Topic: Delinquent Borrowers
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How should we report mortgage interest on IRS Form 1098 for loans that are on non-accrual status due to delinquencies or partial payments?
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The IRS has not provided guidance on calculating the interest received from borrowers who have become delinquent and are only making partial payments. In the absence of IRS guidance, we can only recommend what we believe is a reasonable approach to calculating interest received for purposes of Form 1098 filings. We recommend reviewing your loan…
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We have a commercial farm loan, and the farmland securing the loan has been the subject of litigation due to title issues for several years (the bank, the title company and the borrower are all parties in the lawsuit). The borrower now has stopped making payments, and we would like to file a foreclosure action. The borrower is a sole proprietor, and his primary residence is located on the land securing the loan. Are we precluded from sending a cure letter to the borrower because of the ongoing lawsuit? Also, are we required to send the homeownership counseling notices?
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Please note that this answer discusses the Illinois grace period notice requirement, which expired on July 1, 2016, pursuant to a sunset provision. Please see 735 ILCS 5/15-1502.5. We are not aware of any prohibition against sending a cure letter to a borrower who also is involved in litigation involving title to the property. While…
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A small number of our auto and installment loan customers signed a note that stated a post-maturity rate of 18%. However, our system actually calculates the post-maturity rate for these loans by adding 5% to the loan’s interest rate. All of the loans had fixed rates, the highest of which was just under 10% (so the system would never apply a post-maturity rate higher than 18%). Do we need to have the customers sign new notes to fix this discrepancy?
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We are not aware of any laws or regulations that would require you to ask your customers to sign new notes in this situation. In our view, the fact that your bank will be declining to exercise its right to charge an 18% post-maturity rate does not necessitate the issuance of new notes or disclosures.…
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We know that if a residential mortgage loan customer cycles in and out of delinquency (missing a payment, later making payments to bring the account current, and then missing another payment), we would send a written early intervention notice every 180 days under 12 CFR 1024.39(b). But if the customer stays delinquent, without making additional payments, should we send only one written early intervention notice or should we send repeat notices every 180 days? We are large servicer.
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We recommend that you continue providing written early intervention notices for borrowers who remain delinquent for more than 180 days after you send the first early intervention notice (which must be sent within 45 days from the date of the first delinquency). Regulation X requires you to provide a written early intervention notice to a…
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If we pay property taxes on behalf of a delinquent borrower, can we add those amounts to the loan principal and charge interest? Our loan agreement requires borrowers to pay the taxes. It does not expressly permit us to add the taxes to the loan principal, but it does generally permit us to add amounts advanced on behalf of a borrower to the loan principal and charge interest on those amounts.
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It may be possible to add the property taxes to the loan principal, but it would depend on the specific language in your loan agreement. Our advice is to ask your bank counsel to review the note and mortgage document for an answer to this question. Going forward, we recommend establishing a uniform policy for…
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What is the statute of limitations for collecting on a mortgage loan? Are we required to notify a borrower that we will continue collecting on a loan after charging it off? Also, for how long should we continue to report a charged-off mortgage loan to consumer reporting agencies?
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The statute of limitations for collecting on a defaulted promissory note or foreclosing on the mortgaged property is ten years, though slightly different statutory provisions apply in either case. If you are collecting on the promissory note, the statute of limitations is ten years after the claim accrues. If you are foreclosing on the mortgaged…
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Five years ago, we repossessed a car and sold it without contacting the borrower’s father, who had cosigned the loan. The sale resulted in a deficiency balance. Do we have to provide a default notice to the father before attempting to collect the deficiency balance from him?
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Yes, you must provide notice to the cosigner before attempting to collect the deficiency balance from him. The Illinois Consumer Fraud and Deceptive Business Practices Act requires you to notify a cosigner before taking any action to collect from the cosigner, and it describes the information that must be included in this notice. Since you…
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If we need to force-place property insurance for a mortgage loan, or if the borrower fails to pay property taxes, can we add those amounts to the borrower’s periodic payments for the next twelve months? Our mortgage documents state that we may add force-placed insurance charges to the loan, but they do not state that we may charge the borrower for our payment of delinquent taxes (although the agreement does require the borrower to pay the taxes).
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Force-Placed Insurance Premiums Yes, we believe you may reamortize the loan and add the amount of the force-placed premiums to the borrower’s periodic payments, since your loan agreements permit you to add such premium payments to the loan amount. Delinquent Property Tax Payments The answer is less clear regarding delinquent property tax payments, since your…
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If a customer is repeatedly delinquent on mortgage payments, are we required to continually issue the Homeownership Counseling and SCRA notices under the National Housing Act?
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Yes, you must provide this notification every time the customer becomes past due. You are required to provide the notice to a delinquent borrower no later than 45 days after the date on which the borrower becomes delinquent. If the borrower subsequently misses another payment, you again must provide the notice within the 45-day window.…