The Supreme Court of North Carolina’s opinion in Dallaire v. Bank of America, released last week, sounds a warning for consumers.
After filing a Chapter 7 bankruptcy, the borrowers in Dallaire were convinced to refinance their first and second mortgages with Bank of America. Their third mortgage, which secured a business transaction, was with a separate bank. All of their personal obligations under these notes were discharged in a Chapter 7 bankruptcy. The loan officer assured them that the refinance would not have any effect on their obligations or the lien priority; he was incorrect. After the refinance, they again had a personal obligation to repay the Bank of America loans. Ironically, the third mortgage was placed in a first position on the property after the refinance.
The borrower sued the bank, but was unsuccessful because the court found that the loan officer did not owe an obligation to the borrower on the subject of lien priority. The lesson for borrowers is to obtain independent legal advice of critical questions -- even during a refinance.