Yes, you may modify a matured loan (unless some provision in the loan agreement prevents you from modifying the loan’s terms). In addition, if you structure the loan modification documents correctly, it may fall outside of Regulation Z’s definition of a “refinancing,” eliminating the need to provide new loan disclosures.

The Seventh Circuit has considered a similar issue, albeit in the context of a lump-sum payday loan. The court found that the loan did not “expire” when it matured and held that it was permissible to renew the loan after the maturity date without triggering Regulation Z’s refinance requirements. Similarly, we believe that it is permissible to modify a loan after it has matured without triggering Regulation Z’s refinance requirements.

Regulation Z distinguishes a “refinancing,” which could require a new set of disclosures, from other transactions, such as modifications, which do not require new disclosures. The general rule under Regulation Z is that a refinancing occurs only when an existing obligation is “satisfied and replaced” by a new transaction. If a modification does not satisfy and replace the existing loan, then you are not required to treat it as a refinancing and will not have to provide a new set of disclosures. 

For example, in one Illinois case, a modification agreement stated that it would “amend and supplement” the original note and mortgage. The modification also had an express disclaimer stating that “nothing in this Agreement shall be understood or construed to be a satisfaction or release in whole or in part of the obligations contained in the Loan Documents.” Based on those provisions in the agreement, the court found that the transaction was not a refinancing.

Similar language in a Pennsylvania case also led to the conclusion that a loan modification was not a “refinancing” for purposes of Regulation Z in the context of a balloon loan. In that case, the modification agreement stated that it “amends and supplements” the original security agreement, and it required the borrower to “comply with all other covenants, agreements, and requirements” in the original security agreement, while also stating that “[n]othing in this Agreement shall be understood or construed to be a satisfaction or release in whole or in part” of the original security agreement. Relying on these three provisions, the court also held that the loan modification was not a refinancing.

For resources related to our guidance, please see:

• Regulation Z, 12 CFR 1026.20(a) (A “refinancing” occurs when “an existing obligation that was subject to this subpart is satisfied and replaced by a new obligation undertaken by the same consumer.”)

• Jackson v. American Loan Co., Inc., 202 F.3d 911, 913 (7th Cir. 2000) (“American Loan does not ‘cancel’ the old loan and note, or substitute a new one, when it agrees to defer repayment until another payday, and thus it does not ‘refinance’ the loan. . . . To say, as plaintiffs do, that a loan ‘expires by its terms’ on the original due date is fanciful. All of the loan’s terms, including the repayment obligation, persist.”)

• Rodriguez v. Chase Home Finance, LLC, 2011 WL 4435633 at * 3 (N.D. Ill. Sept. 23, 2011) (“Here, Rodriguez’s Modification Agreement states that it ‘will amend and supplement (1) the Mortgage on the Property and (2) the Note secured by the Mortgage. . . .’ In short, because the Modification Agreement merely modifies the previous loan rather than cancelling the loan and creating a new obligation, Rodriguez's modification does not constitute a ‘refinancing.’”)

• In re Sheppard, 299 BR 753, 763, 764 (Bankr. E.D.Penn. 2003) (“A review of the Modification evidences no language indicating that the Modification replaces the Original Loan but rather suggests that it does not. The Modification begins with a preamble that it ‘amends and supplements’ the mortgage and note of the Original Loan. . . . Finally, the Modification ends with the express disclaimer that the Modification is not a satisfaction of the Original Loan which remains unchanged except as modified and that the parties are bound by the terms and provisions of the Original Loan as amended by the Modification. . . . There is simply no question of fact that the Modification did not satisfy the Original Loan, as even Plaintiffs concede.”)

• In re Sheppard, 299 BR 753, 757 (Bankr. E.D.Penn. 2003) (The modification agreement at issue also included this language: “‘Nothing in this Agreement shall be understood or construed to be a satisfaction or release in whole or in part of the Note and Security Agreement. except as otherwise specifically provided in this Agreement, the Note and Security Agreement will remain unchanged, and the Borrower and Lender will be bound by and comply with, all of the terms and provisions thereof, as amended by this Agreement.’”)