Bank mistakenly pays off the wrong mortgage, advice needed.

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Bank mistakenly pays off the wrong mortgage, advice needed.

Steve P.
Duplex Investor · Arvada, CO · Member since 2009 · 33 posts · 1 vote

Has anyone ever refinanced and had the bank pay off the wrong mortgage?

I had two mortgages with Countryside which became Nationstar. One is a rental townhouse and the other is my personal residence. I wanted the bank to refinance the townhouse, not my home, and here is what happened. The bank paid off my house entirely, I owed almost the identical amount on both mortgages, but they placed their new loan on the townhouse. So in first position on the townhouse is the Nationstar mortgage and in second position is the new mortgage. There is no value there to cover the second position mortgage except possibly a small amount.

The refinancing took place in the middle of March 2013 and I received a call from Nationstar while I was out to dinner one night in May that I had two hours to pay the mortgage. Of course I argued that the mortgage was paid off. Well it wasn't. I paid the mortgage payment while on the phone and put off checking into it until the next day. That is how I discovered the mistake. I called the loan officer to tell him about the mistake and he said he must have written down the wrong loan number as both loans were almost identical amounts. He said he would correct it. As of Sept. 5 he has not corrected it. I informed him first around 60 days after the March closing and he has 90 days from the closing to get it to the title company. We are now 6 months along and he has not taken care of it. I went to the title co. about 3 weeks ago and they said there is no title work done on it yet. So I have been making regular payments for a mortgage that is supposed to have title work and it hasn't taken place yet.

He still has not corrected it. I have a retirement home being built out of state that will be ready for me to close on the first week of October and I can't get a mortgage because all the loan officers expect this mistake to be reversed or in some way changed and finalized. They can't even believe what I am telling them I don't think. Therefor I can't close on my new home.

I may have to seek legal help. But I was curious if I could just sell my house since I can cash out with no mortgage on it and just pay off the new house with that cash and a little extra that would be needed. The loan officer is obviously making my life very complicated by not taking action so what could I hurt by selling the home and pocketing the money.

The bank would be left in second position on the townhouse and wouldn't have any real security. I feel bad about that but could they sue me? Could I be taken to court? What rights do I have in this situation. It seems that I gave the bank every opportunity to correct the mistake and they didn't do it.

Does anyone have advice or an instructive story of such an event happening to you.

Thanks

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John Rooster
Denver, CO · Member since 2013 · 409 posts · 105 votes
13y
Originally posted by Steve P.:
Has anyone ever refinanced and had the bank pay off the wrong mortgage?
But I was curious if I could just sell my house since I can cash out with no mortgage on it and just pay off the new house with that cash and a little extra that would be needed.

The bank would be left in second position on the townhouse and wouldn't have any real security. I feel bad about that but could they sue me? Could I be taken to court?
I have read foreclosure court files where this has essentially happened. You have compounded your problem since you contacted the loan officer about it, now it has been demonstrated that you have specific knowledge that it is an the error. Had you not done that, you could have sold the house with no mortgage, paid off the house you were building with the proceeds, and continued to make payments on the two DOTs. No one would have sued you as long as you continued to make payments on both DOTs, people only get sued in these circumstances when they stop making the payments. In theory you could still do the same thing now, but since the issue has now been brought to the attention of the mortgage company, they may offer to correct the problem in a few months, and you could be accused of fraud when selling the house that has no DOTs.
There is no simple solution. I will remind you that you did sign the loan docs that had the wrong address, you had a responsiblity to check that. It would seem to be, if you have the ability, that the most simple thing to do would be to refinance the house with no DOTs, and payoff the 1st DOT on the townhouse. But, there could be many reasons you can not do that, you do not say.

eta: and the second mistake you made was telling the loan officers for the retirement home about the error, they probably would not have cared if you did not mention it. Maybe you can start over on the retirement home refinance with another loan company

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  • John Rooster
    Denver, CO · Member since 2013 · 409 posts · 105 votes
    13y
    Originally posted by Steve P.:
    Has anyone ever refinanced and had the bank pay off the wrong mortgage?
    But I was curious if I could just sell my house since I can cash out with no mortgage on it and just pay off the new house with that cash and a little extra that would be needed.

    The bank would be left in second position on the townhouse and wouldn't have any real security. I feel bad about that but could they sue me? Could I be taken to court?
    I have read foreclosure court files where this has essentially happened. You have compounded your problem since you contacted the loan officer about it, now it has been demonstrated that you have specific knowledge that it is an the error. Had you not done that, you could have sold the house with no mortgage, paid off the house you were building with the proceeds, and continued to make payments on the two DOTs. No one would have sued you as long as you continued to make payments on both DOTs, people only get sued in these circumstances when they stop making the payments. In theory you could still do the same thing now, but since the issue has now been brought to the attention of the mortgage company, they may offer to correct the problem in a few months, and you could be accused of fraud when selling the house that has no DOTs.
    There is no simple solution. I will remind you that you did sign the loan docs that had the wrong address, you had a responsiblity to check that. It would seem to be, if you have the ability, that the most simple thing to do would be to refinance the house with no DOTs, and payoff the 1st DOT on the townhouse. But, there could be many reasons you can not do that, you do not say.

    eta: and the second mistake you made was telling the loan officers for the retirement home about the error, they probably would not have cared if you did not mention it. Maybe you can start over on the retirement home refinance with another loan company

    1Reply
  • Michaela G.
    Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes
    13y

    What jumps out at me is that there's no title work.

    Did you pay for title work? Look at your closing statement. If not, then you would have specifically turned it down before closing and you'd remember. Personally, I always get title insurance.

    Could it be that they just say that there was no title insurance, because they don't want it to get back to the title company and hurt their record?

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  • Steve P.
    OP
    Duplex Investor · Arvada, CO · Member since 2009 · 33 posts · 1 vote
    13y

    That makes a lot of sense. You have posted a great response and I find it very informative. I definitely need to see an attorney before I make any moves. Thanks much.

    I did pay for title work. I pay a normal loan payment and I have made all of them for the last 5 or 6 months. But I will need to check for sure that the closing had charged me for title fees.

    You bring up a great point and I will careful to make sure I am right about that. I just can't look at this time.

    Thanks for the replies,

    Steve

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    13y

    Title insurance covers events in the past, not the future, and a title policy would have an exception for existing mortgages.

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  • Michaela G.
    Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes
    13y

    Wayne Brooks, but wouldn't paying off the wrong mortgage be a title issue and the title company could put pressure on the closing attorney to correct this? Of course it depends on where this is and whether closing was done by real estate attorney or title company.

    Wouldn't the closing entity also have insurance that covers them for any mistakes made in-house?

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    13y

    The closing Agent, probably. But, this has nothing to do with a Title Insurance Policy. Not sure what documentation was given by the bank to the closing agent. You'd think they would still catch, or at least question it.

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  • Steve P.
    OP
    Duplex Investor · Arvada, CO · Member since 2009 · 33 posts · 1 vote
    13y
    Rooster,

    That is such a great response by you I will be quoting you in the attorney's office next week. Your response makes me very cautious. I fear I will go through a protracted legal case and it will delay me so long I lose out on my retirement home and down payment.
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  • Steven Scott
    Investor · Compton, CA · Member since 2014 · 16 posts · 1 vote
    8y

    Hello Steve P. I currently am going through the same situation.  I was supposed to be refinancing my income property and the mortgage company paid off my Primary Residence.  They now have 1st and 2nd position Liens on my income property.  I am very interested to see if and how this was resolved in your situation?

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