Topic: Mortgage Loans
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Is it legal for a bank to pay a referral fee for a commercial mortgage loan or an unsecured commercial loan? The fee would be paid by the bank and would not be part of the customer’s loan transaction. The person receiving the referral fee would not negotiate the loan and would be only introducing a potential customer to the bank.
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Yes, we believe a bank may pay a referral fee for a commercial loan, whether the loan is secured or unsecured. We are not aware of any Illinois or federal law that would prohibit such an arrangement for a commercial loan. Although RESPA prohibits kickbacks for referrals of real estate settlement services related to consumer…
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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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Are we required to use the revised Uniform Residential Loan Application (URLA) instead of the old form 1003, regardless of whether the mortgage loan is being sold on the secondary market or being held in-house? We like the layout of the old form better, so we would like to continue using it for in-house mortgage applications. Additionally, does each borrower need to fill out the URLA for joint applications?
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No, you are not required to use the revised URLA for mortgages you hold in-house, unless you eventually intend to sell those loans to Fannie Mae or Freddie Mac or another secondary market purchaser that requires use of the revised URLA. Additionally, there are a few different options for completing the URLA for joint applications…
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What documents should we be retaining for charged-off loans that are over ten years old now? Also, do you have any guidance available for loan record retention?
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We do not believe that you need to retain any records for charged-off loans that are over ten years old. The Illinois Code of Civil Procedure contains a ten-year statute of limitations to initiate collection proceedings for written contracts (with some exceptions), and the Federal Financial Institutions Examination Council (FFIEC) recommends that banks maintain supporting…
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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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We discovered a mortgage loan for which we never provided a Loan Estimate at any time during the loan origination process. Are we required to refund the property taxes escrowed along with all costs associated with the loan?
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We believe that your institution should issue a refund for all costs that you were required to disclose on the Loan Estimate, including escrowed property taxes, to cure your failure to provide a good faith estimate for any of the loan costs. Regulation Z allows creditors to cure a failure to provide good faith estimates…
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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,…
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A borrower with a residential mortgage died, and their spouse (who signed the mortgage but is not on the note) is living in the property. The deceased borrower also had a car loan solely in their name. The mortgage and the car loan have not been paid for several months, and the spouse has not responded to our communications. What steps can we take moving forward?
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Since the spouse has not responded to your communications, and presumably has not indicated an interest in assuming either loan, we generally recommend following the same procedures you would follow when a living borrower has defaulted on a residential mortgage loan or a car loan — with the caveats addressed below. We also recommend conferring…
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If we increase the loan amount on a construction loan or closed-end mortgage loan, can we document it with only a change in terms agreement, or would we also need to record a modification of mortgage? We are also trying to determine when such a change would be considered a refinancing under Regulation Z.
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The answer to both questions is highly dependent on the exact wording of the mortgage and related loan documents. When increasing the loan amount of a construction loan or closed-end mortgage with a future advance, your bank should confirm (ideally, with the assistance of bank counsel) that the original mortgage or note allows such future…
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We want to apply our default interest rate of 6% above the current rate for a consumer mortgage borrower in default. Is there a maximum rate allowed for consumer mortgage loans in Illinois?
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No, we do not believe that Illinois law imposes a maximum interest rate for consumer mortgage loans. There are very few limitations on interest rates charged by banks under Illinois law, whether for consumer or commercial loans, provided they are agreed to by your customers in your loan agreements. The Illinois Banking Act permits banks…