Topic: Mortgage Loans
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We have an individual customer who would like to pledge a certificate of deposit (CD) issued by our bank as collateral for a commercial loan. The CD is held in joint tenancy. Do all of the CD’s owners need to sign a security agreement pledging the CD as collateral for the loan?
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Generally, the Illinois Supreme Court has held that a joint deposit account is subject to the provisions of the contract between the bank and its depositors, and one joint depositor may unilaterally pledge the interests of an entire joint account if allowed by the account agreement. Specifically, the Illinois Supreme Court has recognized that jointly…
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If a customer applies for a loan at our bank but does not qualify for any of the loan products we offer, we may refer the customer to a separate mortgage provider (not affiliated with our bank) that offers certain products that we do not, such as VA and FHA loans. When this occurs, should we send the customer a counteroffer or an adverse action notice? Also, should we include these applications on our Home Mortgage Disclosure Act loan application register (HMDA LAR)?
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If your bank receives a completed loan application and makes a determination that the applicant does not qualify for any of the loan products your bank offers, you should send the applicant an adverse action notice. Additionally, if your bank is a HMDA reporter, you should report the application on the HMDA LAR, provided the…
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We are looking for guidance on how to title a mortgage loan when a living trust is involved. For example, if Jen Test is the trustee of the Jen Test Revocable Living Trust dated 1/1/18 and the mortgaged property is held in the trust, how should this be reflected in the mortgage and deed? What if the property is not held in the trust, but the trust is a borrower on the loan? Also, our LaserPro documentation system requires that we input the names of any natural person beneficiaries of trust borrowers when a loan is made for personal, family, or household purpose. Would this apply to both living trusts and land trusts?
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The mortgagor described in the mortgage should be the party that holds title to the property. If the property is held in a living trust, the mortgagor would be listed in the name of the trust (e.g., “Jen Test Revocable Living Trust dated 1/1/18”), and the trustee would sign the mortgage on behalf of the…
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We would like to advance additional funds to a borrower and extend the maturity date of their mortgage loan. Based on the payments already made, the new loan balance would not exceed the original loan amount. However, the mortgage contains no future advance language. Can we increase the amount of the mortgage loan without recording a new mortgage? If so, are any disclosures required?
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Based on these facts, your bank may need to enter into a new promissory note and record a new mortgage in order to secure the advance of additional funds; however, if you roll up the existing promissory note into a new note, you could jeopardize your priority lien position with respect to existing creditors and…
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We have a junior mortgage lien secured by single-family residence in a flood zone for which we have force-placed flood insurance. The loan has been charged off and we have obtained a money judgment on the note, which we are attempting to collect and will record against the property. If we release the mortgage on the property, can we cancel the flood insurance? Will recording the judgment and pursuing collection affect our ability to cancel the flood insurance?
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Yes, we believe that your bank may cancel the force-placed flood insurance on the property if you release your mortgage. However, it may be prudent for your bank to refrain from recording the judgment lien against the property if you want to cancel the flood insurance. Flood insurance is required at the time a bank…
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How long can the payment term be for a loan secured by farm real estate (e.g. 25, 30, or 40 years)? One of our loan officers would like to offer a 40-year term like the USDA farm credit.
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We have found no statutory or regulatory limits for terms of loans secured by farm real estate. Having said that, a recent FDIC Financial Institution Letter (FIL) states that a “reasonable” loan term should be supported by a “projected cash flow analysis,” and 40 years may be too long a period, given the FDIC’s concern…
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Our loan software provides an option to remove from the mortgage, the Illinois-specific language that appears in the definition of the note and describes the interest rate, number of payments, amount of payments, and first and final payment dates. Our loan officers want to exclude this information from the mortgage due to privacy concerns since it will be recorded and available to the public. What information about a note must be included in the related mortgage — and is it the same for commercial and consumer mortgages?
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A mortgage should reference the amount of the indebtedness to be effective against any claims of third parties, irrespective of whether the mortgage is for a consumer or a commercial purpose. A mortgage also may include the interest rate and maturity date of the loan, but the failure to include these elements will not affect…
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We are extending a balloon mortgage loan secured by farmland that includes several grain bins and sheds. Our original flood zone determination had the property as Zone X, meaning that flood insurance was not required. But our new flood determination, prepared by a different vendor, found that one of the metal grain bins sits on the line of a special flood hazard area (SFHA) rated as “Zone AE,” meaning that flood insurance now is required. Other than obtaining a letter of map amendment (LOMA), is there any way remove the grain bin from the SFHA so that flood insurance is not required? The value of the grain bin is not necessary to support the loan amount.
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Yes, there are alternative methods for obtaining a revised map to remove the grain bin from the SFHA. Additionally, your borrower may qualify for a reduced flood insurance premium under the “Grandfather Rule” described below, or your bank may choose to remove the grain bin from the collateral securing the loan to avoid the mandatory…
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We use an “Addendum to Loan Application” form that asks borrowers to indicate whether anyone other than the borrower can claim a homestead interest in the property securing the loan. Can a borrower claim a homestead interest in a property that will be used as a second home? Also, in the case of a father and a daughter applying for a home loan, where the daughter and her husband will live in the home, should the daughter answer “yes” to the question of whether anyone other than herself can claim a homestead interest in the property, and should the father answer “no” to the same question? The father and the daughter will both be on title to the property, but the husband will not.
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In our view, it is unlikely that a debtor would be able to successfully claim a homestead interest in a second home that is not used as a principal residence. However, because Illinois law is unclear on that point, we believe it would be prudent to nevertheless obtain a waiver of the homestead exemption from…
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When originating a bridge loan secured by the borrower’s current principal dwelling and a new principal dwelling, when should the mortgages be recorded? Under Regulation Z, a bridge loan is subject to rescission when it is secured by the borrower’s current principal dwelling and the new dwelling being purchased. For example, if a loan closing is scheduled for June 14, the loan documents would have to be dated June 10 to ensure that the three-day rescission period has passed before we disburse the loan funds to purchase the new principal dwelling. But in that scenario, our loan origination system would produce a mortgage for the current dwelling and a mortgage for the new dwelling, each dated June 10. How can a borrower mortgage a property that they do not yet own?
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A borrower cannot mortgage a property they do not own, because they cannot convey its title to a lender when they do not own the property. We agree in this scenario that the promissory note and the mortgage on the current dwelling both should be dated and signed on June 10, to allow for the…