Ohio’s Mortgage Loan Act pertaining to second mortgage loans is applicable to entities other than banks, savings banks, trust companies, savings and loan associations, or credit unions, lawfully doing business under the authority of any law of Ohio or another state or federal law; or life, property, or casualty insurance companies licensed to do business in Ohio. Loan servicers for entities registered under the act should take note of new rules, which have been promulgated by the State of Ohio, Department of Commerce, Division of Financial Institutions, which became effective July 1, 2008.
The new rules provide detailed requirements with regard to, among other things: recordkeeping; advertising; advance notice of interest rate adjustments on variable rate loans; payment history formats; providing contact information for loss mitigation prior to foreclosure; cancellation and return of original loan documents upon receipt of payment; and provisions where life, credit accident and health, or unemployment insurance are involved.
The following is a brief summary of some of the new rules.
Recordkeeping Requirements
The following records must be kept current and must be retained for at least two years after the loan is paid in full, deemed uncollectible, assigned to another entity, or discharged or otherwise settled in litigation:
1. Copies of loan statements including the borrower’s name, account number, date of loan, itemization of charges for all credit related insurances and real estate related fees, and type of security.
2. A ledger disclosing specified information pertaining to the loan.
3. All loan agreements, mortgages, notes, disclosure forms, closing statements, security agreements and other documents signed by the obligors.
4. Cash received and disbursement record.
5. An alphabetical index of all borrowers, co-makers, guarantors and other obligors.
6. A “litigation record” for all loans in litigation, including specified information and documentation pertaining to the cases.
7. A “repossession and foreclosure record” including specified information and documentation.
8. A “credit life claims record” where a credit life claim has been paid by the insurer, including specified information and documentation.
9. Histories of non-published indices used to establish interest rates for variable rate loans.
10. A log for business conducted with brokers, including fees paid to brokers, names and addresses of brokers and dates of transactions with brokers.
11. Documentation regarding amounts charged in excess of $20.00 paid by the borrower for dishonored checks.
12. Receipts or other evidence of amounts paid by the borrower and included in the principal amount of the loan, for title examination, title insurance, surveys, appraisal fees or preparation of the mortgage, settlement statement or other documents.
The lender must comply with the Federal Fair and Accurate Credit Transactions Act of 2003 and the Gramm Leach Bliley Act.
If the lender is ceasing or discontinuing business, the lender must arrange and be responsible for the preservation of the records.
Notices of Interest Rate Changes or Maturity Dates
For variable rate loans, the loan servicer must give advance notice of interest rate changes, within strict time frames, which vary depending on the type of loan or index used.
In the instance of a non-amortized or partially amortized interest-bearing loan, the loan servicer must provide the borrower with written notice of maturity within a specified time frame prior to the expected maturity date.
Where the loan is an adjustable rate mortgage having an initial fixed rate period, the loan servicer must notify the borrower in writing of the pending date when the adjustable rate mortgage is to reset to a variable rate. The notice must be given within a strict time frame and must include information pertaining to the current interest rate and corresponding monthly payment, as well as a good faith statement of the anticipated future interest rate and corresponding monthly payment. The notice must also include a statement notifying the borrower of a toll-free number to contact the loan servicer for workout options in the event there is a possible problem of repayment at the higher interest rate and monthly payment; an explanation of the index and/or formula used to reset the interest rate; a statement of alternative options including refinancing, payment forbearances, and pre-foreclosure sales; contact information for the Department of HUD’s approved counseling agencies; and contact information for the state’s Housing Finance Authority.
Disclosures
The loan documents must contain a prominent disclosure as to the federal or state statutory authority pursuant to which a loan is made.
Payment Histories
Payment histories requested by borrowers must provide a clear and accurate payment statement in a manner which a reasonable borrower should understand.
Pre-Foreclosure Notice of Loss Mitigation Contacts
If a foreclosure is to be commenced, the loan servicer must provide notice by writing or telephone, to provide contact information and a toll-free number for loss mitigation, at least ten days prior to referral to foreclosure counsel. Any written notice of default or payment deficiency must also provide a toll-free number for loss mitigation.
Loan Document Requirements and Prohibitions
Any note or other promise to pay must set forth the entire agreement made with the borrower, and may not have blanks left to be filled in after execution. Interest cannot be charged or collected prior to the date of disbursement of loan funds. A new loan may not be made for the purpose of paying any part of an existing loan, unless the existing loan is paid in full from the proceeds of the new loan.
Cancellation and Return of Original Loan Documents
Upon payment in full, the original note or copy, photograph or stored representation of the original note, must be marked “paid” or “cancelled” and returned to the obligor.
Insurance Policies and Disclosures
When, in connection with a loan, a lender furnishes or places insurance written on behalf of the borrower at the borrowers expense, a policy or certificate of insurance must be furnished to the borrower within 15 days of closing. If a lender furnishes or places credit life, accident and health, or unemployment insurance on behalf of the borrower at the borrower’s expense, the lender must give written notice to the borrower at the time the loan is made, and disclose a right to cancel the insurance within 25 days of purchasing the insurance with a full refund of the premium.
If you have any questions on this information, please contact Mr. Larry R. Rothenberg, Esq. Larry Rothenberg is the partner-in-charge of the Cleveland real estate and foreclosure department of Weltman, Weinberg & Reis Co., L.P.A. He is the author of the Ohio Jurisdictional Section contained within the treatise, “Dunaway, The Law of Distressed Real Estate”. The firm handles foreclosures and related litigation throughout Ohio, Kentucky, Indiana, Illinois, Pennsylvania and Michigan.
Client Advisory is published by Weltman, Weinberg & Reis Co., L.P.A., an organization providing comprehensive creditor representation. The information contained in this advisory is a summary of legal information and is not intended to constitute legal advice on specific matters or create an attorney-client relationship. Contact any of our offices or visit our website at www.realestatedefaultgroup.com for more real estate related information, company facts and attorney profiles. (c)2008
Mr. Larry R. Rothenberg, Esq.
Partner
216.685.1135
lrothenberg@weltman.com