Topic: Mortgage Loans
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We received an application for a mortgage loan refinancing. The applicant is the only person listed on the title to the property that will secure the loan, but her boyfriend also lives there. Does the boyfriend have a homestead right in the property? Also, should he be included on the Closing Disclosure and provided a notice of the right of rescission?
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No, the applicant’s boyfriend does not have a homestead right in the property, because he does not have an ownership interest in the property. The Illinois homestead exemption generally applies only to individuals with an ownership interest in their personal residence. Also, the applicant may waive her homestead rights without the boyfriend’s signature, since they…
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We have a loan secured by a mortgage on a non-residential building and a UCC financing statement covering the contents in the building. The flood insurance policy provides separate categories for the building and the inventory. How do we determine what amount of flood insurance should cover the building and what amount should cover the contents?
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We believe your bank may choose any reasonable allocation of the required flood insurance coverage between the building and its contents, provided that at least some flood insurance coverage is allocated to each category and the total amount of coverage meets the National Flood Insurance Program’s (NFIP) minimum requirements. The minimum amount of flood insurance…
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Do the 45-day notification rules for force-placed insurance apply to commercial property loans or just consumer mortgage loans?
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With respect to force-placed hazard insurance governed by the RESPA servicing rules, the requirement to notify borrowers before charging for force-placed insurance applies only to closed-end consumer mortgage loans. Loans made for a business purpose are exempt. However, with respect to force-placed flood insurance, the requirement to wait 45 days before charging a borrower for…
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Our bank will be funding a real estate loan to pay off a contract for deed between two family members. Our borrower has lived in the subject property for the past eight years as her principal residence. Do we need to wait until the three-day right of rescission period has expired to disburse the loan funds?
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Yes, we believe your bank should wait until the borrower’s right to rescind the transaction has expired before dispersing the loan funds. Regulation Z generally provides a right to rescind a credit transaction when a consumer’s ownership interest in a principal dwelling will be subject to a security interest. There is an exception to this…
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We extended a dwelling-secured, five-year, fully-amortizing loan to pay for the borrower’s construction costs to build a primary residence. We disbursed the loan proceeds directly to the borrower. Is this loan reportable under the Home Mortgage Disclosure Act (HMDA)?
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Under the new HMDA rules that took effect in 2018, if the construction loan is designed to be replaced by permanent financing at a later date (in other words, a two-phase loan), the first phase of the construction loan is excluded from HMDA reporting as a temporary loan. However, if the construction loan is not…
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For HMDA reporting purposes, when we make a mortgage loan to both a land trust and an individual who is a beneficiary of the land trust, should we list the land trust as a co-applicant or co-borrower? The beneficiary of the land trust signed the note individually, and the trustee signed the note on behalf of the land trust.
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Yes, we believe you should list a land trust as a co-applicant or co-borrower on your HMDA report when the trust is a co-obligor on the note. The official commentary to Regulation C recognizes that a co-applicant may be a non-natural person, such as a trust, and provides that the requirement to report a non-natural…
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We have a five-year balloon mortgage loan secured by the borrower’s primary residence that has matured. Can we renew this loan, or does it need to be refinanced since the loan has matured?
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Yes, we believe that you may renew a balloon loan after its maturity date without it falling within Regulation Z’s definition of a “refinancing” (which would require new disclosures under the TRID requirements). However, the language that you use in the loan modification documents is important in order to achieve this result. The Seventh Circuit…
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When providing a written list of settlement service providers to the borrower of a residential loan, do we have to customize the list for each transaction or can we use a generic list for all transactions? For example, if our generic list indicates that a pest inspection is a service that the borrower can shop for and that it is required, but it is not required for a particular transaction, is that a violation? Also, if we list a surveyor in the provider list but do not disclose that service as a service the borrower can shop for in the Loan Estimate under “C. Services You Can Shop For,” is that a violation?
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We recommend against using a generic written list of service providers for all your residential loan transactions. Both examples you provide highlight the potential problems in using a generic list. In your first example, a generic written list of service providers would reference a service — pest inspection — that is not required for the…
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When we extend a loan secured by a mortgage on a property held in a land trust, we frequently take an assignment of beneficial interest (ABI) in the land trust as additional collateral for the loan, out of an abundance of caution, which allows us to foreclose on the additional properties held in the land trust. In such cases, we obtain a flood certification for the mortgaged property but not for any other properties held in the land trust (which could include as many as fifteen tracts). We also do not obtain appraisals or title work for these additional properties. Are we required to obtain flood certifications for all the buildings held in a land trust when we take an ABI in the land trust as additional collateral for a loan out of an abundance of caution?
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Yes, we believe a flood certification is necessary for every building or mobile home held in a land trust that is security for your loan, even if the assignment of beneficial interest (ABI) in the land trust was taken only out of an abundance of caution. There is no exception to the flood insurance requirements…
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We have home equity lines of credit (HELOCs) maturing this year, and we are allowing the borrowers to renew for another draw period. We will charge modification fees that include charges for a flood determination, a credit report, and document preparation. The borrowers will have the option of paying these fees upfront in cash or by drawing on the HELOC. How should these fees be reflected on the initial periodic statement for each option the borrower may choose? We use the home-secured format for our HELOC periodic statements.
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We believe you are required to disclose these modification fees for the HELOC on the initial periodic statement as charges other than finance charges, whether your customer pays these fees with cash or with funds drawn on the line of credit. Although Regulation Z exempts finance charges that qualify as “start-up fees” from inclusion on…