Bulletin: NJ000069

Date:
November 13, 2002
To:
All Issuing Offices in New Jersey
RE:
Line of Credit Mortgage/Pay Off (First Union National Bank vs. Nelkin)

Dear Associates:

Yet another case has been handed down by the Appellate Division of the Superior Court holding that when paying off a line of credit mortgage, the borrowers must sign a statement closing the account. It is not sufficient to simply pay off the balance of the loan.

In the case of First Union National Bank vs. Nelkin, (2002 WL 31397916) decided October 25, 2002, Bankers Trust refinanced the first mortgage on the Nelkin's home. At that time First Union held a second mortgage, a line of credit mortgage, on the property. At the refinance closing, the title agent "paid off" the balance on the First Union mortgage in the amount of $99,000.00. After the closing, the Nelkins took additional advances on the First Union line of credit, running the debt back up to $100,000.00. They defaulted on both mortgages.

Bankers Trust argued that their mortgage should be in first position. The title agent had proof it paid the $99,000.00 to First Union, but it could not produce proof that it sent a letter, signed by the Nelkins, asking for the line of credit to be closed.

The appellate court upheld the trial court's findings that:

"Denying Bankers Trust's motion, Judge Span observed that the Nelkin's open end mortgage was not a traditional mortgage but an equity line of credit, which is more akin to a credit card because mere payment of the balance does not cancel or close the account. She pointed out that, like a credit card, an affirmative act on the part of the consumer is necessary to close the account" (emphasis added)

This case is not "new law", but merely reinforces the reasons for Stewart's guidelines on paying off line of credit mortgages.

THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER  AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.

References

Bulletins Replaced:
None
Related Bulletins:
NJ000006 Credit Line Mortgages a/k/a Home Equity Loans, Revolving Credit Mortgages
Underwriting Manual:
12.28 Mortgages
 
17.46 Revolving Credit (Future Advance) Endorsements
Exceptions Manual:
NJ Mortgages
Forms:
None