Topic: Loan Documentation
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Is the Illinois Addendum to Residential Mortgages a required document? This document asks the borrower whether they are a party to a civil union and whether any other parties may claim any interest in the property that will secure repayment of the loan. Is it required if the application is for joint credit and both borrowers are married and applying together? What about a married person applying for individual credit?
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An Illinois Addendum to Residential Mortgages is not required by Illinois law, but we believe using such a form is helpful for identifying individuals who may have relevant property rights and interests because they are a member of a civil union. Also, it is possible that secondary market purchasers may require this form as a…
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Revisions of the Illinois Notary Public Act recently went into effect, including a provision that prohibits non-attorney notaries from explaining, certifying, or verifying the contents of any document for which they notarize a signature. Would this prohibit a mortgage loan originator from describing loan documents to a borrower at a loan closing and also notarizing the borrower’s signature on the loan documents?
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Based on information we received from the Illinois Secretary of State’s Office, we believe that a mortgage loan originator may explain loan documents to a borrower and notarize the borrower’s signature on the same documents. The Illinois Notary Public Act now provides that “no notary public shall be authorized to explain, certify, or verify the…
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We have a local municipality that is inquiring about obtaining a tax-exempt loan, rather than a bond. Are there any forms or paperwork that we need to fill out or any specific wording or language that we need to include in our loan documents in order to extend a tax-exempt loan to this municipality?
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Yes, you will need to file either IRS Form 8038-G or 8038-GC in order to extend a tax-exempt loan to the municipality. Additionally, there are other Illinois and IRS requirements that must be met before you may extend such a loan. The IRS has issued guidance on tax-exempt government “bonds,” a term that it uses…
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Can we email the required notice that must be sent under the Mortgage Escrow Account Act when a loan reaches 65% of the original loan balance and the borrower is entitled to terminate their escrow account? If the notice must be mailed, can it be included as a separate document with another mailing or periodic statement?
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Yes, when a borrower’s loan reaches 65% of their original loan balance and you have a valid email address on file, we believe you may use email to notify them of their right to terminate their escrow account. As a best practice, we recommend obtaining the borrower’s consent to receive electronic mail before sending any…
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It appears that national banks are exempt from the Illinois Mortgage Escrow Account Act. If, as a national bank, we did not comply with the law’s disclosure requirement at origination, then switched our charter and now are subject to the law, must we comply with the law’s notification requirement when a loan reaches 65% of its original balance, or are loans we originated while still a national bank exempt from this provision?
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We believe your bank must comply with the Illinois Mortgage Escrow Account Act’s second notice requirement when a loan reaches 65% of its original balance, regardless of whether the loan was originated before your bank converted its charter. The Illinois Mortgage Escrow Account Act requires two notices to be delivered to customers at two different…
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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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Are e-signed loan documents valid and enforceable if they are signed after the date entered on the note or signed with a name other than the borrower’s full legal name? For example, a borrower electronically signs a note dated October 25 on October 26, or a note referencing a borrower named “Jonathan Doe” is electronically signed with the name “John Doe.”
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Electronic signatures generally are valid on most loan documents in Illinois, and we do not believe that signing a document after its stated date or with a shortened version of the borrower’s full legal name would invalidate the document. However, special requirements apply to electronic promissory notes that are negotiable instruments, as discussed in more…
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Our mortgage department has asked if we must have borrowers execute a document at closing indicating whether they accept or reject the use of a time deposit account in lieu of an escrow account if we do not provide borrowers with this option. Also, are we required to provide borrowers with a copy of the Illinois Mortgage Escrow Account Act and have them sign an Illinois Escrow Account Disclosure Agreement at closing? These documents and disclosures are referenced in Illinois administrative rules at 38 Ill. Adm. Code 1050.1360 and 1050.1110(f).
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As a preliminary matter, we note that the administrative rules referenced in your question apply only to mortgage brokers subject to the Residential Mortgage License Act of 1987, which does not apply to banks. However, banks are subject to the Illinois Mortgage Escrow Account Act, which applies to all mortgage lenders that extend or service…
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We originated a consumer mortgage loan to joint borrowers, who recently informed us that they have legally changed their names. Is there anything we need to do other than document this in the loan file? Should we be concerned that the borrowers’ names now do not match the loan documents?
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No, we do not believe you need to take any additional action to address a consumer customer’s name change after updating your internal loan file and verifying the name change, as your promissory note, mortgage, and current lien position would not be affected by a name change (subject to the caveat for blanket UCC financing…
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We were advised not to renew a HELOC if the mortgage is twenty or more years old and that we should refinance instead. Does Illinois law specify when a mortgage securing future advances will expire? We have not found anything indicating that advances made after twenty years would not be secured by the mortgage.
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Yes, we believe that Illinois law imposes a twenty-year limitation on the security provided for future advances made under a mortgage securing a HELOC. The Illinois Banking Act provides that mortgages that secure revolving credit loans secure future advances only if “made within twenty years from the date thereof . . . .” A separate…