Imagine this:  a couple buys a house in September, 2016. Unbeknownst to them, the seller opened an equity line of credit using the house as collateral in May. The title search was performed the buyer’s chosen closing attorney on September 20, perfectly in line with the usual process.  The lender didn’t file the equity line mortgage until October 10 (five months after the loan was closed). The purchase closing took place on October 14 and the new deed was filed on October 19.

The October 10 mortgage would not have been on the record as of closing because it normally takes two weeks for filings to show up.

In March, 2019, the couple decides to refinance the purchase, and the closing attorney receives a copy of the settlement statement from the purchase. It does not show the equity line mortgage as being paid at all. This means the sellers have an open equity line secured by a house they no longer own — and the buyer’s house is collateral for a loan they didn’t take out.

This is a problem for the buyers, but the original closing attorney is not at fault.

It is fortunate that the buyers purchased title insurance. Before the refinance, the title company was contacted and provided an indemnity letter covering the open mortgage.  The title insurance company will protect the house against any claim or foreclosure from the equity line. The refinance was not delayed at all. 

Real Estate agents want work with a closing attorney who both understands title insurance and recognizes anomalies –  like the absence of a mortgage payoff on a closing statement.