortgage servicing context, is a written agreement transferring the right to service a mortgage and collect a fee from one party to another. Mortgage Servicing is when one party works to keep a mortgage loan current by collecting monthly payments, forwarding principal and interest payments to the current mortgage holder, overseeing escrow accounts, taking care of taxes and insurance premiums, and performing necessary activities to collect overdue payments.

The original lender usually acts as the mortgage services, or in the alternative, the lender may sell the right to service a mortgage to another company that performs the service for a fee. Many companies, including savings associations, specialize in servicing mortgages. The original lender may sell the mortgage servicing rights to one company and sell the mortgage itself to another company.

A servicing rights purchase agreement is thus a contractual agreement where the original lender sells the right, or rights, to service an existing mortgage to another party who specializes in the various functions of servicing mortgages. Common rights included are the right to collect mortgage payments on a monthly basis, the right to set aside taxes and insurance premiums in escrow, and the right to forward interest and principle to the mortgage lender. In order to be legally sufficient, the agreement should address the following issues:

1. Sale and Purchase of Servicing Rights. Payment of Servicing Rights Purchase Price. Here the servicing rights purchase agreement should state that as of the effective date of the agreement, the seller does hereby sell, transfer, assign, set over, and convey to the servicer all rights, title, and interest of the seller to the Servicing rights. In return, the servicer assumes all right, title, and interest of the Seller in and to the Servicing Rights. This provision should also address the purchase price and when the payment shall be made.

2. Conveyance of Servicing Rights. This paragraph should list the specific rights being transferred and the mortgage and property at issue. Servicing usually encompass the monthly advances and servicing advances, the custodial and escrow funds, the servicing files, and the exclusive right to enter into arrangements that generate ancillary income.

3. Representations and Warranties. Finally, each party to the servicing rights purchase agreement must make certain representations in order for the other party to be covered. Most importantly, each party must represent that they are legally able authorized to enter into the agreement and be bound by its terms.

These are the key aspects of a servicing rights purchase agreement. To review and download actual servicing rights purchase agreements, visit the Documents section of the RealDealDocs website.

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Effective December 1, courts in several Florida counties have instituted foreclosure diversionary programs. Great news for homeowners struggling to hold onto their property. Setting up a special system for foreclosures was West Palm Beach Chief Judge Kathleen Kroll, ordering all foreclosures to mediation and mapping out steps lenders must go through before any foreclosures are approved.

And on Monday, Chief Judge for the Twelfth Judicial Circuit, Lee Haworth issued a similar plan. Titled “Administrative Order Establishing Standard Procedures for Residential and Commercial Mortgage Foreclosure Actions,” Haworth’s order requires lenders/borrowers to talk to one another at a “confiliation conference” before the foreclosure actually gets rolling.

Haworth sent this to law firms: “In 2006, we had 1,000 foreclosures in Sarasota County. In 2007, we had 4,100. We’re expecting to have 8,000 by the end of this year. It became evident that we had to do something, because of the lack of communication between these sides. If we can get them to talk, maybe we can hold off on some.”

Many more Florida counties are following in Haworth and Kroll’s footsteps.

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People are losing their homes every second. It’s a scary time for all of us and homeowners given risky loans are suffering greatly for the mishandling done by some mortgage lenders. Still…a class action suit doesn’t hold power in this particular arena. Recently, a federal appeals court has said the Truth in Lending Act does not allow for rescission of mortgages on a class action basis.

Joining an earlier ruling by the 1st and 5th circuits and one California state appellate court that have held that the TILA does not allow claims for rescission is the 7th U.S. Circuit Court of Appeals. A 2-1 decision on September 24, “averts the potential of significant damages for creditors accused of violating disclosure requirements in some of the exotic mortgage vehicles that caused the mortgage market meltdown.”

“This is a significant win for all lenders,” said Jeffrey W. Sarles of Chicago-based Mayer Brown. “Allowing thousands of class members to rescind their mortgages at one fell swoop would threaten lenders with intolerable liability.”

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Attention! Attention! A business transaction alert!

The Bush administration has made a major decision regarding two mortgage high rolling top players, Fannie Mae and Freddie Mac.

Taking control of these companies, the federal goverment has announced that the execs of both institutions have been replaced.

The newest head honchos are Herb Allison, a former vice chairman of Merrill Lynch, who will run Fannie Mae. And former vice chairman of US Bancorp, David Moffett, will be running the show over at Freddie Mac.

According to Treasury Secretary, Henry Paulson, the actions were being taken because “Fannie Mac and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe.”

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In recent months, the amount of foreclosures filed throughout the country has more than doubled from the same time period last year. The reasons for such high percentage of filings are numerous. Primarily, the sub-prime mortgages have landed in the hands of individuals who most likely did not qualify for convention financing. Thus, the interest rates on the loans remain higher than other conforming loans. Additionally, many of the sub-prime loan products involved adjustable rates (ARMS) which typically re-set within the first few years of the loans inception.As sub-prime loans relate to Chapter 13, the typical scenario is as follows: The homeowner qualifies for the loan without a substantial down payment and without significant income documentation. The monthly payment is a stretch for the homeowner; however, it is temporarily manageable. Depending upon the type of ARM, the loan may reset in one, two or three years. It is at that point in time that the homeowner may not be able to make the new, higher mortgage payment. The homeowner is also unable to refinance the debt on the property since the type of loan products needed to accomplish that task no longer exists. Thus, the homeowner is in quite a tough situation. The current real estate market would make it nearly impossible for the homeowner to sell the property and pay off the mortgage. Chapter 13, known as the home saver case, would not be practicable in the case of adjusting ARMS.

The idea behind Chapter 13 bankruptcy is to allow a homeowner to catch-up on whatever mortgage arrears have arisen in addition to making the current mortgage payment on time. As rates adjust and loans reset, the homeowner simply cannot make the current mortgage payment, let alone a partial payment to catch-up. The situation is basically a doomsday for both the homeowner and the mortgage company. The homeowner was banking on the ability to make the payments and/or refinance the outstanding debt at a later date. The lack of real estate appreciation has led to the inability on the part of the homeowner to do just that.

What we are likely to see is a large number of homes on the market for sale. Many of the borrowers will file for Chapter 7 bankruptcy and not Chapter 13 bankruptcy. I believe that the market will take five to seven years to begin to show some signs of appreciation. It will be interesting to see if Congress amends the bankruptcy code to allow mortgage debts to be adjusted. If not permanently, then for a short time frame of three to five years.

David M. Siegel is the author of Chapter 7 Success: The Complete Guide to Surviving Personal Bankruptcy. He is a member of the American Bankruptcy Institute and currently practices bankruptcy law in Chicago and its surrounding suburbs. Additional information is available at www.chapter7success.com

Popularity: 2% [?]