Yes, you may modify, renew, or extend a commercial or consumer loan after maturity. We are aware of at least one court decision that has addressed whether a loan can be modified after its maturity date. In the context of a lump-sum payday loan, the Seventh Circuit has found that a loan does not “expire” when it matures and that it is permissible to renew a loan after its maturity date. Similarly, we believe that it is permissible to modify or extend a loan after it has matured.
To determine whether a subsequent loan transaction constitutes an extension or renewal — neither of which typically are considered new transactions — or a refinancing, which generally is considered a new transaction, we think it is helpful to look to Regulation Z for guidance. Under Regulation Z (which applies only to consumer transactions), the general rule is that a refinancing occurs only when an existing obligation is “satisfied and replaced” by a new transaction, based on the parties’ contract and applicable law.
There are a few court decisions that indicate how to structure a transaction as a modification as opposed to a refinancing. The difference will depend on the specific language that you use in the documentation to modify the loan. For example, one federal court in Illinois reviewed the language of a modification agreement and determined that it did not constitute a refinancing because the modification agreement specifically stated that it was merely amending and supplementing the original loan agreement and not satisfying or releasing the existing obligation.
For resources related to our guidance, please see:
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Jackson v. American Loan Co., Inc., 202 F.3d 911, 913 (7th Cir. 2000) (“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.”)
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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.”)
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Rodriguez v. Chase Home Finance, LLC, No. 10 C 05876 (N.D. Ill. Sept. 23, 2011) (Determining that a modification agreement that expressly stated it would “amend and supplement” the original mortgage and note and would not constitute a “satisfaction or release” of the original obligations was not 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.”)