The Illinois Mortgage Act provides lenders with three alternative methods of releasing a mortgage (765 ILCS 905/2):
- Delivering the release to the county recorder.
*If the bank will be delivering the release to the county recorder, we recommend including the following statement on payoff statements:
“Notice to All Persons:
___________(“Lender”) objects to the filing of a “Certificate of Release” pursuant to the Mortgage Certificate of Release Act in relation to any and all mortgage liens held by Lender on the Borrower’s interest in the property given to secure this loan.”
This statement allows the bank to prevent title insurance companies from filing certificates of release on its mortgages, because it notifies the title companies of its objection. See Section 20 of the Mortgage Certificate Release Act (765 ILCS 935/20(b)), which requires title companies to file the certificate of release unless the mortgagee or mortgage servicer objects.
- Delivering the release to the mortgagor, with the following statutory notice, on its face in bold letters at least 1/4 inch in height:
FOR THE PROTECTION OF THE OWNER, THIS RELEASE SHALL BE FILED WITH THE RECORDER OR THE REGISTRAR OF TITLES IN WHOSE OFFICE THE MORTGAGE OR DEED OF TRUST WAS FILED
- Or, allowing the title insurance company to file a “certificate of release” with the county recorder (on 1-4 residential loans under $500,000) under the Mortgage Certificate of Release Act.
Charging a Mortgage Release Fee
We do not believe that there is any restriction on charging a mortgage release fee, on the condition that the customer contracted to pay such a fee in your loan agreement. As to HELOCs, Section 4.1 of the Interest Act appears to prohibit such fees on revolving credit lines, as it states that lenders must pay “all expenses, including recording fees and otherwise, to release any such security interest.” 815 ILCS 205/4.1. However, Section 5e of the Banking Act states that “[n]otwithstanding the provisions of any other law in connection with extensions of credit” banks may charge any “interest, fees, and other charges . . . subject only to the provisions of [subsection 4(1)] of the Interest Act” and any laws applicable to “credit secured by residential real estate.” The only provisos are that the customer must agree to the charges and the bank must set its fees based on its “prudent business judgment and safe and sound operating standards.” 205 ILCS 5/5e.
While the Banking Act does refer to the Interest Act (subsection (4)(1)), that law also allows banks to charge any interest rate that a customer agrees to pay — it authorizes banks “to receive or contract to receive and collect interest and charges at any rate or rates agreed upon by the bank or branch and the borrower.” 815 ILCS 205/4(1). The strongest argument for charging a fee is for credit secured by real estate, as that section goes on to state that “it is lawful to charge, contract for, and receive any rate or amount of interest or compensation with respect to . . . (l) Loans secured by a mortgage on real estate.” 815 ILCS 205/4(1)(l). And, the Illinois Supreme court has confirmed this conclusion specifically as to loans secured by real property (concluding that restrictions on interest rates and charges found elsewhere in the Interest Act were implicitly repealed by the later-enacted Section 4(1)(l) of the Interest Act). 815 ILCS 205/4(1)(l)United States Bank Nat’l Ass’n v. Clark, 216 Ill.2d 334, 349 (2005); see also IDFPR Interpretive Letter 98-01.)
As to HELOCs, the Illinois Financial Services Development Act confirms that Illinois financial institutions may charge any fees or charges that a customer agrees to, including a mortgage release fee. The Act states that “[n]otwithstanding the provisions of any other laws in connection with revolving credit plans, any financial institution may . . . charge and collect interest and other charges . . . as the financial institution and borrower may agree upon from time to time.” 205 ILCS 675/4. It also authorizes financial institutions to charge “fees for services rendered” on any revolving credit plan. 205 ILCS 675/6.
Amount of Mortgage Release Fee
As to setting the amount of the fee, Illinois law would allow you to set any fee that the bank and the customer agree to. (If your loan agreements do not give you authority to charge a mortgage release fee, you may not be able to charge it to existing customers and will have to update your account agreements.) However, keep in mind that you will have to record the release fee both in the HUD-1 and in the TILA disclosures. (The disclosure would be only an estimate, as the release fee charged by the state may change during the life of the loan.)
The RESPA regulations require that you disclose all charges paid by the borrower on the HUD-1. 12 CFR 1024.8(b)(1). The mortgage release fee can be disclosed in the HUD-1, and it can either be itemized or aggregated with other security interest fees. Comment 1, Official Staff Commentary, 12 CFR 1026.18(o). Regulation Z also requires the disclosure of mortgage release fees, as they are fees “prescribed by law that actually are or will be paid to public officials for . . . releasing . . . a security interest.” 12 CFR 1026.4(e)(1). If you pay the fee to a public official for releasing or satisfying a security interest, you may exclude the fee from the finance charge (provided that it is itemized and disclosed.) Id. If you pay the fee to a third-party rather than directly to a public official, you may have to include it in the finance charge. Comment 1(ii), Official Staff Commentary, 12 CFR 1026.4(e).