Disclaimer: The Electronic Commerce Security Act (ECSA) was repealed and replaced with the Uniform Electronic Transaction Act (UETA), effective June 25, 2021. Please note that this change may affect the continued accuracy of this guidance as it pertains to the ECSA.
Illinois Statute of Limitations
We believe that loan agreements should be retained for a period of ten years after a loan is paid off. We are not aware of any Illinois laws requiring you to retain these documents, but the statute of limitations for written contracts in Illinois is ten years. 735 ILCS 5/13-206. Consequently, we recommend retaining any loan agreements for ten years after the loan is paid off. This retention period also should apply to any documents that may be relevant in a dispute over the loan agreement.
For other loan-related documents that are not related to the loan agreement, our recommendation regarding the ten year statute of limitations period may not apply. It is possible that your institution applies a seven year retention period because the Freddie Mac Single Family Seller/Servicer Guide requires servicers to retain mortgage files for seven years after the mortgage is satisfied. Section 52.3. Fannie Mae’s document retention requirement is slightly different, with a retention period of four years under most circumstances. Fannie Mae Single Family Servicing Guide, page 104-26 (page 174 of the PDF file). Otherwise, for mortgage loan documents that are unrelated to the loan agreement or any possible disputes over the loan agreement, we believe you could follow the general recommendation in the IBA’s Record Retention Manual, which is to retain records for five years after a mortgage loan is paid off.
Retaining Electronic Copies of Documents and Signatures
We do not believe that Illinois law requires financial institutions to retain hard copies of most documents, as discussed below. As a result, we believe that these documents can be retained electronically. However, there are certain classes of documents for which it may be prudent, at a minimum, to retain hard copies. For a discussion of the risks of electronic record retention systems, this OCC advisory letter is very helpful — particularly the discussion of records needed for litigation, on pages 3–4.
Illinois law does not require financial institutions to retain hard copies of most documents that are stored electronically. The Financial Institutions Electronic Documents and Digital Signature Act states that if a bank stores documents in electronic form in the regular course of business, then an electronic version of a document has “the same force and effect under the laws of this State as one comprised, recorded, or created on paper or other tangible form by writing, typing, printing, or similar means.” 205 ILCS 705/10(a). Similarly, the federal Electronic Signatures in Global and National Commerce (ESIGN) Act states that “a signature, contract, or other record . . . may not be denied legal effect, validity, or enforceability solely because it is in electronic form.” 15 USC 7001(a)(1). Under these laws, an electronic version of a note, mortgage, or guarantee should have the same effect as an original version of the document.
Note that another Illinois law, the Electronic Commerce Security Act (ECSA), regulates electronic records for all businesses (unlike the law discussed above, which applies only to financial institutions). ECSA includes the same general rule: “Information, records, and signatures shall not be denied legal effect, validity, or enforceability solely on the grounds that they are in electronic form.” 5 ILCS 175/5-110. However, that general rule does not apply to records that confer title, including negotiable instruments conferring title (such as mortgage notes) and any other “record that serves as a unique and transferable instrument of rights and obligations” (unless your electronic storage system “allows for the existence of only one unique, identifiable, and unalterable original with the functional attributes of an equivalent physical instrument, that can be possessed by only one person, and which cannot be copied except in a form that is readily identifiable as a copy”). 5 ILCS 175/5-115(b)(3) (electronic records); 5-120(c)(3) (electronic signatures); 5-125(c) (exception). Because ECSA does not apply to negotiable instruments that confer title (a category that would like include a mortgage note), we believe that a financial institution storing such records electronically would have to rely on the Financial Institutions Electronic Documents and Digital Signature Act — that law applies to any “document, representation, image, substitute check, reproduction, or combination thereof.” 205 ILCS 705/10(a).
Also note that Fannie Mae and Freddie Mac impose their own requirements on the use of electronic signatures (see the Freddie Mac eMortgage Guide and the Fannie Mae eMortgage Guide). The Mortgage Banker Association’s eMortgage Closing Guide is helpful as a source of guidance on best practices, though none of its recommendations are binding.