According to Reuters, your previous mortgage may not have been extinguished by your refinance loan. In a normal world, when you refinance a mortgage loan, the previous loan is paid off as part of the refinance transaction. However, given the volume of mortgages being issued during the housing boom, it is no wonder that many slipped through the cracks.
As the housing crisis deepens, stories about banks foreclosing on homes purchased with cash and on homes with a paid-off mortgage become more common. This is simply because lenders are not set up to handle the number of mortgages in their systems. A Chapter 13 bankruptcy filing can cause a lender's computer system to glitch, resulting in misapplied payments and a headache for the borrower who is dutifuly making Chapter 13 plan payments.
Banks will file a satisfaction of mortgage with the county recorder of deeds only to revoke the satisfaction when a computer error flags the loan file. Some lenders claim that these errors are inadvertent and try to downplay the damage that an improper foreclosure filing can do to a person's credit score and overall well-being. Being served with a summons is stressful. Facing foreclosure, even when you have done everything right, is even worse.
If you are facing a foreclosure due to a "bank error," you should consider seeking help from a Chicago consumer lawyer.