Topic: Delinquent Borrowers
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We received an Illinois Department of Revenue levy for a customer. This customer has a loan with our bank that is $1,000 past due and a deposit account with sufficient funds to pay both the levy and the past due amount. Our loan agreement provides for the right of setoff. Can we place a hold on the deposit account for the tax levy and offset $1,000 from the deposit account to pay the loan balance? Or, are we only allowed to offset the loan balance in the same amount as the tax levy?
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Since there are sufficient funds in the account, we believe that your bank may place a hold for the tax levy and exercise a contractual right of setoff under your loan agreement, provided that your loan agreement permits you to exercise a right of setoff before the loan has gone into default. Under Illinois law,…
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We received a notice from AllRegs that Illinois has amended the notice of foreclosure requirements. What changes have been made?
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The Illinois legislature recently amended the notice of foreclosure requirements in the Illinois Mortgage Foreclosure Law to ease the penalties for failure to comply with certain notice requirements applicable only in Chicago. For foreclosure complaints related to properties located in Chicago (“a city with a population of more than 2,000,000”), the plaintiff must send a…
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If we exercise our right of setoff under the terms of a loan agreement and debit the funds from the borrower’s deposit account to pay a delinquent payment, are we required to provide written notice to the borrower each time a payment is debited?
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We are not aware of any federal or Illinois notice requirements when exercising a right of setoff, but we recommend reviewing your account agreements for any contractual notice requirements. However, if your account agreements are silent as to whether notice is required when exercising your right of setoff, your bank still may wish to consider…
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Can we accept payments after sending a customer a 1099-C cancellation of debt form? In 2017, after determining we were unlikely to collect anything more from a borrower who is a farmer, we issued the borrower a 1099-C, listing identifiable event code “G.” We recorded the debt as “charged off” but did not make any alterations to the face of note or surrender it to the borrower. Recently, we were notified by a grain elevator that it has a $9,000 check payable to the borrower and our bank. Assuming we have the right to deposit the check, may we credit these funds to the outstanding loan balance, including uncollected interest, collection costs, and attorney’s fees that were incurred prior to issuing the 1099-C?
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In our view, accepting payment on this debt after issuing a 1099-C due to “identifiable event G” may expose your bank to a claim that it can no longer collect on the debt, in which case it would not be entitled to apply the check to the outstanding loan balance. For debts exceeding $600, a…
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Where can I find the rules on when to send Servicemembers Civil Relief Act (SCRA) notices to consumers who are delinquent on their mortgages? Do we need to send an SCRA notice if our system indicates that the customer is not in the military? Do SCRA notices only need to be sent for consumer purpose loans or should they also be sent for business purpose loans? Also, where can we find the most up to date SCRA notice?
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The rules governing the SCRA notice requirements are found in the Homeownership Counseling Act provisions of the Housing and Urban Development Act of 1968, and we link to the relevant provisions in the resources below. We believe that your bank must send this notice to all eligible borrowers who become delinquent, even if your system…
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Is it permissible to charge off an unsecured loan for a delinquent borrower who is protected by the Servicemembers Civil Relief Act (SCRA)? We also have a delinquent auto loan with the same borrower. What are our collection options?
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Yes, we believe it is permissible to charge off an unsecured debt for a delinquent borrower who is entitled to the protections of the SCRA. Charging off a debt is an internal accounting procedure, and we are not aware of any provisions of the SCRA that would prohibit this. Nor does the SCRA prohibit a…
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Are there any restrictions in Illinois regarding default interest rates for any type of loan products? We would like to use loan terms that provide for a post-maturity interest rate increase.
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There are very few limitations on interest rates and fees charged by banks under Illinois law, whether for consumer or commercial loans. Default rates must be agreed to by your customers in your loan agreements, and they may be subject to court scrutiny if they are not considered “reasonable.” Some limitations on default rates may…
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We have a customer with loans in collection who is on active duty military service according to the Servicemembers Civil Relief Act (SCRA) website. The customer has an unsecured loan and an auto loan. At the time the loans were made the customer was a sergeant working on an air force base, but she was not on active duty. When the loans came due for collection, we ran an SCRA search and determined that the customer was on active duty status. Were we required by law to cease collection? Can I request the customer’s active duty orders to document her status for our files?
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No, the law does not require that a creditor cease collection efforts when a debtor is on active duty military service if the loan was made before the servicemember went on active duty. However, it may be a prudent business decision for a bank to cease collection efforts when a debtor is on active duty…
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We had a customer relinquish a vehicle, so we did not repossess it. Do we need to send a 21-day redemption letter advising the customer of our intent to sell the vehicle if it is not redeemed? We have a potential buyer who would like to purchase the vehicle.
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It depends. If the customer signed an assignment of the certificate of title for the vehicle when they relinquished the vehicle to the bank, it is not necessary to send the customer a 21-day notice of redemption, and assuming your bank has a security agreement providing for the right of resale, the bank may proceed…
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What notices are required to be mailed out to mortgage borrowers when they become 45 days past due?
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Under federal law, your bank must provide the HUD housing counseling and SCRA counseling notices within 45 days after an eligible borrower becomes delinquent. Additionally, if your bank does not qualify as a “small servicer” (an institution that, together with its affiliates, services 5,000 or fewer mortgage loans as of January 1st of the current…