In today’s edition of the Boston HERALD, there is an article about a Borrower in Illinois, who recently refinanced his mortgage with a mortgage lender. The check which the refinancing Mortgage Lender sent to the person’s then mortgage lender “bounced”, and the former mortgage lender is now foreclosing on the property because the Borrower has not made his mortgage payments to the former Borrower since he completed his refinancing. There are two other similar cases, in different jurisdictions.
This type of situation is disastrous for the homeowner, and care should certainly be taken to prevent its re-occurrence. At the very least, the Borrower needs to be extremely vigilant with his or her former mortgage lender to make sure that the former loan has been paid in full. This full payment should be effected no later than ten days after the refinancing is completed, and it behooves any person doing a refinancing to check this out. If there are any problems at all after this contact has been made, I would recommend at speedy call to the Consumer Protection Office of the Attorney General; of the state in question, and also a call to the division of the State Banking Commission to make an immediate complaint.
In Massachusetts, where I have been practicing real estate law for more than forty years, there has been a recent incursion of mortgage companies who do refinancings without using licensed attorneys. This certainly saves the company a fair amount of money, which savings may,or may not, be passed along to the customer. The big difference is, in Massachusetts, when the attorney is responsible for clearing the title, the attorney uses his or her clients account trust funds to pay-off the old mortgages. If the checks which the attorney sends are dishonored, the attorney has committed a crime under Massachusetts law, and can be imprisoned, or fined. An attorney who bounces a check also has committed an ethical violation and will almost certainly be sanctioned by the Massachusetts Board of Bar Overseers.
My advice to all real estate professionals is to be very careful when you are refinancing, or your customers are refinancing. The price the gentleman in Illinois is now paying is extremely steep, and he did nothing worng, other than verifying the successful termination of his former mortgage.