Refinancings and You: Make sure to ask the right questions

Interest rates are at record lows, and everybody you know is lining up to get a better rate. There is no downside, unless you get hit with unreasonable closing costs, which is really not happening very much lately. The rate is an improvement over what you had before. The Lender finishes up its underwriting, and informs you that your loan is “clear to close”, which means that a closing may be scheduled for you to end up with a better interest rate than you had before. That is reasonably easy to understand, and you may have the belief that the rest is automatic. All you need to do is appear at the refinancing closing, and sign a few documents.

What few people are aware of are certain changes in Massachusetts law, which give you, the consumer, some abilities with regard to your refinancing that were not always apparent. In effect, there is a ruling from the Massachusetts Supreme Judicial Court (our state’s highest court) that requires the Lender to utilize a licensed Massachusetts attorney to conduct the closing.

The closing attorney is working for the Lender, but, one way or another, you are paying for his or her services. Since that is the case, I strongly suggest that you make the following requests of the attorney in the course of the transaction:

1.     Ask the attorney if his title review indicates that there are any “undischarged mortgages” showing up in the title. An undischarged mortgage may cause huge problems when you try to sell your home  Many so-called “clean” titles are built on promises by attorneys who closed prior loans to obtain all discharges and record them. You want to know whether any of these undischarged mortgages exist, and what the closing attorney for your current loan is doing to obtain discharges.

2.     When you refinance, you are paying off your existing loan.  The attorney that closes your loan will send payment and should receive a discharge. The discharge should then be recorded at the Registry of Deeds.  What happens if the closing attorney for your current loan receives a discharge, but does not check to make sure that the discharge is consistent with the mortgage on record? The recorded discharge is ineffective, and the mortgage that was paid-off when you refinanced is still outstanding, of record. You are now selling your home. The closing attorney for your sale informs you that your mortgage has been improperly discharged.  The terms of your purchase and sale agreement may allow you to continue the sale for 30 days, but now you cannot buy your new home because you were relying on the money from the sale of your existing home. You may not be able to resolve your title issue within thirty days; maybe your buyer will walk. You may be defaulted under the terms of the agreement to buy your new home. You could lose your deposit.  My advice here is to request that the closing attorney inform you when he or she receives the discharge and confirm to you that what is being recorded makes your title free from liens. After all, that is what he or she is getting paid to do.

When you are working with your Lender, make sure that your Lender assigns a person experienced in title work to your refinance loan. You really should not be required to deal with the situation described above when you are under pressure to sell your home. This is the perfect example of an ounce of prevention being more than worth the pound of cure.