Topic: Delinquent Borrowers
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Our core processor notified us that it is updating its standard right to cure notice form fields to include all collateral that secures a loan. Does Illinois require a right to cure notice on delinquent loans? Should we be using this form, along with its upcoming updates?
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No, we do not believe that your bank should rely on a core processor’s standard right to cure form to comply with Illinois law. Presumably, your core processor’s standard right to cure form is used nationwide, without customization for Illinois. But Illinois does not have a single, standard “right to cure” notice requirement for all…
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Are there any Illinois or federal laws affecting how we can collect debts from a co-signer of a loan, versus a guarantor? Does one provide better risk coverage than the other?
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Yes, in most cases a lender’s collection rights will differ based on whether it is collecting from a cosigner or a guarantor, and in the case of a guarantor, whether the guarantor is a “guarantor of collection” or a “guarantor of payment.” In many cases, it is preferable for a lender to require a cosigner…
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Our internal auditor advised us that the grace period notice requirement was repealed as of July, 2016. Can you confirm? Was this change broadly communicated?
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Yes, we can confirm that the grace period notice provisions in the Illinois Code of Civil Procedure were automatically repealed on July 1, 2016. To our knowledge, this change was not broadly communicated by any Illinois agencies, such as the Illinois Department of Financial and Professional Regulation (IDFPR). In the Illinois General Assembly’s most recent…
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An attorney contacted us on behalf of a residential mortgage loan customer who has not made any mortgage payments over the last year. The customer would like to take advantage of the Illinois Hardest Hit Program, which the attorney says will pay for the customer’s mortgage payments for two years if we waive all accrued late fees. Is that true? Can you provide any background information?
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It is possible, but certainly not guaranteed, that the Illinois Hardest Hit Program could provide up to 12 months of mortgage payments, while also covering the borrower’s 12 months of delinquent payments. However, the program would not provide two years of payments going forward. The Illinois Housing Development Authority (IHDA) runs the program, which recently…
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Are there any Illinois laws regarding when past due loan notices must be provided?
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No, there are no Illinois-specific laws regarding past due notices at this time. Previously, the Illinois Code of Civil Procedure required lenders to send borrowers a “grace period” notice whenever a residential mortgage loan became 30 days delinquent. However, this provision included a sunset date, which automatically repealed the requirement on July 1, 2016. It…
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We have a business loan that is now overdue. The loan was personally guaranteed by the president of the business. The business deposit account is empty, but the president’s personal deposit account does contain some funds. Can we offset the business loan with the president’s personal deposit account?
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Yes, we believe that your institution has a valid right of setoff in the president’s personal deposit account, since he is the guarantor of the business debt. Under Illinois law, the right of setoff can arises under the common law if there is “mutuality” of parties — where the deposit account is owned by the…
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Our customer has a mortgage loan with us. Are there privacy concerns (or any other concerns) if we were to disclose past-due payment information to a third party who lives at the property and signed the mortgage but not the note?
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No, such a disclosure falls within certain exceptions to Regulation P’s privacy requirements. Regulation P permits banks to disclose account information to “persons holding a legal or beneficial interest relating to the consumer.” In this situation, the third party signed the mortgage, signifying his interest in the property that is the subject of your customer’s…
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We know that the Illinois grace period notice requirement was permitted to sunset on July 1, 2016. We plan to remove it from our delinquency notice insert, but want to confirm whether there is any pending legislation that may reinstate it retroactively.
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We are not aware at this time of any efforts to reinstate the grace period notice requirement in the law, although it remains possible that the General Assembly may reinstate it at a later date. Whether you wish to discontinue sending the grace period notice to borrowers who became delinquent on or after July 1,…
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Since the Illinois grace period notice requirement expired on July 1, 2016, should we stop sending this notice to delinquent borrowers?
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Yes, you are no longer required to send grace period notices to borrowers who became delinquent on or after July 1, 2016. The section in the Code of Civil Procedure requiring mortgagees to send a grace period notice to delinquent borrowers included a sunset date, which automatically repealed the section on July 1, 2016. We…
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Can we add a provision to our consumer residential loan agreements imposing a default interest rate? Currently, only our HELOC loan agreements provide for default interest rates, which are triggered when the loan is being terminated or accelerated. If a HELOC borrower becomes delinquent or pays late, can we impose the default interest rate, even if the loan is not being terminated or accelerated?
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Yes, we believe you may add a default interest rate provision to your consumer residential loan agreements, but they may be subject to court scrutiny if they are not considered “reasonable.” Illinois courts have examined loan agreements with default interest rates and generally have found that “reasonable” rate increases after default are permissible. For example,…