We had an instance where a customer had an existing HELOC. They refinanced that HELOC and took out a new one.

The customer inadvertently used a check from the old HELOC to pay his taxes, instead of the new checks. The check of course, was flagged for account closed. Ultimately the bank honored THAT check against the new HELOC, instead of bouncing the borrowers payment to the IRS.

My question is this: Is that something the bank could legally do? I am not a lawyer and I do not play one on TV. Is it only a risk that we took or did the bank violate anything by honoring the instrument (check) associated with a discharged HELOC? Any takers on the legality of doing this?

Did anyone call the customer and ask them if it was OK?

Yes he did state that he would appreciate if we could do that. Not knowing the servicing requirements and the compliance issues with regard to doing such a thing, I am wondering if we have an issue or not.

Thanks for your anticipated guidance on this rlcarey!

I don't see an issue with it.