Topic: Loan Documentation
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Are we required to include a loan’s payment terms and interest rate in a mortgage or modification? We would like to cease including this information in our recorded documents if it is not required.
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No, we do not believe you are required to include a loan’s payment terms and interest rate in a mortgage or modification. The Illinois Conveyances Act provides that a mortgage may be substantially in a form that “recite[s] the nature and amount of indebtedness, showing when due and the rate of interest, and whether secured…
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We are a national bank that is going to begin offering escrow accounts to mortgage loan customers. We are aware we will need to provide several documents in conjunction with these accounts, including an initial escrow account statement, annual escrow account statement, escrow closing notice, Illinois Mortgage Escrow Account Act notice, Illinois notice of right to terminate escrow, Illinois notice of tax payments, Illinois escrow account disclosure agreement, and Illinois escrow account election form. Are there any other federal or state documents we may be overlooking, and can you direct us to any model forms (other than the escrow closing notice, which we have)?
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While we cannot provide an exhaustive list of every document you might need in relation to offering your customers escrow accounts, as your needs may vary depending on the circumstances of each loan, we believe the federal documents you listed generally would meet federal requirements related to providing escrow accounts, with the caveats noted below.…
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Our consumer mortgages that secure revolving lines of credit provide that they also secure future advances made within twenty years from the date of the mortgage. Can we modify these mortgages to extend the advance period beyond twenty years, or do we need to obtain new mortgages?
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No, we do not believe you can modify these mortgages to extend the advance period beyond twenty years, as we do not believe the mortgages would be a lien on any funds advanced beyond the twenty-year time period. As a result, we believe you would need to record a new mortgage to secure the advancement…
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If a mortgage loan applicant is scheduled to come into the bank to receive and sign their Loan Estimate (LE) on the third business day after we received their application — but is unable to do so because the bank is closed due to inclement weather — can the LE be signed on the following business day, or is the date of the closure for inclement weather considered a “business day” for purposes of the LE deadline? Should we mail the LE as a precaution instead of planning to hand deliver the LE?
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No, we do not believe a day on which your bank closes due to inclement weather would be considered a “business day” for purposes of delivering the LE — provided your bank ceases to carry out substantially all of its business functions on that day. Whether to mail or hand deliver the LE to a…
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We have a commercial loan coming due that we placed in forbearance under Section 4013 of the CARES Act for 18 months. Since the customer was not making full payments, the accrued interest increased substantially. We are planning to renew the loan and add the accrued interest to the principal at renewal. Are there any laws or regulations that would prevent us from capitalizing the interest on this loan?
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No, we are not aware of any laws or regulations that would prevent you from adding accrued interest to the loan’s principal balance (i.e., capitalizing the interest). However, we recommend reviewing the terms of your loan contract and forbearance agreement to determine whether the capitalization is contractually permissible. Section 4013 of the CARES Act allows…
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We are considering moving from paper loan files to scanned loan files on our core system. Besides the original promissory note and security agreement, what other loan documents should we keep in paper form?
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Generally, you do not need to retain hard copies of documents that have been scanned electronically, but there are important exceptions to this general rule. We do not recommend shredding originals of certain negotiable instruments, including documents that qualify as notes under Article 3 of the Uniform Commercial Code (UCC) — such as negotiable mortgage…
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What type of mortgage loans require that we provide the “IL Mortgage Escrow Account Disclosure”? We noticed that our loan documentation system generates this document for purchase loans but not for refinances.
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We believe you are required to provide an Illinois Mortgage Escrow Account Act disclosure at the mortgage loan closing for purchase loans but not for refinances. The Illinois Mortgage Escrow Account Act requires you to provide this notice at the closing of any mortgage loan made for the purpose of purchasing single-family owner occupied residential…
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A customer with a commercial loan guaranteed by the Farm Service Agency (FSA) would like to transfer the loan to another bank. We notified our customer that they would be charged a transfer fee, and they complained that the fee was not disclosed in the lending documents. Were we required to disclose a loan transfer fee in the promissory note or any other document?
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We are not aware of any law or regulation requiring you to disclose a loan transfer fee for an FSA-guaranteed loan in a promissory note or other loan documentation — given that you disclosed the fee when your customer requested the substitution of lender, which you are not required to grant. The Illinois Banking Act…
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We have a commercial multiple advance loan that is maturing. The loan officer would like to extend the maturity date of the note by one year but will not be referencing any maturity date in the mortgage. The loan officer wishes to spare the borrower the expense of recording a mortgage modification when we extend the loan again, as we intend to extend it annually. Does the maturity date of the note have to match the maturity date of the mortgage, and does a mortgage need to contain a maturity date at all?
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First, our understanding is that a mortgage does not have its own maturity date separate from the maturity date of its corresponding promissory note. We believe that the maturity date listed on a mortgage (if any is listed) refers to the promissory note’s maturity date — the date on which all amounts under the note…
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Are we required under federal or state law or regulation to return a borrower’s promissory note after a Small Business Administration (SBA) Paycheck Protection Program loan has been forgiven?
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No, we are not aware of any federal or state laws or regulations that would require your bank to return promissory notes to borrowers after the SBA has forgiven their Paycheck Protection Program (PPP) loans. Additionally, we are not aware of any SBA guidance recommending that financial institutions return PPP-related promissory notes after forgiveness. Consequently,…