Topic: Delinquent Borrowers
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We have a mortgage loan borrower that is delinquent in paying their real estate taxes for a consumer loan secured by their principal dwelling. We want to make a protective advance to pay off the delinquent taxes, which will involve increasing the principal balance of the mortgage loan and re-amortizing it. Are there any timing or disclosure requirements that apply? Are we limited to just the current delinquent amount? Does the borrower have a right of rescission in this scenario?
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We are not aware of any law or regulation expressly addressing when and how a mortgage lender may advance funds to protect their interest in collateral. Accordingly, we believe whether you may make such an advance (and any related procedures) will depend on the terms of your agreement with the borrower. For example, Fannie Mae’s…
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A borrower who is delinquent on their January, February, and March consumer mortgage loan payments made a payment sufficient to cover one month’s payment, plus an additional $100. If we apply the payment to the amount owed for January, can we use the additional $100 to collect a late charge for the January payment before placing the excess funds into an unapplied account?
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We recommend reviewing your loan documents to determine whether a partial payment can be applied to a late fee when monthly periodic payments remain outstanding. For example, Fannie Mae’s standard mortgage provides that payments should be applied to each periodic payment in the order in which it became due, beginning with the oldest outstanding periodic…
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A borrower died and their mortgage loan is now in default. The deceased borrower’s spouse resides in the home and is in title to the property but is not a borrower on the loan. We are aware that we cannot file a foreclosure action until the loan is 120 days delinquent. Are we required to send a notice of acceleration after the third missed payment, and can you provide a sample of such a notice?
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Whether a notice of acceleration is required generally depends on the terms of your loan agreement. However, if the mortgage loan is a “high risk home loan” as that term is defined in the Illinois High Risk Home Loan Act, you are required by statute to deliver a notice to the borrower informing them of…
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Do you have a checklist for taking an impaired loan from the demand letter through finality, such as a foreclosure?
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We do not have such a checklist in our forms library, and we recommend consulting with your bank’s outside counsel on the timing and steps involved in collecting an impaired loan and particularly the mortgage foreclosure process for delinquent mortgage loans. For general reference, we have included a link to the Illinois Legal Aid lawyer…
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Are we required to issue delinquency notices for commercial, residential real estate, and consumer non-real estate loans? If there are multiple borrowers on these accounts, must each borrower receive a delinquency notice?
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Yes, we believe that there are federal delinquency notice requirements for residential real estate and consumer non-real estate loans that your bank must comply with, but we do not believe that there are similar requirements under Illinois law or for commercial loans. We do recommend reviewing your loan agreements for each type of loan to…
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Are there any state regulations regarding the language that appears in a customer’s periodic statement when their mortgage loan is in forbearance? We are a small servicer, and some of our customers are in forbearance with Freddie Mac due to COVID-19. They have signed a “Forbearance Plan Offer” form provided to us by Freddie Mac, which states that we will not pursue foreclosure during the term of the forbearance plan but that “the terms of your mortgage remain unchanged” and “you will become more delinquent,” among other information. We are not reporting these customers as delinquent to the credit bureaus, but our statements tally the “missed payments” in the “Overdue Payment – Total Amount Due” section and include a “Delinquency Notice” indicating that failure to bring the loan current may result in fees and foreclosure. Freddie Mac does not specify what goes on the periodic statements, and we have been advised to check state law.
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We are not aware of any Illinois law or regulation requiring certain language to appear on a periodic statement when a mortgage loan is in forbearance, and, as a small servicer, you are not required to comply with Regulation Z’s requirements for periodic statements. However, Regulation Z’s periodic statement requirements for large servicers may be…
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We want to apply our default interest rate of 6% above the current rate for a consumer mortgage borrower in default. Is there a maximum rate allowed for consumer mortgage loans in Illinois?
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No, we do not believe that Illinois law imposes a maximum interest rate for consumer mortgage loans. There are very few limitations on interest rates charged by banks under Illinois law, whether for consumer or commercial loans, provided they are agreed to by your customers in your loan agreements. The Illinois Banking Act permits banks…
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Are we still prohibited from repossessing vehicles from consumer borrowers who are delinquent on their vehicle loan payments? If so, can you direct us to the relevant executive order? Also, are we prohibited from repossessing collateral from delinquent commercial borrows, such as semis and trailers?
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Please note that as of August 23, 2020, the portion of Executive Order 2020-16 referenced in our answer below has been rescinded by Executive Order 2020-48 (“Executive Order 2020-16 is re-issued in its entirety and extended through August 22, 2020, whereafter Section 1 shall be rescinded”). Yes, lenders still are prohibited from repossessing vehicles (including…
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Are we still required to provide a “grace period notice” under the Illinois Mortgage Foreclosure Law? This requirement appears to have been repealed in 2016, but has any subsequent legislation reinstated this requirement?
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No, the requirement to send a “grace period notice” for delinquent residential mortgage loans expired pursuant to a sunset provision on July 1, 2016, and it has not been reinstated. For resources related to our guidance, please see: Illinois Code of Civil Procedure, 735 ILCS 5/15-1502.5 (Illinois grace period notice requirement, with a sunset date of July…