Of course, with interest rates as low as they are, we’re seeing quite a few people re-financing. That brings to mind an all-too-common predicament and how to avoid it. Here’s the typical scenario: A client is in contract to sell his house. The title report comes in and I call to discuss it. It shows three or four open mortgages. That is, mortgages that are liens filed against the property in the county clerk’s office. The client is shocked. He says: “I only have one mortgage; those others were paid off when I re-financed two years ago. I tell you they’re paid.” He’s half right—the mortgages probably were paid, but they are still on record, and nothing short of a formally executed and notarized satisfaction provided by whatever bank or banks that held those mortgages, is going to remove them from the title. Until that happens, the client is not going to be able to close on his sale because he can’t give clear title. I ask if he has any documents from the re-finance closing. Frequently, the answer is “No, the bank took care of everything.” Well, not quite everything. This can be a nightmare. Here’s how it happens:
Many people close their re-fi mortgages directly with their bank and don’t use lawyers. Now, I’m not saying you necessarily need a lawyer to re-finance, but, at least you would have someone to yell at if this happens. At the re-fi closing you are asked to provide payoff letters from any banks holding mortgages on the property. The title company insuring the new bank’s mortgage collects the funds due; remits them to the appropriate bank and is supposed to see that the formal satisfaction (we all call it a “SAT”) is later obtained and recorded in the county clerk’s office. The first part they do very well—over-night transferring the funds to the bank. The part about getting the SAT– not so well. For any number of reasons—maybe it’s sent to the title company, then stuck in a file and lost forever; maybe it’s sent to someone else; sent directly to the county clerk and rejected for some reason, or whatever (hey, we’re dealing with banks here). Anyway, the SAT is never recorded. The client’s only alternatives are to try to unsuccessfully explain this to some 800 number or pay his lawyer for a lot of hours to track down someone who can issue the satisfaction. Failing that, if you have to close, you could deposit with your purchaser’s title company in escrow an amount to cover until you do get the SAT—like twice the face amount! And, of course, the bank that once held the open mortgage has been sold or may not even exist anymore. Here’s how to avoid this happening to you:
- If you already have title insurance on your home with a reputable, local company, provide your bank with that company’s name and your title number, and insist that the bank attorney order the bank’s title insurance from the same company. Or, ask your own attorney to order the title insurance even if he’s not going to participate in the closing. Never let the bank attorney order title insurance from some out-of-county company. Whatever the basis of that choice—a relative owns it; they give him Yankee tickets, etc., it’s not made with your interests in mind. The reason I say local is that all real estate filings are within the county the property is in and a title company in, say Poughkeepsie, is more likely to be responsive if a problem arises and sensitive to its reputation. So, why order title insurance from a firm in Westchester or even New Jersey?
- Come out of your re-fi closing with a complete file. The bank will always give you copies of blank mortgages and a bazillion worthless Federal disclosure forms, but what you really want are copies of your payoff letters and the bank checks paying them off as well as your title premium bill. Also ask for a copy of the new mortgage title insurance policy issued to the bank.
- Get the name of the title closer; ask for his or her card. This is key. Closers are usually freelancers and not employees of the title insurance company. They may handle your payoffs, but once they turn their papers into the title company, they will basically disappear. Here’s why this is important: Let’ say you discover that your paid-off mortgage is still open of record. You track down the title company that handled the closing and ask them to correct it. An old curmudgeon replies, “Well, we just insured your bank’s title; not yours. When your bank has a title problem (which, of course, it won’t) we’ll be responsible—otherwise, you’re on your own.” That’s when you contact the closer directly. One of the items you pay at closing is a so-called pickup fee—usually about $150. It goes directly to the closer and pays the closer to see that your mortgage is paid and properly satisfied. That’s when you remind them that title insurance aside, you made a contract directly with the closer and paid them to do one simple thing and that if they don’t see that your mortgage is satisfied you will hold them liable. Yes, sometimes it comes to that.
As always, feel free to call or write with any questions.
Kevin Denton, Esq.