Hot Refi Checks Leave Illinois Homeowners in the Cold

Written by: Steve Cook   Mon, November 16, 2009 Beyond Today's News, Foreclosure Situation

Six months ago, Jeff Franson refinanced his mortgage, switching lenders. Last month a process server drove up to his Mokena, Ill. home and handed Franson papers notifying him he owed  his old lender $93,702.51 and they were foreclosing on his home.

The check cut by Franson’s title company to pay off the Chase loan had bounced. After months of phone calls and letters between Franson, his attorney and the companies involved, Chase filed foreclosure papers.

Franson and at least seven other Midwestern homeowners who did business with the title company, Counselors’ Title, are wondering what happened to the $1.6 million that was supposed to pay off their loans.  Until that money shows up, they are even more worried about what’s going to happen to their homes, according to the Chicago Tribune.

After receiving three consumer complaints, the Illinois attorney general’s office is investigating the now-shuttered Counselors’ Title, a real estate title insurance agency that had six offices in Illinois, Indiana and Ohio.  The state also began investigating two other, but unspecified, title companies in the past several months. All the complaints involve mortgage refinancing and situations in which the payoff checks to the original mortgage holders bounced or wire transfers were never deposited in accounts.

“There’s a very similar fact pattern we’re looking into,” said spokeswoman Natalie Bauer. “These are homeowners who trusted these companies to protect their interests and take responsible actions, and now you have consumers in danger of potentially losing their homes,” she told Tribune reporter Mary Ellen Podmolik.

Late Friday, the Illinois Department of Financial and Professional Regulation issued a cease and desist order against Counselors and its three principals, James Erwin and Shari Erwin of Chicago and Damian Sichak of Homer Glen, Ill., meaning they cannot easily operate a title agency in Illinois, but the homeowners involved are still looking for help.

“We have no authority to make victims whole,” said spokeswoman Sue Hofer. “We can stop them from doing it to the next person, but don’t have the legal authority to reverse the financial loss.”

The department also said it is assisting the attorney general’s office in its investigation.

Franson and other homeowners who closed their transactions at Counselors’ offices chose not to purchase a new owner’s policy, which some experts say could protect a homeowner if problems occur with the refinancing.  They did not know that Ticor Title Insurance Co., a national title insurance underwriter, had terminated its underwriting agreement with Counselors before those closings occurred.

In early May, less than a week after Chase notified Franson of the bounced check, Ticor filed suit in federal court in Cincinnati against Counselors, the Erwins and Sichak, claiming they had committed breach of contract and fiduciary duty, fraud and negligence, among other allegations.

Ticor’s suit states that it terminated its contract with Counselors on March 13, but that Counselors continued to “issue purported Ticor title insurance ‘commitments’” and “is representing to its customers that Ticor remains its title insurance underwriter.”

In the filing, Ticor said it was aware of eight affected borrowers in Illinois, Indiana and Ohio, including Franson, and loans totaling almost $1.6 million. The suit also stated that Counselors told Ticor a fire destroyed many of its records at its Crestwood office in January and, as a result, it was unsure how many other checks it issued would bounce.

Ticor’s suit also claims the Erwins and Sichak are personally liable for Counselors’ failure to comply with its agency agreement. In court filings, Counselors, the Erwins and Sichak deny the allegations.

Since spring, other affected area homeowners have received delinquency notices from lenders holding their previous mortgages, because they are making monthly payments on the new loans, not the old ones they thought were extinguished. The borrowers continue to have conversations with what they consider their previous lenders.

For Thomas and Bonnie Kliros, the refinancing closing, did not raise any red flags or seem different than others they’ve done. Since notifying the couple that the payoff check bounced, Washington Mutual, now owned by Chase, has issued a default letter, which has affected their credit rating, but has not initiated foreclosure proceedings.

“I’m really in limbo right now,” Bonnie Kliros said. “It seemed like a good idea. It’s just been so complicated.”

Steven Bashaw, Franson’s attorney, said he is working on multiple cases like Franson’s in which payoff checks were never cut, never received or were deposited and subsequently bounced.

“Jeff Franson is the tip of the iceberg,” he said.

In fighting Franson’s foreclosure, Bashaw plans to rely on a letter issued by Chase two weeks after the closing that stated the lender had received the payoff funds. It was another two weeks later that Chase notified Franson that the payoff check had bounced.

If the foreclosure goes through and Chase purchases the property at the sheriff’s auction, the bank plans to allow Franson to remain in the home he built in 1993 while it waits to get paid by the title company.

“That doesn’t sound good to me,” Franson said. “I don’t like the fact that they still want to foreclose on my house. It’s none of my doing and none of my fault, and I’m catching all the grief from it.”

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