Notes Held by Failed Bank

[Jazz May]

What happens to notes held by banks that were closed by the FDIC. If mortgage payments are still to be paid to the closed bank, what happens to the payments?

[Joel Owens]

Hi Jazz and welcome to BP.

There were duplicate double topic posts so I fixed it for you into one post.

When the a bank fails there are different things that can happen. The FDIC can let a specific bank take over another banks assets. The bank then has a loss share agreement with the FDIC. Since the current bank did not originate these loans they are taking over they have only specific ways they can work them out versus originating them directly.

The FDIC usually gives them set protocols and time lines ( a future year deadline ) to get everything settled by. The FDIC can also do a bulk note sale of many failed banks at a time into a package and sell off to the winning bidder. These are listed at the FDIC website under their loan portal area.

Most of the big packages were sold off a few years ago and the new purchaser is working through them. They usually start with the biggest loan value properties first as that is where the biggest losses can occur to the overall portfolio that was purchased. Once they work through those the move to the mid-range legacy loans and then down to the smaller ones.

If you are wanting to know about a specific loan you need to call the FDIC and see where the loan went to and who owns it now. You will have to dig around for awhile to find out.

Hope it helps.