Topic: Mortgage Loans
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We have a commercial farm loan, and the farmland securing the loan has been the subject of litigation due to title issues for several years (the bank, the title company and the borrower are all parties in the lawsuit). The borrower now has stopped making payments, and we would like to file a foreclosure action. The borrower is a sole proprietor, and his primary residence is located on the land securing the loan. Are we precluded from sending a cure letter to the borrower because of the ongoing lawsuit? Also, are we required to send the homeownership counseling notices?
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Please note that this answer discusses the Illinois grace period notice requirement, which expired on July 1, 2016, pursuant to a sunset provision. Please see 735 ILCS 5/15-1502.5. We are not aware of any prohibition against sending a cure letter to a borrower who also is involved in litigation involving title to the property. While…
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An Amish customer told us that they are not required to pay for hazard insurance protecting the property securing a real estate loan. Is that true?
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Hazard insurance plays a major role in mitigating the risk of loss of collateral in real estate loans, and examiners traditionally cite inadequacies in collateral insurance as technical exceptions on safety and soundness principles when reviewing loan files. However, apart from flood insurance, we are not aware of any banking laws or regulations that expressly…
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Can we use an escrow account to fund default-related expenses (attorney’s fees, property preservation costs and utilities)? We are aware that for FHA-insured loans, “escrow funds shall be used only for the purpose for which they were collected [and not for] late charges, attorney’s fees, inspection fees, mortgage delinquencies or refunds of overpaid subsidy, etc. . . .” Does that limitation apply to loans that we have sold to Fannie Mae?
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No, we do not recommend advancing money from a borrower’s escrow account to pay for attorney’s fees, property preservation costs or utilities. Even if a loan is not governed by the HUD guidance that you identified (which applies only to FHA-insured loans), we believe that the same principle would apply to non-HUD loans. Escrow account…
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We are trying to assess the risks of the new TILA-RESPA Integrated Disclosure (TRID) requirements. What is the statute of limitations for customer claims regarding issues with the new disclosure forms?
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Generally speaking, the Truth in Lending Act provides a three-year statute of limitations for violations of its disclosure requirements. Generally, the RESPA does not provide a private right of action for violations of its disclosure requirements. The CFPB provided a brief but concise overview of the private rights of action under the TILA and RESPA…
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Should we include a title company’s “closing fee” in the finance charge calculation? The closing fee is charged for the service of conducting the real estate closing. We thought that a closing fee should be excluded, since we do not require the imposition of the charge, nor do we require the use of a particular title company as closing agent. Moreover, cash transactions also have closing fees, and fees that are charged in comparable cash transactions are not required to be included in the finance charge.
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We believe that a separately itemized fee for conducting a loan closing should be included in the finance charge calculation if it is a required service, even though your institution permits borrowers to select the service provider. Regulation Z and the accompanying Official Interpretations include fees charged for a conducting or attending a closing in…
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One of our customers had a question about a mortgage loan held by another bank. The property securing the loan was damaged, and the insurance company issued a check jointly, to the customer and his mortgage lender. The borrower made the necessary repairs on his own, so there are excess insurance proceeds. The lender is refusing to return the excess funds to the customer and instead is applying them to his principal loan balance. Is that lawful?
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In our view, this practice could be questionable. Based on the specific facts in this case (which we do not have), it may be possible for the customer to argue that the use of the insurance proceeds to reduce the loan principal is not contractually permitted. On the other hand, it is not uncommon for…
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For a residential mortgage loan Closing Disclosure, should we show the charge for the owner’s title insurance policy as being paid by the seller or the buyer? Some title companies are showing the charge as paid by the buyer, and then giving the buyer a credit from the seller. Is that still acceptable?
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When the seller is paying for the owner’s title insurance policy, we believe that the best approach is to disclose the policy cost in the seller-paid column (under “Other Costs” in the Closing Disclosure), although the TRID rules do not specify exactly which column to use. The TRID rules simply require you to designate title…
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The TRID rules permit us to remove certain seller information from the Closing Disclosure that we provide to the buyer. However, the rules do not permit us to remove some of the seller’s information, such as the amount paid for a broker’s commission and home inspection and home warranty fees. Doesn’t the inclusion of that information violate the seller’s privacy rights?
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We do not believe that sharing limited information about the seller in the Closing Disclosure for a consumer mortgage transaction will create any privacy issues, primarily for two reasons. First, the financial privacy protections under state and federal law apply only to a customer who has obtained a financial product or service from you. Because…
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We know that if a residential mortgage loan customer cycles in and out of delinquency (missing a payment, later making payments to bring the account current, and then missing another payment), we would send a written early intervention notice every 180 days under 12 CFR 1024.39(b). But if the customer stays delinquent, without making additional payments, should we send only one written early intervention notice or should we send repeat notices every 180 days? We are large servicer.
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We recommend that you continue providing written early intervention notices for borrowers who remain delinquent for more than 180 days after you send the first early intervention notice (which must be sent within 45 days from the date of the first delinquency). Regulation X requires you to provide a written early intervention notice to a…
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Can we make a mortgage loan secured by property in Illinois to a nonresident alien couple who are Illinois residents?
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Lending to a non-U.S. citizen is a business decision that depends on the amount of risk your institution is willing to accept. Here, we think the risks are relatively low, because the borrowers and, more importantly, the collateral securing the mortgage loan are located in Illinois. We note that in considering the customer’s ability to…