Topic: Loan Documentation
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Which disclosures are required for a loan to purchase a commercial rental property that has one business building and one house on it? The borrower will rent the house out to a third party.
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Since this is a commercial loan, the disclosure requirements under both Regulation Z and Regulation X will not apply provided that the loan is “primarily for a business, commercial or agricultural purpose.” However, even in the context of a commercial loan, as in this case, to the extent that the mortgage covering the dwelling is…
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Does Illinois law identify which financial institution employees can sign a Release of Mortgage?
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No, Illinois law does not specify which financial institution employees may sign a Release of Mortgage. However, we would recommend that an officer of your bank sign the release, since officers generally have the authority to sign documents on behalf of the bank, including a Release of Mortgage. We also note that, under the Mortgage…
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We typically include the homestead waiver in our mortgage with an annotation that the non-borrowing spouse is not obligated on the note and is signing only to waive their homestead exemption. Is a separate homestead waiver document required?
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No, there is no requirement that the waiver of homestead rights be separately documented outside the mortgage. The Illinois Conveyances Act makes clear that any “deed or other instrument” that contains a clause expressly “releasing or waiving the right of homestead” is sufficient, provided that the “other spouse joins in such release or waiver.” For…
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Our bank offers a three-year, interest only home equity line of credit (HELOC) with a balloon feature, and a ten-year HELOC with a monthly payment of 1% of the balance and a balloon feature. Can we modify these loans to extend their maturity date another three or ten years and add an amortization schedule? Or would that be considered a refinancing? Does it matter if the modification occurs before or after maturity?
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We believe that you may modify the HELOCS in the way that you described before or after maturity without treating the changes as a “refinancing.” However, the language that you use in the loan modification documents will determine whether you achieve this result. The Seventh Circuit has considered a similar issue, albeit in the context…
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When I am reviewing denied, withdrawn and incomplete loan files for compliance with Regulation B, Regulation C, and Regulation Z, the Uniform Residential Loan Application often is missing the application date. This makes it very difficult to review a loan file for compliance with these regulations. Would it be acceptable to use the Loan Estimate date as the application date in these files?
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We believe that it is possible, but very unlikely, that the Loan Estimate date is an appropriate substitute for the application date under Regulation B, Regulation C, or Regulation Z. Each of the three regulations has its own definition of application, the receipt of which triggers separate, unique obligations. In order to ensure compliance with…
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Currently, we ask our mortgage borrowers to fill out a civil union addendum that asks whether the borrower is in a registered civil union. Is that required? Are there any other specific disclosures or documents that we need to provide to mortgage borrowers who are members of a civil union?
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There are no specific documents or disclosures that you must provide to members of civil unions. Because Illinois law offers members of a civil union the same protections and benefits as married couples, you must provide members of a civil union the same documents and disclosures that you provide to spouses. This is true whether…
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Our management would like to cut down on over twenty pages of documents that we send to borrowers when a mortgage is paid off. What are we required to send? A copy of the paid note and lien release?
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Illinois and federal law require mortgage lenders to provide certain documents to a borrower after paying off the mortgage loan, and additional requirements may stem from secondary market purchaser requirements or your bank’s loan agreements. Illinois law requires a lender to provide the borrower with a release of the mortgage within one month after the…
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It is our practice to order appraisals for collateral monitoring during the term of our residential loans, which we do not charge the borrowers for. When loans are renewed, we reuse these existing appraisals if they are less than 12 months old. Under Regulation B, can we charge a fee for providing these appraisals to borrowers for their renewals?
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Yes, in our view, you may charge a fee when you provide a borrower with a previously developed appraisal for a loan renewal, provided that the fee is reasonable and used to reimburse you for the cost of that appraisal. Regulation B permits creditors to charge “a reasonable fee to reimburse the creditor for the…
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Under Illinois law, can we set a minimum late fee amount on consumer loans, such as vehicle loans and unsecured loans?
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Yes, it is permissible to establish a minimum late fee on consumer loans, including vehicle loans and unsecured loans, provided that the customer contracted to pay the fee in your loan agreement. Under Illinois law, there are very few limitations on interest rates and fees charged by banks, whether on commercial or consumer loans. The…
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We have a mortgage borrower who is in the process of divorcing her husband. The wife is purchasing a residence, and she is signing the note and title alone. Does her husband need to sign the Closing Disclosure?
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No, Regulation Z does not require a non-borrowing spouse to sign a Closing Disclosure. In fact, Regulation Z does not require any signatures on the Closing Disclosure — obtaining signatures on the Closing Disclosure form is optional. In addition, because the spouse is not entitled to the right of rescission, both because the transaction is…