No, we are unaware of a requirement under Illinois or federal law to retain a record of the loan files that your bank has destroyed. The IBA Guide to Bank Record Retention includes sample policies and procedures that provide for a “destruction notice” or “certified destruction,” particularly for documents containing account numbers and sensitive information, but such procedures are not required. However, use of such procedures for more sensitive documents does ensure that your bank can prove when, why, and how records were destroyed.
Additionally, we recommend retaining loan agreements for a period of ten years after the loan is paid off, due to Illinois’s ten-year statute of limitations for written contracts. This retention period should apply to any documents that may be relevant in a dispute over the loan agreement. Also, secondary market purchasers may set record retention periods for mortgage loan documents related to loans they have purchased. For example, Freddie Mac requires servicers to retain mortgage files for seven years after the mortgage is satisfied, while Fannie Mae requires servicers to retain mortgage files for four years under most circumstances.
For other documents that are not subject to the longer record retention periods discussed above, we believe your bank’s policy of retaining records for five years after the loan is paid off is reasonable. For example, the IBA’s Record Retention Manual generally recommends retaining records for five years after a mortgage loan is paid off.
For resources related to our guidance, please see:
- IBA Guide to Bank Record Retention 2013–14, page v (“Records may be destroyed by shredding, incineration or by certified destruction. Records with account numbers and sensitive information must be destroyed in this manner and the bank must have a Destruction Notice or Certificate for all the records destroyed by the bank.”)
- IBA Guide to Bank Record Retention 2013–14, page xv (“Thirty days prior to destroying a record, send an Authorization for Destruction form to the transferring department manager and wait for approval. Begin numbering the disposal notices with the code for the transferring department and the number 001, (i.e., ACC001 = first disposal for the accounting department. Then file and retain this destruction notice for 10 years. This . . . assures that the bank will be able to prove when, why and how records were destroyed.”)
- Illinois Code of Civil Procedure, 735 ILCS 5/13-206 (“Ten year limitation. Except as provided in Section 2-725 of the ‘Uniform Commercial Code,’ actions on bonds, promissory notes, bills of exchange, written leases, written contracts, or other evidences of indebtedness in writing and actions brought under the Illinois Wage Payment and Collection Act shall be commenced within 10 years next after the cause of action accrued; . . .”)
- Freddie Mac Single-Family Seller/Servicer Guide, Section 3302.3 —Mortgage file control and identification (“The Servicer must maintain the Mortgage file while Freddie Mac retains an interest in the applicable Mortgage and for at least seven years from the date Freddie Mac’s interest in the Mortgage is satisfied.”)
- Fannie Mae Single Family Servicing Guide, Section A2-4.1-02 — Ownership and Retention of Loan Files and Records (“After a loan is liquidated, the servicer must keep the individual loan records for at least four years, unless the local jurisdiction requires longer retention or Fannie Mae specifies that the records must be retained for a longer period.”)
- Fannie Mae Single Family Servicing Guide, Section A2-4.1-02 — Ownership and Retention of Loan Files and Records (“If a loan or property is repurchased or a make whole payment remitted, the responsible party must keep the individual loan records for at least four years from loan liquidation unless applicable law requires longer retention or Fannie Mae specifies that the records must be retained for a longer period.”)
- IBA Guide to Bank Record Retention 2013–14 (“Mortgage Loans” Recommendation: “RD [from date of making] + 5y”)