Refinancing? Make sure your old mortgage gets settled

Men shaking hands

If you take advantage of historically low mortgage rates by refinancing mortgage, how do you know your title company will really pay off your old mortgage at the closing table?

Customers at the PLM Title Company outside Chicago trusted their title company to pay off their current mortgage as they closed on a new mortgage with a lower interest rate.

But instead of paying off the existing mortgage, two title officials used the money to vacation, pay for a wedding and remodel the kitchen, the Chicago Tribune reports.

The title company owners ended up going to prison for 10 years, but some of the homeowners they scammed between 2005 and 2008 say they’re still paying the old mortgage and the new mortgage.

What happened in Chicago is rare, says David Townsend, president and CEO of Missouri-based Agents National Title Insurance Company, which sells title insurance to local title companies.

Since the national title insurance company is the one paying out the claims when local title companies run off with other people’s money, it constantly audits the local company’s bank accounts to make sure what’s in the files and records matches what’s in the bank, he says.

And yet, title company crooks sometimes get away with embezzling funds by making monthly payments on the old mortgages instead of paying them off completely.

If you’re the one whose old loan doesn’t get paid off, it’s going to be a huge headache.

There are two ways to make sure your old note gets paid off:

Going with the phone call?

Wait 10 to 20 days after the closing for the paperwork to clear. Use a speaker phone because you could be on hold awhile. Have your loan number at hand (it’s on your monthly statement). Write down the name of the person you spoke to and note the time and day you called.

Even if you verify by phone, you should still get a statement of mortgage satisfaction in the mail. That’s a letter from the old lender saying you paid off the mortgage.

File that somewhere you’ll be able to find it later, just in case you need to prove you paid off the old mortgage when you go to sell or refinance your house in the future.

For $25 to $30, you can buy a closing protection policy that covers you. Lenders already have this coverage, so you’re really buying duplicate coverage.

The lender’s coverage says that if the payoff funds are misused, the title company will cover the loss.

"The standard closing protection letter also contains language that covers the borrower. There might be a little deviation by some states, but you get a two-for, you both get coverage," Townsend explains.

If you had a loan with Bank of America and you refinanced with Wells Fargo but Bank of America isn’t paid off and goes to foreclose, Wells Fargo would collect on the title insurance policy.

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