IBA Compliance Connection

Your go to source for compliance!

We are a state-chartered bank with one branch located in Wisconsin. We underwrite residential loans for community banks in Illinois and purchase and service the loans after closing. In most cases, the originating bank, borrower, and home are all located in Illinois. Occasionally the borrower is a Wisconsin resident purchasing a second home or investment property in Illinois. Do we “operate in Illinois” such that we are subject to the requirements of the Illinois Mortgage Escrow Account Act?

—

by

admin

In our view, it would be prudent to adhere to the law’s requirements for loans for which a borrower and/or the owner-occupied residential property securing the loan is located in Illinois.

The MEAA — which imposes a number of notice and disclosure requirements regarding escrow accounts — applies to “each mortgage lender” that “grants or services” purchase mortgage loans secured by single-family, owner-occupied residential property. Additionally, the MEAA entitles borrowers to collect actual damages for violations of its provisions by such mortgage lenders “operating within this State.”

At least one Illinois court decision has applied the MEAA to an out-of-state mortgage servicing company in connection with a loan secured by property located in Illinois, without discussing its reasoning or defining the application of the MEAA. In our view, it is conceivable that an Illinois court would view the MEAA as applicable to a loan with a Wisconsin borrower if the loan is secured by Illinois property.

However, if a loan is secured by investment property, we do not believe that the MEAA would apply. The MEAA applies only to purchase loans secured by “a single-family owner occupied residential property,” excluding loans secured by non-owner occupied properties such as investment properties.

For resources related to our guidance, please see:

  • Mortgage Escrow Account Act, 765 ILCS 910/9 (“Failure of any mortgage lender operating within this State to comply with the provisions of this Act shall entitle the borrower to actual damages in a court action.”)
  • Mortgage Escrow Account Act, 765 ILCS 910/4 (“On or after the effective date of this Act, each mortgage lender in conjunction with the granting or servicing of a mortgage on a single-family owner occupied residential property, shall comply with the provisions of this Act.”)
  • Mortgage Escrow Account Act, 765 ILCS 910/2(c) (“‘Mortgage Lender’ means any bank, savings bank, savings and loan association, credit union, mortgage banker, or other institution, association, partnership, corporation or person who extends the loan of monies for the purpose of enabling another to purchase a residence or who services the loan, including successors in interest of the foregoing.”)
  • Stern v. Norwest Mortg., Inc., 688 N.E.2d 99 (1997) (“In July 1992, plaintiffs obtained a mortgage loan from defendant in order to purchase a house in Chicago. . . .In June 1993, plaintiffs brought a class action against defendant alleging that defendant violated the Escrow Act (765 ILCS 910/1 et seq. (West 1992) . . . .”)