Topic: Mortgage Loans
-
One of our commercial loan customers is behind on his payments. The borrower owns farmland together with two of his brothers, and we would like to take out a mortgage on the land to protect the bank. We have not seen the deed, but our understanding is that the three brothers own the land jointly. Can we establish a lien on the land with just the one brother’s signature? We do not need more than 1/3 of the value of the land to secure the past due loan.
—
by
Yes, Illinois law permits a joint tenant to mortgage his interest in property without the other joint tenant's consent or knowledge. However, the lien does not sever joint tenancy. In other words, upon the mortgagor’s death, the lien is extinguished, and the surviving joint tenants will take their interest free of that encumbrance. For…
-
We typically include the homestead waiver in our mortgage with an annotation that the non-borrowing spouse is not obligated on the note and is signing only to waive their homestead exemption. Is a separate homestead waiver document required?
—
by
No, there is no requirement that the waiver of homestead rights be separately documented outside the mortgage. The Illinois Conveyances Act makes clear that any “deed or other instrument” that contains a clause expressly “releasing or waiving the right of homestead” is sufficient, provided that the “other spouse joins in such release or waiver.” For…
-
We had an application for a mortgage loan from an applicant whose income does not qualify under the qualified mortgage (QM) standards. His mother’s income would qualify by itself. Can we add the mother as a guarantor, even though she won’t be living in the home securing the loan?
—
by
If the mother signs the loan as a guarantor, you would not be able to consider her income for purposes of a QM or ability-to-repay analysis. Under Regulation Z, a guarantor is not a “consumer,” and consequently her income and assets would not enter the QM or ability-to-repay analysis. If the mother instead signs the…
-
We have a small number of three-year adjustable rate mortgage (ARM) loans held in portfolio. We would like to modify them to expand the fixed rate term to five years. If borrowers sign modification agreements to make the change, would that be considered a troubled debt restructuring for GAAP purposes?
—
by
We are unable to determine whether this modification would be considered troubled debt restructuring under generally accepted accounting principles (GAAP) based on the information provided. For a debt restructuring to qualify as a “troubled debt restructuring,” GAAP requires that the creditor grant a concession to the borrower that it would not otherwise consider, for “economic…
-
Are we required to escrow for property taxes and insurance for our higher-priced mortgage loans? We qualify as a small creditor serving a rural or underserved area. However, we have started escrowing for flood insurance premiums under the new flood insurance escrow requirements that went into effect on January 1, 2016. Does that disqualify us from small creditor status?
—
by
Yes, we have confirmed with the CFPB that escrowing flood insurance premiums will disqualify your institution from small creditor status. This is due to an apparent oversight in the interaction between the interagency flood insurance escrow rule and the higher-priced mortgage escrow rule. Under the CFPB’s higher-priced mortgage escrow rule, small creditors must meet four…
-
We are aware that the Illinois appellate court recently ruled that when spouses hold the title to their home in tenancy by the entirety, their real estate is subject to foreclosure if they both signed a mortgage, even if only one spouse signed the promissory note. Currently, we require both spouses to sign notes and all other mortgage documents. Does our current policy raise any Regulation B concerns? In light of this recent court case, should we change our policy to require both spouses to sign the mortgage, but only the borrowing spouse to sign the note? Or will that raise lien perfection concerns?
—
by
In our view, requiring only the borrowing spouse to sign the promissory note and requiring both spouses to sign a mortgage, including a homestead waiver, does not raise any Regulation B or lien perfection concerns. Regulation B prohibits lenders from requiring a spouse to sign credit documents unless the spouses expressly apply for joint credit.…
-
If we believe that a house securing a mortgage has been abandoned, and the borrower has filed for bankruptcy, do we have the right to enter the property and winterize it? Can we request permission from the borrower to enter the property, even if the automatic stay applies?
—
by
We do not recommend contacting the customer or entering the property. The Bankruptcy Code’s prohibition on actions to collect a debt after a borrower has filed for bankruptcy (the “automatic stay”) applies to “any act to exercise control” over the property. Requesting permission to enter the property and entering the property to make repairs or…
-
If a mortgage borrower verbally notifies us about filing for bankruptcy, but we have not received notice of the bankruptcy, how long must we wait before making contact with the customer or filing a lawsuit?
—
by
We do not recommend making any contact with or filing a lawsuit against a customer who has verbally notified you about a bankruptcy filing, without consulting your bank counsel. The Bankruptcy Code’s prohibition on actions to collect a debt after a borrower has filed for bankruptcy —known as the “automatic stay” — begins to apply…
-
Does the Servicemembers Civil Relief Act (SCRA) apply to a servicemember’s rental property, or does it apply only to a primary residence? We have a loan secured by residential property owned by a servicemember but rented out to a non-servicemember.
—
by
Yes, the SCRA’s mortgage foreclosure protections apply to rental properties. The SCRA’s stay of foreclosure proceedings and other mortgagor protections apply to “an obligation on real or personal property owned by a servicemember” that is secured by a mortgage and was originated before the servicemember entered into military service. These protections are not limited to…
-
When I am reviewing denied, withdrawn and incomplete loan files for compliance with Regulation B, Regulation C, and Regulation Z, the Uniform Residential Loan Application often is missing the application date. This makes it very difficult to review a loan file for compliance with these regulations. Would it be acceptable to use the Loan Estimate date as the application date in these files?
—
by
We believe that it is possible, but very unlikely, that the Loan Estimate date is an appropriate substitute for the application date under Regulation B, Regulation C, or Regulation Z. Each of the three regulations has its own definition of application, the receipt of which triggers separate, unique obligations. In order to ensure compliance with…