Related articles:

First Magnus: Boom to bust in three weeksFirst Magnus halts loansFirst Magnus made many risky loans in ArizonaFirst Magnus halts loansFirst Magnus seeks sale of loansOther lenders eager to offer mortgagesFirst Magnus announces layoffs, halts new loan activity Jobs tight for many from First Magnus

Other articles by Christie Smythe:

Christie Smythe: Former 'Ugly house' franchise settles suitTucson firm accused of 'deceptive tactics' in foreclosure rescuesLocal builder Pathway files for Chapter 7 bankruptcyTucson's Pathway Developments files for bankruptcy liquidationArizona mortgage failures fuel crisisShovels poised at South Side shopping centerReal Estate by Christie Smythe: Housing slide cuts antique door salesTucson office market in cooldownTucson's median home price plunges by 7.5 percentPhoenix-area lender to add Tucson firm

General
CORT
WAREHOUSE/DRIVER Construction
Komatsu Equipment Co
Mechanic Health Care
Rio Salado College
PA's/Online Instructors General
CORT
Warehouse Supervisor Education
Assessment Technology, Inc
Social Studies Content Writer

More than $1.5 billion worth of mortgages sitting on the books of First Magnus Financial Corp. will likely be finding new homes in the near future.

The Tucson-based mortgage lender made loans largely on credit. Now that the company has filed for Chapter 11 bankruptcy, the creditors want to take back the loans or get the proceeds from selling them to investors.

That may be leaving some borrowers wondering what might happen to their loans, and where they should be mailing their future monthly checks.

Luckily, there is a document — probably buried somewhere in borrowers' packets of closing materials — that addresses situations like this.

The document is usually called a "servicing disclosure statement," and it explains the notification requirements for companies that buy and sell loans, of the right to collect payment for them, under the federal Real Estate Settlement Procedures Act.

The law requires that loan servicers — the companies that collect payments — provide written notice to borrowers at least 15 days before loans (or servicing rights) are sold, according to the disclosure statement. Meanwhile, the new servicing company must mail a written notice no more than 15 days after the transfer, according to the statement.

There is also a 60-day grace period following the sale during which borrowers cannot be penalized if they mail payments before the due date to the previous mortgage company.

The notices are known as "goodbye" and "hello," or "welcome," letters, providing names and contact information of former and new servicing companies, mortgage industry members said. Borrowers should make sure they get both letters to ensure that the transfer is legitimate, the industry members said.

Scam artists could try to send fake "hello" letters in hopes of getting ahold of mortgage payments, said Gary Franks, president of the Southern Chapter of the Arizona Association of Mortgage Brokers.

"That's why the 'goodbye' letter is so important," he said.

When in doubt, borrowers can check with the original mortgage company, said Stan Lund, president of the Arizona Association of Mortgage Brokers. Lund also recommends that borrowers make sure after sending payments to a new company that their checks are cashed by the proper party.

"I would check to make sure they received the payment and it was posted correctly to your account," he said.

Bankruptcies can complicate the situation, however, Franks said. Instead of the standard "goodbye," and "hello" letters, companies in bankruptcy can take up to 30 days after a transfer to notify borrowers of the change.

"People may not get their 'hello-goodbye' letters because it's happening so quickly," he said.

** Find complete coverage of the First Magnus saga since the story broke at AzStarBiz.com by clicking on "First Magnus collapse" on left-hand side of web site.