Topic: Loan Documentation
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We want to extend five separate loans to five different series established under a single-member LLC. Each series wants to use the master LLC’s tax ID number. We have received a certificate of designation for each series and a certificate of good standing for the master LLC listing each of the series’ names. However, the master LLC’s Articles of Organization do not indicate the establishment of any series. Can these series take out their loans using the master LLC’s tax ID number, or do they each need to have their own tax ID number?
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No, we do not believe that your bank needs to require separate employer identification numbers (EINs) for each series of an LLC established under Illinois law. We believe that your bank can accept the master LLC’s EIN for the loans, provided that the series have not obtained their own EINs (in which case your bank…
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We are extending a purchase money mortgage loan to a borrower whose sales contract states that the seller will pay a $10,000 credit at closing for foundation repairs to the property. The borrower will be responsible for scheduling the repairs and hiring a contractor, and the seller will not be responsible for any additional expenses. We are going to hold the $10,000 in escrow until the repairs are complete, and we do not want these funds to reduce the amount the borrower needs to bring to the closing. Do we need to disclose the seller credit on the Loan Estimate (LE), and where should we list it on the Closing Disclosure (CD)?
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We believe that disclosing the seller credit for repairs on the LE is optional and that you should list the seller credit in Section N (“Due from Seller at Closing”) of the CD. For the LE, Regulation Z’s Official Interpretations provide lenders with two options for addressing a seller credit. When the lender knows that…
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We assess a “fax/email” fee when sending payoff statements for home equity lines of credit (HELOCs). When disclosing this fee at origination, is it sufficient to state that the fee will be charged, or do we need to provide the amount of the fee in the disclosure? We will ensure that the fee we assess is reasonable given the CFPB’s scrutiny of “junk fees.”
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We recommend disclosing the amount of the fax/email fee at origination if it is known. Although Regulation Z does not expressly require creditors to disclose the amount of fees associated with payoff statements, it does require you to explain how the fee amount will be determined. For HELOCs, Regulation Z requires creditors to disclose an…
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We originate business loans secured by manufactured home communities, including both the land and the sites for the manufactured homes. There are at least five sites in each of these manufactured home communities, and in some cases, we also take the manufactured homes in the communities as collateral. To comply with the Home Mortgage Disclosure Act (HMDA), how should we report the “Manufactured Home Secured Property Type” and “Manufactured Home Land Property Interest” for these loans? We have been reporting “not applicable” for both fields but are unsure whether this is correct.
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We believe reporting “not applicable” for these two fields is correct if the manufactured home communities contain five or more sites. The CFPB’s official interpretations for Regulation C (which implements HMDA) state that for both of the reporting requirements referenced in your question — “Manufactured Home Secured Property Type” and “Manufactured Home Land Property Interest”…
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We are interested in charging a returned check fee for loan payments made by check that are dishonored. This fee would be charged on both the consumer and commercial side and would be applied only to new loans going forward. We are working on a new disclosure for this fee. However, we first want to know whether Illinois law allows this, and if so, whether there is a maximum amount that we can charge for this kind of fee.
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We believe that Illinois law allows banks to charge returned check fees for both consumer and commercial loans, provided that the fee is properly disclosed and agreed to by the borrower. Additionally, we do not believe there is a maximum amount for returned check fees for loan payments, provided the fee is set according to…
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For a consumer-purpose construction loan, how should we calculate the cash to close under the TRID requirements? Should we include only the cash the customer will bring at closing, or should we include the total amounts paid by the borrower for the construction and closing costs? May we put the amount of funds available for construction draws in the payoff section of the Loan Estimate and Closing Disclosure?
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We believe that for consumer-purpose construction loans, construction costs, as well as construction inspection and handling fees (depending on when they are collected), must be factored into the Cash to Close calculation. Additionally, we believe that construction holdbacks may be disclosed separately from other construction costs in the Payoffs and Payments disclosures. The CFPB’s TRID…
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We are currently assessing a “fax/email” fee when we send payoff statements for home equity lines of credit (HELOCs). Are there any prohibitions against this practice under state law?
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No, other than Regulation Z’s prohibition against charging fees for payoff statements for high-cost mortgage loans, we are not aware of any law prohibiting charging fees for sending payoff statements, provided the borrower has agreed to the fee in the loan documents. Regulation Z requires that for consumer loans secured by a consumer’s dwelling, the…
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If we purchase a bank’s assets as part of a merger, what do we need to file for mortgages that we purchased from the bank to protect our mortgage liens? Should we record assignments of the mortgages to ensure that we can foreclose?
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Ideally, we believe that a purchasing bank should record assignments of the mortgages it acquires. Although recording assignments reflecting the acquisition of mortgage notes is unnecessary to preserve your mortgage lien and priority position as to third parties, recording an assignment could protect your bank from having its lien extinguished as a non-record claimant in…
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We extend loans in Missouri and Illinois, and we charge a document preparation fee. We believe that Missouri law requires us to refer to this fee as an “origination fee.” For consistency, can we call this fee an “origination fee” in Illinois?
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Any fees you charge must be disclosed clearly and conspicuously and agreed to by your customers. We believe that switching to an “origination fee” label has some potential to confuse customers, unless your disclosures otherwise make it clear that the fee is being charged for the service of preparing loan documents. As explained below, we…
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We are implementing an unsecured consumer loan product for which borrowers must apply using a smart phone app. The app uses an automatic underwriting model that allows for credit decisions to be made and funded at any time of day. We are aware that the Military Lending Act (MLA)’s rules require certain disclosures to be made orally, either in person or using a toll-free number. However, if a consumer using the app to apply for credit calls the toll-free number outside of our normal business hours, no one will be available to take their call and provide the disclosure. Are you aware of any guidance addressing the use of pre-recorded messages to provide oral disclosures in such situations?
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No, we are not aware of any guidance addressing the use of a pre-recorded message to fulfill the MLA’s oral disclosure requirement. Since the Department of Defense has released guidance confirming that creditors can fulfill the oral disclosure requirement with a generic message that does not provide any loan-specific information, we believe it may be…