Topic: Delinquent Borrowers
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We would like to raise the post-maturity rate that we charge on consumer loans. This rate is charged after the consumer defaults on a loan. Is there a maximum post-maturity rate we can charge in Illinois?
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No, we are not aware of a maximum post-maturity rate set by Illinois law. There are very few limitations on interest rates and fees charged by banks under Illinois law, whether for consumer or commercial loans. Post-maturity rates (also known as default rates) must be agreed to by your customers in your loan agreements, and…
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An individual signed a security agreement pledging his certificate of deposit (CD) as collateral for his niece’s loan, which is now 45 days delinquent. Are there timing requirements before we can setoff the CD for the overdue loan? Do we have to notify the individual before we setoff his CD? Would it violate any privacy rules to send such a notification?
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We are not aware of any timing or notice requirements when exercising a right of setoff, but we recommend reviewing your loan agreement and security agreement for any contractual requirements with respect to timing and notice. In addition, we do not believe that notifying the uncle of the loan delinquency and impending setoff would violate…
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Under the new Mortgage Servicing Rules that took effect October 19, 2017, we are required to make “good faith efforts” to establish live contact with a delinquent borrower no later than the 36th day of delinquency and again no later than 36 days after each payment due date. Does this mean that we must continue to make phone calls until a foreclosure sale is confirmed? Our bank does not qualify as a small servicer.
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No, in general we do not believe that a loan servicer’s responsibility to make good faith efforts to establish live contact always requires phone calls to be made up to the date of the final foreclosure sale. A servicer’s obligation to make live contact varies from case to case. (While not applicable here, we also…
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Can we exercise a right of setoff in a customer’s IRA distribution check that was deposited into the customer’s checking account? The money will be applied to a past due loan payment for which the note creates a right of setoff in any deposit account.
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Yes, we believe that you may exercise a valid right of setoff of funds in a customer’s checking account, even if some of those funds are a deposit of a retirement account distribution. Under Illinois law, funds in IRA accounts typically are considered “special deposits” that are exempt from offset rights — the account creates…
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When a borrower has been delinquent for at least ninety days, we used to send a letter demanding the entire amount past due, with a lockout preventing payments from processing. Under the latest mortgage servicing amendments that went into effect in October of 2017, can we still send out this letter and refuse to credit loan payments? Will we be able to file a foreclosure action after 120 days of delinquency? We are a small servicer.
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Yes, we believe that your bank may send demand letters and refuse to credit monthly loan payments on a delinquent closed-end consumer mortgage loan, provided that you already have accelerated the loan because of the delinquency. The general rule under Regulation Z for closed-end consumer mortgage loans is that servicers must credit periodic payments covering…
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Are we required to record a Request for Notice of Sale in Illinois? Is there any specific language that we must include in a notice to a borrower regarding a foreclosure sale? Are we required to send this notice when we are a junior lienholder holding a secondary (rather than primary) lien?
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The Illinois Mortgage Foreclosure Law requires lenders to attach a “Homeowner Notice” to the foreclosure summons when foreclosing on a defaulted residential real estate loan. The statute provides all of the required language that must be included in the notice, which must be provided by the plaintiff in the foreclosure action. If your bank is…
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We have language in our note and customer deposit terms and conditions regarding setoff. Can we place a hold on a deposit account of a customer if their loan is in default? If so, what notice needs to be provided?
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Yes, we believe that your bank may place a hold on a deposit account when it has a valid right of setoff in the account funds. Under Illinois law, a valid right of setoff can arise contractually (when a note or deposit account agreement provides for a right of setoff) or under the common law…
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Do we have the authority to place holds on checking or savings accounts held by borrowers who are delinquent on loans held by our bank? Or do we have to remove funds from these accounts to exercise our setoff rights?
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Your bank likely has a valid right of setoff with respect to the deposit account, in which case the bank could place a hold on the account’s funds in the amount of the setoff. In our view, a valid right to setoff account funds encompasses the right to impose a temporary hold on the setoff…
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We have a consumer loan with a co-signer who did not receive any proceeds of the loan. Our agreement states that if the debt is ever in default, that fact may become a part of the co-signer’s credit record. Does the Consumer Fraud and Deceptive Business Practices Act require us to provide a co-signer on a consumer loan with fifteen days’ notice before reporting a delinquent loan to credit reporting agencies? What negative information can we report with respect to the co-signer? Can we report the borrower’s late payments on the co-signer’s file with the credit bureaus?
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Yes, your bank must notify a co-signer of the primary borrower’s delinquency at least fifteen days before reporting adverse information about the co-signer to a credit reporting agency. The Illinois Consumer Fraud and Deceptive Business Practices Act (“Consumer Fraud Act”) requires lenders to notify co-signers before reporting adverse information to a consumer reporting agency. While…
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If we make a loan secured by collateral located in another state, do we have to follow that state’s right to cure notice requirements before foreclosing on the out-of-state collateral? If so, do other states’ right to cure notice requirements apply to all types of loans and all types of collateral? Can you recommend a website that provides a list of right to cure notice requirements for each state?
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Yes, we believe that your bank generally should follow the right to cure notice requirements in the state where your collateral is located, ideally in consultation with local bank counsel. Loan agreements routinely include a provision specifying which state’s laws will govern the contract (i.e., a choice of law provision). Our guess is that your…