We believe it would be a best practice to comply with the Illinois Mortgage Escrow Account Act for loans involving property or borrowers located outside of Illinois, provided that the Illinois law does not conflict with the law of the state where the property or borrower is located. Otherwise, we cannot predict how other states might interpret the Illinois law, and it is conceivable that a borrower could raise the Illinois law as a defense in a collection action or other litigation involving the loan if your bank does not comply with it.

Under Illinois law, courts may determine which state’s law applies based on several factors — and other state courts might consider different factors or interpret them differently, as discussed below. We know of at least one Illinois case holding that the “choice of law” provisions in a contract determined whether Illinois law applied. Emigrant Mortg. v. Chicago Financial, 386 Ill.App.3d 21 (1st Dist. 2007). In the absence of such provisions, Illinois courts look at which state has the “most significant contacts” and may consider where the mortgaged property is located, among other factors, which could include the location of the subject matter of the contract, the domicile of the parties, and more. Diamond State Ins. Co. v. Chester-Jensen Co., 243 Ill.App.3d 471 (1st Dist. 1993); Kafka v. Bellevue Corp., 999 F.2d 1117 (7th Cir. 1993). We cannot predict how a court outside of Illinois would interpret a loan agreement or these other factors. 

Notably, one bank has informed us that its FDIC examiner requires compliance with the Illinois High Risk Home Loan Act for all loans made by Illinois-chartered banks, regardless of where the property or borrower is located, and it is possible that your examiners would take the same view.

Given the litigation and compliance risks, we the most prudent course would be to comply with the Illinois law, even if the mortgaged property or the borrower is located outside of Illinois.