Topic: Real Estate Settlement Procedures Act (RESPA)
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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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I discovered a consumer-purpose loan that originally was structured as a commercial loan. The purpose of the loan was to construct a primary residence for two individual borrowers, but the members of an LLC also signed the note. What is our potential liability? Is there anything we can do to cure our violations?
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Your bank could be subject to potentially significant liability due to its failure to provide the required disclosures under the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA). For example, your bank could be liable for up to twice the amount of the total finance charge for the loan, or a…
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We would like to run a promotion for residential real estate loans where the bank would pay a credit towards the appraisal fee. Are there any potential issues with the promotion or RESPA concerns?
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Provided that this promotion is open to all customers, we do not see any issues under the Real Estate Settlement Procedures Act (RESPA) prohibition against kickbacks for referrals of settlement services. Providing incentives to borrowers to do business with your bank would not implicate any RESPA concerns. For resources related to our guidance, please see:…
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What notices are required to be mailed out to mortgage borrowers when they become 45 days past due?
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Under federal law, your bank must provide the HUD housing counseling and SCRA counseling notices within 45 days after an eligible borrower becomes delinquent. Additionally, if your bank does not qualify as a “small servicer” (an institution that, together with its affiliates, services 5,000 or fewer mortgage loans as of January 1st of the current…
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One of our customers is a realtor, and we would like him to include a link on his website to our bank’s website so that his customers can apply for consumer mortgage loans with us. We are not paying the realtor for the link, nor are we paying the realtor if one of his customers applies for or obtains a loan with us, the link would not be accompanied by any promotional language, and no other banks would be listed on his website. Is this permissible under RESPA’s anti-kickback provisions?
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Yes, we believe that a realtor providing a link to your bank’s website with the facts described above would be permissible under the Real Estate Settlement Procedures Act (RESPA), with some caveats as noted below. RESPA’s anti-kickback provisions prohibit financial institutions from accepting or offering any “thing of value” from a realtor or other settlement…
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A man obtained a residential mortgage with our bank. His wife is not on the title to the home, and she is not obligated on the note. From what we understand, the couple is now separated but not yet divorced, and the wife occupies the residence alone. The husband has stopped making the mortgage payments. Can our bank treat the wife as a successor-in-interest on the mortgage and send her information about the loan so that she might take over the payments? We are a small servicer.
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No, we do not believe that your bank should treat the wife as a successor-in-interest to the note or mortgage. Generally, a person becomes a successor-in-interest when an ownership interest in mortgaged property is transferred in one of the ways enumerated in Regulation X, such as a transfer of ownership through a divorce decree or…
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Can our bank receive a fee for referring commercial loan customers that our bank cannot accommodate to a lending network? We do not pass on the customers’ information to the network. When we know that we cannot accommodate a customer with a commercial loan, we provide the customer with contact information for the lending network. If the customer can find financing through the network, we receive a referral fee.
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Yes, we believe that your bank may accept a fee for referring commercial customers to a lending network. We are not aware of any Illinois or federal laws that would prohibit such an arrangement, and because these are commercial loans, RESPA’s limitations on referrals do not apply. In addition, because your bank does not disclose…
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When we make payments for taxes or insurance from a borrower’s escrow account, we are charged a fee for making the payments electronically. Can we pass the electronic payment fees on to the borrower? Or should our bank absorb that cost because we choose to make the payments electronically instead of mailing a check?
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Yes, we believe your bank may pass on the costs of these electronic payment fees to your borrowers, although to receive maximal protection under Illinois law, you should ensure that your customer agreements contain language that encompasses such passed on charges. Neither federal nor Illinois law prohibits charging borrowers any fees imposed on the bank…
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We have a higher-priced mortgage loan that is in foreclosure. There are not enough funds in the escrow account to pay the hazard insurance policy premiums. Do we have to keep paying the premiums? The borrower has not responded to our notices about the escrow account shortage or a request to discuss the possibility of finding a cheaper insurance policy. We qualify as a small servicer, but we typically do not force place hazard insurance because we have a blanket insurance policy to protect our collateral interest whenever a borrower’s hazard insurance policy lapses.
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No, neither federal nor state law requires your bank to continue paying the premiums or to force-place the insurance. However, you should review the terms of both your loan documents and your blanket policy to ensure that you haven’t committed to force-place insurance before making a claim against the blanket policy. Regulation X requires your…
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We are extending a residential mortgage to a customer who also has obtained down payment assistance loan from the Illinois Housing Development Authority (IHDA), which has told us that we are responsible for preparing their Loan Estimate (LE) and Closing Disclosure (CD). The IHDA loan is junior to our loan and is subject to 0% interest. How should we fill out the LE and CD? Our forms vendor will not prepare an LE and CD with a $0 payment and 0% interest.
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Under a recent Regulation Z amendment, we believe that this down payment assistance loan may qualify for an exemption from the LE and CD requirements. Regulation Z includes an exemption from the LE and CD requirements for certain housing and down payment assistance loans, allowing the use of a more streamlined disclosure (the “TIL disclosure”)…