Throughout our industry, claims regarding home equity lines of credit (HELOC), also known as a future advance mortgage, are one of the biggest. But at Access Title Agency, we exercise precaution and take steps to protect both the Seller and the Buyer.
A home equity line of credit provides an open-ended source of borrowed funds that the borrower can access by drawing on the account via writing checks or sometimes even an ATM card. The problem for the title insurer is that these allow the borrower to continue to draw on the account even if it has been “paid in full.”
The first issue that arises with HELOCs is when it comes to the payoff amount. Because a borrower can draw funds at any time, our job is to make sure that the funds we are sending the lender to pay the account in full, will be enough.
On the day of closing, our closers will contact your lender to obtain the most recent account balance and ensure that the payoff amount will cover any extra fees that the lender may charge.
The second issue involves a close account letter.
In a HELOC, paying the account to $0.00 does not always obligate a lender to execute a discharge of mortgage. A lender will likely require the borrower to “close” the account, by means of signing a close account letter. Unless the account is closed, the customer may still be able to make withdrawals that will be secured by the mortgage.
While some lenders will provide this letter with their payoff statement, not all do. To ensure that a mortgage discharge will be filed by the lender, our closers will have the customer sign a close account letter, whether it be through the lender’s preferred form or by our own form. We then send this to the lender, along with the payoff funds. This close account letter will provide notice to the lender to close the account, so that the borrower is unable to make any future draws. In turn, the lender will file a discharge of mortgage with the county’s register of deeds office.
Ensuring that the is the account properly closed at closing, and the lender will release the lien secured by the property is of the utmost importance. Our closers work hard at taking certain steps to make sure this goal is met.