Depending on the changes being made, we believe it may be possible to modify the terms of a loan without recording a modification of mortgage, but we recommend engaging your bank’s counsel to review the relevant loan documents to ensure that your bank’s lien position will not be affected. Additionally, aside from the caveats noted below, you would not be required to provide new disclosures if the documentation for the modification demonstrates that the existing loan is not being satisfied or released.

Change in Interest Rate

It is possible to increase or lower the interest rate on a mortgage loan without triggering Regulation Z’s definition of a “refinancing,” which would require new disclosures under the TILA-RESPA integrated disclosure (TRID) requirements — provided that a variable interest rate is not being added to the loan. The general rule is that a “refinancing” occurs only when an existing obligation is “satisfied and replaced” by a new transaction, which is determined by the language in the parties’ contract, as well as applicable state law. Regulation Z requires new disclosures if a variable rate feature is added to a loan, even if the original loan is not being satisfied or released.

Whether or not the original loan is being satisfied and replaced will depend on the specific language that you use in the modification agreement. 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. The Illinois Conveyances Act also expressly provides that recorded mortgages do not need to include the loan’s interest rate. Consequently, if your modification agreement demonstrates that it is merely amending and supplementing the original loan agreement (and you are not adding a variable rate feature), we do not believe it is necessary to provide new disclosures or record a modification of mortgage due to a changed interest rate.

Change in Maturity Date

It also is possible to extend the maturity date of a loan without triggering a refinancing. Illinois courts repeatedly have held that a note “given in renewal of another note and not in payment . . . does not extinguish the original debt or change the debt except that it postpones the time for payment.” We believe that the same logic would apply to a modification agreement that extends the maturity date of the original note without extinguishing it. The Illinois Conveyances Act also expressly provides that recorded mortgages do not need to include the loan’s maturity date. As such, if your modification agreement demonstrates that it is renewing and not extinguishing the original loan agreement, we do not believe it is necessary to provide new disclosures due to the extended maturity date.

If the original mortgage lists a maturity date, you may need to record a modification of mortgage reflecting the new maturity date to preserve your lien position. If the original mortgage does not list a maturity date, the Illinois Code of Civil Procedure provides that it will remain a valid lien for thirty years after the date of the mortgage, which you may extend beyond thirty years by recording an extension agreement or affidavit. Therefore, if the extended maturity date provided in the modification agreement occurs before the thirty-year expiration of the original mortgage, we do not believe you would be required to record a modification of mortgage due to an extended maturity date.

Other Changes in Loan Terms

If other loan terms are being modified, whether you need to record a modification of mortgage and provide new disclosures will depend on the circumstances. For example, if you are modifying the loan terms to provide for an additional advance of funds, the Illinois Mortgage Foreclosure Law provides that future loan advances are covered by a recorded mortgage only if the advances are referenced in the mortgage or its companion promissory note. Consequently, if your original mortgage or note do not address future advances, we believe you would need to record a new mortgage or modification of mortgage to secure the new advances. Whether the modification of the mortgage would be viewed as a refinancing under Illinois law and Regulation Z depends on the analysis of whether the modification satisfies and replaces the previous obligation, as discussed above.

Conversely, if your original mortgage or note allow for future advances, we believe you would be able to structure the modification agreement in a manner that avoids characterization as a refinancing, and you would not be required to record a modification of mortgage, nor would you be required to provide new disclosures.

For resources related to our guidance, please see:

• 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. A refinancing is a new transaction requiring new disclosures to the consumer.”)

• Regulation Z, Official Interpretations, Paragraph 20(a), Comment 3(ii) (“Even if it is not accomplished by the cancellation of the old obligation and substitution of a new one, a new transaction subject to new disclosures results if the creditor either: A. Increases the rate based on a variable-rate feature that was not previously disclosed; or B. Adds a variable-rate feature to the obligation.”)

• FDIC Compliance Examination Manual, Truth in Lending Act, V-1.39 (“If, at the time a loan is renewed, the rate is increased, the increase is not considered a variable rate feature. It is the cost of renewal, similar to a flat fee, as long as the new rate remains fixed during the remaining life of the loan. If the original debt is not canceled in connection with such a renewal, the regulation does not require new disclosures.”)

• Regulation Z, Official Interpretations, Paragraph 20(a), Comment 1 (“A refinancing is a new transaction requiring a complete new set of disclosures. Whether a refinancing has occurred is determined by reference to whether the original obligation has been satisfied or extinguished and replaced by a new obligation, based on the parties’ contract and applicable law. . . .”)

• 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.)

• Illinois Conveyances Act, 765 ICLS 5/11(b) (“The failure of an otherwise lawfully executed and recorded mortgage . . . including the failure to state the interest rate or the maturity date, or both, shall not affect the validity or priority of the mortgage, nor shall its recordation be ineffective for notice purposes regardless of when the mortgage was recorded.”)

• State Bank of Lake Zurich v. Winnetka Bank, 614 N.E.2d 862, 867 (2d Dist. 1993) (“Indeed, the ordinary practice of lending institutions is that where a note is given in renewal of another note and not in payment, the renewal does not extinguish the original debt or change the debt except that it postpones the time for payment.”)

• State Bank of Lake Zurich v. Winnetka Bank, 614 N.E.2d 862, 867 (2d Dist. 1993) (“Although a renewal note may in some cases operate as payment of and a discharge of the original note, the evidence must indicate the parties intended that the new note should serve as payment of the outstanding note. Here, the evidence indicates the parties did not intend the September note and mortgage to be a new and separate transaction which extinguished the June note. The June mortgage was never cancelled or released, and the language therein provides for additional advances at the option of the mortgagee . . . The testimony of State Bank loan officers also established that when a balance of a loan is increased, a new note and mortgage are typically executed . . . Accordingly, we find the September mortgage was a renewal or modification of the June mortgage and the June mortgage was a valid and subsisting lien on the subject property.”)

• Heritage Bank of U. Park v. Bruti, 489 N.E.2d 1182, 1184 (3d Dist. 1986) (“We have no quarrel with the statement that a renewal note may operate as payment of and a discharge of the original note. However, from the aforementioned affidavit and the letters attached to the motion for summary judgment we find no evidence that plaintiff and defendants intended that the new note should serve as payment of the outstanding note.”)

• Illinois Code of Civil Procedure, 735 ILCS 5/13-116(b) (“The lien of every mortgage . . . in which no due date is stated upon the face, or is ascertainable from the written terms thereof, shall cease by limitation after the expiration of 30 years from the date of the instrument creating the lien, unless the owner of such mortgage . . . within such 30 year period . . . files or causes to be filed for record . . . an extension agreement executed as hereinafter provided.”)

• Illinois Mortgage Foreclosure Law, 735 ILCS 5/15-1302 (“Certain Future Advances. (a) Except as provided in subsection (b) of Section 15-1302, as to any monies advanced or applied more than 18 months after a mortgage is recorded, the mortgage shall be a lien as to subsequent purchasers and judgment creditors only from the time such monies are advanced or applied. . . . (b)(1) All monies advanced or applied pursuant to commitment, whenever advanced or applied, shall be a lien from the time the mortgage is recorded. An advance shall be deemed made pursuant to commitment only if the mortgagee has bound itself to make such advance in the mortgage or in an instrument executed contemporaneously with, and referred to in, the mortgage, whether or not a subsequent event of default or other event not within the mortgagee's control has relieved or may relieve the mortgagee from its obligation.”)