Being only familiar with VA practices, I would have to agree that the wife knowingly benefitted from the 'new' refinance if she was in fact making part of the payment.  Had she not known of the mortgage, I would say that the mortgage would be invalid.    The courts got it right with the set of facts provided, even if the bank didn't get it right initially.    The wife was looking for a technical loop hole and tried to exploit it, good for her, however she knew of the refinance and did in fact benefit from it so good for the courts for using common sense to side with the bank.  IT was terribly sloppy business by the bank but they entered in to the deal with good faith.  People (the bank workers and their assigns) are going to make mistakes.  At the very least the bank should have had an equitable subborgation to the mortgage that was paid off.  This is a pretty narrow fact set and I would think under different circumstances the bank wouldn't be quite so lucky to survive their lack of good business practices.