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Seattle Times business reporter Elizabeth Rhodes posts the answers to your real estate questions as they pop up during the week. Join this ongoing discussion, which also features reader reaction to real-estate articles appearing throughout The Times.

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January 24, 2008 10:00 AM

Mortgage firm's demise stuns loan holder

Posted by Elizabeth Rhodes

Q: We took out a home equity line of credit with American Home Mortgage, which came with checks we've used to pay bills using the credit line. On Jan. 11 we received a copy of a Delaware court order. It said effective that day the line was canceled, any checks in transit wouldn't be honored and our outstanding balance is being transferred to another company. We had no clue this was coming. Can a lender really do this without giving its customers notice?

A: American Home Mortgage, a large national mortgage provider, filed for Chapter 11 bankruptcy protection last summer. Apparently it didn't let you in on this then so you had no heads-up that problems with your credit line were looming.

While letting you know certainly would have been a considerate business decision (imagine the potential fallout if one of your checks had bounced), it's not a legal requirement, says Deb Bortner. She heads consumer services for the Washington State Department of Financial Institutions.

Companies going under "could have literally thousands of customers when they go into bankruptcy," says Bortner. "I can't think of a single state that would require such a notice."

So in these rocky financial times, that puts the responsibility on home-loan holders to follow the news. One Web site that can help is The Mortgage Lender at http://mi-implode.com.

It tracks which companies are shaky as well as which have "imploded." So far more than 200 have gone out of business as the subprime meltdown continues to take a toll.

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