Topic: Loan Documentation
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If we agree to change the day of the month a borrower’s monthly payment is due on an installment loan, does the borrower need to sign a change in terms agreement? Our notes state the day of the month on which the first and last payments are due but do not specify the due date for interim payments. For example, a note may provide that the payment schedule will be 49 payments of $X beginning on May 1, 2020, and one payment of $Y on June 1, 2023. The note also states that payments made ten or more days after the “due date” will be considered late. Additionally, would we need a change in terms agreement if the maturity date is changing?
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We recommend reviewing your loan documents with your bank counsel to ensure that there is no language in the note or other loan agreement stating on which day of the month payments (other than the first and final payments) are due. If a date is not stated, you may be able to change the monthly…
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We are considering posting our consumer loan application on our website for customers to access and fill out. We order our consumer applications through a vendor. Would there be any copyright concerns with the vendor if we post the application on our website?
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We recommend reviewing the terms of your agreement with the vendor to determine whether the application may be posted on your website. If the agreement is silent on this point, you may wish to request the vendor’s permission to post the application on your website and to memorialize such permission in writing, if it is…
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For how long must we retain loan documents after a loan has been paid off?
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We recommend retaining loan agreements for a period of ten years after the loan is paid off, due to Illinois’s ten-year statute of limitations for written contracts. This retention period should apply to any documents that may be relevant in a dispute over the loan agreement, such as a mortgage release. For other documents in…
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Does the Taxpayer First Act (TFA) apply only to customers who complete Form 4506-T, providing consent to us obtaining a copy of their tax return information directly from the IRS, or does it also apply to the redisclosure of information received directly from the taxpayer? Also, does the TFA apply to commercial loan participations when we share the taxpayer’s information with participating banks? If so, should we provide a written disclosure to commercial loan applicants requesting they consent to the sharing of financial information with other financial institutions for loan participation purposes?
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The TFA’s consent requirement applies only to tax return information provided by the IRS. It does not apply to the redisclosure and use of information received directly from the taxpayer. However, a customer’s tax return information remains subject to financial privacy laws, which may require the customer’s consent before disclosure to a third party, unless…
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When extending a home equity line of credit (HELOC) secured by property held in a land trust for which our bank is the trustee, must our bank sign the loan documents as trustee for the land trust? LaserPro creates loan documents (such as the HELOC agreement and disbursement request) with signature lines for the borrower individually and for our bank as trustee. While we require borrowers sign these documents, our loan department would like to leave the trustee signature lines blank.
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Since the land trustee is the legal titleholder of the property being mortgaged, we believe your bank should sign the mortgage as trustee of the land trust. However, we do not believe it is necessary for your bank to sign the note or other HELOC documentation that does not affect title to the property. In…
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We extended a loan to a borrower who purchased a home with the intention of making it his principal residence. He is unmarried and decided at the time of closing to add his girlfriend to the deed. She signed the mortgage but was not included on the Closing Disclosure (CD). Our loan documentation system included a signature line only for the borrower. Is this correct? Also, if a borrower refinances a loan secured by their primary residence without their spouse on the loan, would the spouse be required to sign the CD? This is assuming the spouse is listed on the deed and would be given a notice of the right of rescission and be required to sign a waiver of homestead rights.
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You were not required to provide a copy of the CD to the customer’s girlfriend or obtain her signature on the CD, since she is not entitled to rescind the purchase loan and therefore is not a “consumer” who must receive a copy of the CD. Regulation Z requires that a CD be provided to…
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In Illinois, can a married couple be the joint owners of a sole proprietorship? We have married customers who operate a construction business as a sole proprietorship and state they are the joint owners of the business. The couple files a joint tax return with one Schedule C form listing the business as “John Smith d/b/a Smith Construction.” The couple has a business checking account with our bank on which John Smith and Sally Smith both are listed as owners and authorized signers. When signing loan documents on behalf of the business, the couple each would like to sign as an owner, with “John Smith d/b/a Smith Construction” listed as the borrower. Is this allowable? Our core processor would not allow us to input “John Smith or Sally Smith d/b/a Smith Construction.”
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Yes, a married couple may be joint owners of a sole proprietorship in Illinois. However, since sole proprietorships are not separate legal entities apart from their owners, we recommend requiring John and Sally Smith to sign the loan documents in their individual capacity, subject to the caveats discussed below. Under the Internal Revenue Code, two…
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Under the Taxpayer First Act (TFA), are we required to obtain a taxpayer’s express permission to share their tax return information only if we obtain it from the IRS, as opposed to receiving it directly from the taxpayer?
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Yes, the TFA’s consent requirement applies only to tax return information provided by the IRS. However, a customer’s tax return information remains subject financial privacy laws, which may require the customer’s consent before disclosure to a third party, unless an exception applies. The TFA amended the Internal Revenue Code to require that “[p]ersons designated by…
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Under the Taxpayer First Act, are we required to obtain taxpayer consents from non-borrowing spouses? Also, is there any guidance for banks related to a borrower who refuses to sign a taxpayer consent form? Can a loan be denied on this basis, and would such a denial present any fair lending concerns?
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We recommend obtaining a taxpayer consent form for any taxpayer whose tax return information you will be requesting from the IRS. For a non-borrowing spouse, your bank may be requesting a joint tax return that will include tax return information for both spouses, and in that case, we recommend obtaining both spouses’ consent. If a…
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Regarding the Taxpayer First Act (TFA), if we have a commercial loan with twelve guarantors, must all twelve sign taxpayer consent forms, or can we add a signature addendum allowing all guarantors to sign the same form? If borrowers or guarantors provide updated tax return information after loan origination, do we need to obtain new consent forms, or would the original consent form cover all future tax returns? Also, if we have a loan participation that was originated before Act’s consent provisions became effective, but sold after the effective date, is the consent form required at the time of the sale?
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Yes, we believe that your bank can have all twelve guarantors sign the same consent form. The TFA requires express consent from each taxpayer before obtaining their tax return information, but there is no requirement that each taxpayer provide their consent on a separate form. We believe that your bank can structure a consent form…