Yes, we believe that your bank may exercise a valid right of setoff for the unpaid appraisal fee against the applicant’s checking account, provided that your bank properly disclosed the appraisal fee and that the applicant would be charged the fee to reimburse your bank for the cost of the appraisal (and the applicant had indicated an intent to proceed with the loan).

Under Illinois law, a valid right of setoff can arise contractually (when the deposit account agreement provides for a right of setoff) or under the common law when there is “mutuality” of parties (the deposit account is owned by the same party that owes the debt to the bank). We recommend reviewing your checking account agreement to see if you are authorized to set off the checking account against monies owed to the bank. Having said that, even if your checking account agreement is silent on this issue, we believe you can exercise your common law right of setoff provided that the customer is the sole owner on the checking account and was the sole applicant obligated to pay the appraisal fee.

For resources related to our guidance, please see:

• Equal Credit Opportunity Act, 15 USC 1691(e) (“(1) Each creditor shall furnish to an applicant a copy of any and all written appraisals and valuations developed in connection with the applicant’s application for a loan that is secured or would have been secured by a first lien on a dwelling promptly upon completion, but in no case later than 3 days prior to the closing of the loan, whether the creditor grants or denies the applicant’s request for credit or the application is incomplete or withdrawn. . . (3) The applicant may be required to pay a reasonable fee to reimburse the creditor for the cost of the appraisal, except where otherwise required in law. (4) Notwithstanding paragraph (3), the creditor shall provide a copy of each written appraisal or valuation at no additional cost to the applicant. . . .”)

• Regulation Z, 12 CFR 1026.37(m)(1) (“For transactions subject to 15 USC 1639h or 1681(e),” the Loan Estimate must state that “(i) The creditor may order an appraisal to determine the value of the property . . . and may charge the consumer for that appraisal; (ii) The creditor will promptly provide the consumer a copy of any appraisal, even if the transaction is not consummated; . . .”)

• Regulation Z, Appendix H, H-24(A) (Loan Estimate Model Form) (“We may order an appraisal to determine the property’s value and charge you for this appraisal. We will promptly give you a copy of any appraisal, even if your loan does not close. You can pay for an additional appraisal for your own use at your own cost.”)

• Regulation Z, 12 CFR 1026.19(e)(2)(i)(A) (“Except as provided in paragraph (e)(2)(i)(B) of this section [regarding credit report fees], neither a creditor nor any other person may impose a fee on a consumer in connection with the consumer’s application for a mortgage transaction subject to paragraph (e)(1)(i) of this section [a closed-end consumer credit transaction secured by real property] before the consumer has received the disclosures required under paragraph (e)(1)(i) of this section [the Loan Estimate] and indicated to the creditor an intent to proceed with the transaction described by those disclosures. . . .”)

• Pope v. First of Am., N.A., 699 N.E.2d 178, 180 (3rd Dist. 1998) (This court held that a bank could exercise its contractual right of setoff for customer’s unauthorized withdrawals from another customer’s bank account.)

• Selby v. DuQuoin State Bank, 223 Ill.App.3d 105, 107 (5th Dist. 1991) (The common law right of setoff requires a mutuality of parties, meaning that the deposit account is owned by the same party that owes the debt, as well as a matured debt.)