Why is the bank asking me to pay out and close my debts?

Sometimes when you refinance your home the purpose is to consolidate debt. Often, as a condition of the mortgage and the refinance, the bank will require that the proceeds of the mortgage go to pay out the debts as planned.

Does the bank trust you?

If the bank trusts you and/or you have enough income to support the mortgage and the deaths, they may not ask you to pay them out at all. However, other times they will insist that the lawyer pays out the debts on your behalf. In this case the lawyer will require updated statements to show the balance of all the debts that are required to be paid out and all of the account numbers. The lawyer needs to report back to the bank that the debts have been paid down.

Pay Out AND Close

In some cases, usually if the bank doesn’t trust that you won’t get yourself into trouble again, they will go a step further. They will require the lawyer to not only pay down the debt, but to close the accounts as well. This is so that you are not tempted to incur further debts in the future.

Lawyer Fees

Generally speaking, when the lawyer is tasked with paying these deaths will charge a fee for every death that is paid. Therefore, if at all possible, it is better to pay down the debts yourself prior to receiving the funds from the mortgage.