We are not aware of any guidance related to best practices for renewing loans that have matured or backdating an application so that it matches the loan’s maturity date. However, when renewing a loan, you should be aware of how Regulations Z and C distinguish between renewals and refinancings.

For consumer credit transactions secured by a dwelling, Regulation Z distinguishes between renewals, which typically are not considered new transactions, and refinancings, which are considered new transactions requiring new disclosures. A “refinancing” occurs when an existing obligation is satisfied and replaced by a new obligation, based on the parties’ contract and applicable law. For purposes of HMDA reporting, Regulation C similarly defines “refinancing” as a new debt obligation that satisfies and replaces an existing debt obligation.

Consequently, whether a renewal will be considered a refinancing depends on the specific language used in the documentation to renew the loan. For example, one federal court in Illinois reviewed the language of a modification agreement and determined that the modification 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.

Additionally, Illinois courts have found that backdating an agreement is permissible, provided that the parties’ intention to do so is “clear from the face of the contract” and all parties agree on an effective date. However, Regulation Z contains a specific rule related to renewing HELOCs, which provides that a HELOC that is renewed after its maturity date is considered a new transaction for the purposes of Regulation Z — and we do not believe that backdating a HELOC renewal agreement would prevent it from being considered a new transaction.

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 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. . . . In any form, the new obligation must completely replace the prior one.”)

• Regulation Z, 12 CFR 1026.20(a)(1) (“The following shall not be treated as a refinancing: A renewal of a single payment obligation with no change in the original terms.”)

• Regulation C, 12 CFR 1003.2(p) (“Refinancing means a closed-end mortgage loan or an open-end line of credit in which a new, dwelling-secured debt obligation satisfies and replaces an existing, dwelling-secured debt obligation by the same borrower.”)

• Regulation C, Official Interpretations, Paragraph 2(p), Comment 1 (“Section 1003.2(p) defines a refinancing as a closed-end mortgage loan or an open-end line of credit in which a new, dwelling-secured debt obligation satisfies and replaces an existing, dwelling-secured debt obligation by the same borrower. Except as described in comment 2(p)-2, whether a refinancing has occurred is determined by reference to whether, based on the parties’ contract and applicable law, the original debt obligation has been satisfied or replaced by a new debt obligation. Whether the original lien is satisfied is irrelevant. For example:

i. A new closed-end mortgage loan that satisfies and replaces one or more existing closed-end mortgage loans is a refinancing under § 1003.2(p).

ii. A new open-end line of credit that satisfies and replaces an existing closed-end mortgage loan is a refinancing under § 1003.2(p).

iii. Except as described in comment 2(p)-2, a new debt obligation that renews or modifies the terms of, but that does not satisfy and replace, an existing debt obligation, is not a refinancing under § 1003.2(p).”)

• Rodriguez v. Chase Home Finance, LLC, 2011 U.S. Dist. LEXIS 108837, *9-*10 (N.D. Ill. 2011) (“Here, Rodriguez’s Modification Agreement states that it ‘will amend and supplement (1) the Mortgage on the Property and (2) the Note secured by the Mortgage. . . .’ In short, because the Modification Agreement merely modifies the previous loan rather than cancelling the loan and creating a new obligation, Rodriguez’s modification does not constitute a ‘refinancing.’”)

• Grubb & Ellis Co. v. Bradley Real Estate Trust, 909 F.2d 1050, 1054 (7th Cir. 1990) (“Although there is little recent law on the subject, Illinois courts have, in the past, permitted the ‘relation back’ theory of contract effectiveness: that is, contractual terms may be effective for a period before the contract is executed, so long as such coverage is clear from the face of the contract . . . .”)

• Asset Recovery Contracting, LLC v. Walsh Constr. Co. of Ill., 980 N.E.2d 708, 724 (1st Dist. 2012) (“As is clear from Illinois precedent, the date on the contract is ordinarily the effective date, and where the contract is executed later, its contractual terms relate back and are effective from the date of the contract if such coverage is clear from the face of the contract, as it is here.”)

• Regulation Z, Official Interpretations, Paragraph 40, Comment 2 (“Section 1026.9(c) applies if, by written agreement under § 1026.40(f)(3)(iii), a creditor changes the terms of a home equity plan — entered into on or after November 7, 1989 — at or before its scheduled expiration, for example, by renewing a plan on different terms. A new plan results, however, if the plan is renewed (with or without changes to the terms) after the scheduled expiration. The new plan is subject to all open-end credit rules, including §§ 1026.6, 1026.15, and 1026.40.”)