IBA Compliance Connection

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If we make or service a loan secured by a property outside Illinois, would we be required to comply with the Mortgage Escrow Account Act, or is doing so simply a best practice? Our loan origination software is set up to recognize state-specific laws and provide related disclosures, so it typically does not generate Illinois disclosures for loans secured by out-of-state property. Does it matter if we originate the loan then sell it on the secondary market and do not retain servicing?

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We believe that if you are a mortgage lender operating in Illinois, you would be required to comply with the Mortgage Escrow Account Act in originating or servicing mortgage loans secured by single-family, owner-occupied, residential properties located outside of Illinois.

The Mortgage Escrow Account Act defines “mortgage lender” to include any bank or savings bank (among other entities) that “extends the loan of monies for the purpose of enabling another to purchase a residence or who services the loan.” The law also provides that the failure of “any mortgage lender operating within this State to comply with the provisions of this Act shall entitle the borrower to actual damages in a court action.”

We are not aware of any provisions in the law that limit its scope to property located in Illinois or borrowers residing in Illinois. As a result, we believe that any mortgage lender operating in this state would be required to comply with the law’s provisions with respect to single-family, owner-occupied, residential properties, regardless of where they are located.

Additionally, we believe that the law applies equally to loans originated or serviced by lenders operating in Illinois, since it requires compliance for “each mortgage lender in conjunction with the granting or servicing of a mortgage on a single-family owner occupied residential property.”

For resources related to our guidance, please see:

  • Illinois Mortgage Escrow Account Act, 765 ILCS 910/3 (“Escrow Accounts or escrow-like arrangements established after the effective date of this Act in conjunction with mortgage agreements for single-family owner occupied residential property are hereby declared separate and distinct transactions from mortgages and, hence, subject to the laws and regulations of this State.”)
  • Illinois Mortgage Escrow Account Act, 765 ILCS 910/2 (“‘Mortgage Lender’ means any bank, savings bank, savings and loan association, credit union, mortgage banker, or other institution, association, partnership, corporation or person who extends the loan of monies for the purpose of enabling another to purchase a residence or who services the loan, including successors in interest of the foregoing.”)
  • Illinois Mortgage Escrow Account Act, 765 ILCS 910/9 (“Failure of any mortgage lender operating within this State to comply with the provisions of this Act shall entitle the borrower to actual damages in a court action.”)
  • Illinois Mortgage Escrow Account Act, 765 ILCS 910/4 (“On or after the effective date of this Act, each mortgage lender in conjunction with the granting or servicing of a mortgage on a single-family owner occupied residential property, shall comply with the provisions of this Act.”)