Credit Union Home Loan Note

Transcription

1 Credit Union Home Loan Note Multistate Completion Guide April 2009

2 Table of Contents INTRODUCTION... 1 Warranties and Limitations... 2 Warranties and Limitations for this Guide... 2 Warranties and Limitations for the Form(s) That Are the Subject of this Guide... 3 Other Important Terms for the Use of this Guide... 3 Home Loan Note (HL-CU-XX)... 4 Form PM-HLCU 4/2009 ii

3 INTRODUCTION USE OF THIS GUIDE. Use of this guide will constitute an express acceptance of all the terms set forth in the "Introduction," "Warranties and Limitations" and "Other Important Terms for the Use of this Guide" sections of this guide. Forms and Purpose. This guide is intended to assist credit unions that have purchased the following copyrighted Wolters Kluwer Financial Services form: HL-CU - [state abbreviation] Usage. The form listed above should only be used for the purpose for which it is intended. Format. In this guide, we attempt to answer the most common questions and problems you might confront in completing this form. This guide is not intended to address state specific laws. The entire form is reproduced at the beginning of this guide. Each separate item of the form which receives separate discussion in the guide is numbered. The explanatory text begins with a simple statement of what should ordinarily be filled in on the line being discussed. In some cases, this simple explanation is followed by a more detailed explanation and cross-references to other portions of the form which need to be considered with the item under discussion. Form Specific. This guide is written solely for use with the above referenced form. The existence of varying state laws means that some of the terms discussed may not be applicable in your state. Additionally, there may be provisions in the form developed for your state which are not discussed in this guide. Feel free to call us at our toll-free number ( ) if you need information about specific sections. This guide is not intended to be used with any other forms. Private Attorneys. In developing this guide, the form to which it pertains, and all of our other technical forms, we have interpreted many statutes, cases and regulations. We strongly encourage you to seek the advice of your own attorney concerning the utility of this guide, the legal sufficiency of the form to which it pertains, and all of our other technical forms. Any legal references in this guide are merely to assist you and your counsel in your review of our form and this guide. If you or your counsel's interpretations are contrary to ours, you should, of course, follow your own interpretations in using and completing the form. Comments. We encourage you to comment on and criticize this guide, the form to which it pertains, and all of our other forms. We make every effort to keep up with statutes, case law and financial institution practices, but the industry is constantly evolving and our effort is often assisted by our customers. We especially appreciate copies of any statutes or cases which you might feel are pertinent. Please submit your comments in writing either to your Sales Representative or to: Compliance Services Wolters Kluwer Financial Services 6815 Saukview Drive P.O. Box 1457 St. Cloud, MN Form PM-HLCU 4/2009 1

4 Warranties and Limitations Warranties and Limitations for this Guide WARRANTY DISCLAIMER. THIS GUIDE (INCLUDING ANY UPDATES TO IT), IS PROVIDED TO YOU AS IS AND WITH ALL FAULTS. WOLTERS KLUWER FINANCIAL SERVICES (WKFS) DOES NOT EXPRESSLY OR IMPLIEDLY WARRANT THE UTILITY OF THIS GUIDE OR THE INFORMATION THAT IT CONTAINS. THE USER OF THIS GUIDE MUST MAKE HIS/HER OWN INDEPENDENT JUDGMENT ON THESE ITEMS. WKFS MAKES NO WARRANTY, EXPRESS, IMPLIED, BY DESCRIPTION, BY SAMPLE OR OTHERWISE, AND IN PARTICULAR WITHOUT LIMITATION, MAKES NO IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS OF PURPOSE REGARDING THIS GUIDE. WKFS employees, sales representatives, and other WKFS agents and representatives do not have authority to create any warranty obligations regarding this guide or to modify the above Warranty Disclaimer. Any such created warranty obligations or modifications will not be effective unless they are in writing and signed by the President or the Chief Financial Officer of WKFS. LIMITATION OF LIABILITY AND REMEDIES. WKFS's liability, whether in contract, warranty, in tort, or otherwise arising in any way in connection with the sale or licensing of this guide (including any updates to it) SHALL NOT INCLUDE LIABILITY FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES, LOST PROFITS, LOSS OR EXPENSE. WKFS's liability for any damages based on the providing, selling, licensing or using of this guide (including any updates to it), regardless of the form of action, shall not be more than the amount you paid for it or ten dollars, whichever is less. TIME LIMIT. No action, regardless of form, arising out of the providing, selling, licensing or using of this guide, may be brought by either party more than one (1) year after the cause of action has occurred, except that this limitation will not apply to an action for non-payment brought by WKFS. NO SUBSTITUTE FOR LEGAL COUNSEL. Before using this guide, you are advised to have your attorney review it to determine its legal sufficiency for your purposes. You acknowledge that WKFS is not authorized to practice law, nor may any of WKFS's officers, employees or agents provide legal counsel or accounting advice to you or your institution. Thus, any questions requiring legal or accounting advice must be directed to your institution's attorney or accounting professional for whom WKFS has no obligation or liability. The following notice is required by law: WOLTERS KLUWER FINANCIAL SERVICES PRODUCTS AND SERVICES ARE NOT A SUBSTITUTE FOR THE ADVICE OF AN ATTORNEY Form PM-HLCU 4/2009 2

5 Warranties and Limitations for the Form(s) That Are the Subject of this Guide The form(s) that are the subject of this guide are covered by an express warranty as follows: Preprinted Form(s). If you received the form(s) in preprinted format, they are covered by the Compliance Warranty for Lending, Deposit, and Retirement Plan Documents, as it may be updated or amended from time to time. The current Compliance Warranty is located on WKFS's internet website: Refer to the website for terms of the warranty. WKFS Software. If you produce the form(s) using WKFS document generating software, they are covered by the express warranty contained in your WKFS software license agreement. Refer to your license agreement for terms of the warranty. Electronic Format. If you received the form(s) in an electronic format ("EForms" or other electronic images) through a license with WKFS or with a third party provider, they are covered by the express warranty contained in your license agreement with WKFS or the third party provider. Refer to your license agreement for terms of the warranty. Other Important Terms for the Use of this Guide APPLICABLE LAW. The terms under which this guide is provided, sold, licensed or used will be governed by the laws of the State of Minnesota without regard to its conflict of laws provisions or those of any other state. Any action relating in any way to this guide will be exclusively venued in a court of competent jurisdiction in the State of Minnesota. COPYRIGHT. No part of this guide or any of WKFS's copyrighted forms may be reproduced by any person, by any means, or for any reason, without WKFS's express written permission. WKFS vigorously enforces its copyright interests and you should be aware that there are criminal penalties as well as civil penalties for violation of copyright law. For additional information about reproducing, licensing, or purchasing this guide, please contact us at: Wolters Kluwer Financial Services North American Law Department 6815 Saukview Drive P.O. Box 1457 St. Cloud, Minnesota Telephone: Form PM-HLCU 4/2009 3

6 Home Loan Note (HL-CU-XX) Form PM-HLCU 4/2009 4

7 Form PM-HLCU 4/2009 5

8 Form PM-HLCU 4/2009 6

9 Usage: The HL-CU-XX note was designed for credit unions and is to be used for closed end subordinate real estate loans. It can also be used for general closed end consumer loans. This document cannot be used for open end credit. A-1 Fill in the name of the lender and the address where payments are to be made. A-2 Fill in the name and address of the borrower. This should be the same address you intend to use for any notice of default or notice of sale of the collateral. A-3 Fill in the date that your member will be signing and receiving a copy of this form. By signing this form, the borrower acknowledges receipt of a copy on "today's date" (see sentence on the form immediately above E-1). A-4 Fill in the date of the last scheduled payment. A-5 This designation is for your internal reference. You may fill in what will best serve your purposes. The term "Loan Amount" is not defined in the note itself. Presumably, it will be either the principal amount or the principal amount plus interest, whichever you prefer. A-6 Fill in the loan number of the previous loan if this note is a renewal. This helps to provide a good audit trail. A-7 Fill in your loan number and/or member number. A-8 This additional space can be used for any other information you may want to collect from the borrower. B-1 Fill in the principal amount of the debt against which interest will accrue. B-2 Fill in the simple annual interest rate that will be applied toward the principal sum of this loan. B-3 Interest will normally begin to accrue on the same date your customer signs the note and you give him or her the disclosures. If so, fill in the day, month and year on this line. Loans Subject to the Right of Rescission. If this loan is subject to your customer's right of rescission, and if it is your policy to begin to accrue interest only on the day the loan is actually disbursed, then you should fill in the date on this line B-3 that the loan is disbursed. Then, your customer will be contracting for the payment of interest to accrue on the date the loan is disbursed, as opposed to the day he receives the disclosures. See the discussion concerning line A-5. B-4 If the note if Fixed rate, fill in the words, "Paid in Full." If the note is Variable rate, fill in the date of the first interest rate change date. B-5 Fill in the method or basis you are using to accrue interest on this note. Example: If you assume that each month has 30 days and that a year has 360 days, line B-5 would state that "Interest accrues on a 30/360 basis." Form PM-HLCU 4/2009 7

10 Example: If you assume that a year has 365 days and you calculate interest according to the actual number of days a principal balance is outstanding, line B-5 would state that "Interest accrues on an actual/365 basis." B-6 Fill in a simple the (borrower's) purpose for obtaining the loan statement of. You must keep a record of the "purpose" of any loan over $10, under the Financial Recordkeeping and Reporting of Currency in Foreign Transactions Regulations, 31 CFR and The "purpose of loan" statement may be useful in proving your right to a grace period in perfecting a purchase money loan under UCC Article For loans with a business or agricultural purpose, your state may have a different usury ceiling. Also, you do not have to supply federal Truth-in-Lending disclosures for business or agricultural loans. Filling in the "purpose of loan" for a business or agricultural loan will help to show (if there is any doubt) why you charged a particular rate, or help to show why you did not supply Truth-in-Lending disclosures. B-7 Check this box if the borrower will receive the proceeds of the loan in one advance. If you check this box, fill in the date of the advance in line B-8. B-8 Check this box if the borrower will receive the proceeds of the loan in one advance. If you check this box, fill in the date of the advance in line B-8. B-9 Check this box if the borrower will receive the proceeds of the loan in more than one advance. B-10 Fill in the first date on which a portion of the principal amount will be made available to the borrower. B-11 Fill in the amount of the advance your customer will receive on the date specified at B-10. B-12 Fill in the conditions that must be met in a multiple advance transaction before future advances will be made. EXAMPLE: The conditions for future advances are my successful completion of the school year at the University of Minnesota. EXAMPLE: The conditions for future advances are my submitting a written or in-person request for an advance. EXAMPLE: The conditions for future advances are the completion of 25%, 50%, and 75% of the construction of the proposed building at 123 Fourth Street. If the conditions for future advances are spelled out in a separate agreement (i.e. Line of Credit Agreement, Form LCA), fill in line B-12 as follows: EXAMPLE: The conditions for future advances are stated in a separate written agreement between you and me dated May 22, Form PM-HLCU 4/2009 8

11 C-1 Check this box if you want to contract for a variable rate of simple interest. See text for C-2 through C-14 below for information on how to complete the variable rate portion of the document. C-2 Fill in the first interest rate change date. C-3 Fill in here how often the rate change may occur. EXAMPLE: The interest rate may change on June 15, 2004 and on every 15th of the month thereafter. C-4 Fill in on this line a description of the index rate you are using. There are any number of indexes you might use, including the Federal Reserve Discount Rate in your district, the average annual yield on the auction of six-month U.S. Treasury Bills, etc. C-5 Select this box to describe the time frame for obtaining the new index value. EXAMPLE: Your index rate changes on January 1 and July 1 of every year. You are in the practice of sending a notice of rate change to your customer at least 30 days before the interest rate on the customer's note changes. Your notice states what the new rate will be and the effective date of the new rate (when interest will begin to accrue at the new rate). Obviously, you must wait until the index changes in order to include the new rate in your notice. Because your notice is to precede the interest rate change by at least 30 days, you decide that a change in the index will result in an interest rate change effective 45 days later. C-6 Check this box and complete the blank line to describe the time frame for obtaining the new index value. C-7 Complete this blank line, describing the margin relationship between the index selected and the rate the borrower will pay. C-8 Describe whether the calculation of the margin will be rounded up or down and how. C-9 (Variable Rate Only) If you have a ceiling on the interest rate (a rate which the interest rate cannot go above), describe the ceiling on the blank line. Line C-9 must be completed if this loan is variable rate and is being secured by a dwelling. Reg The ceiling or lifetime cap must be stated as either a specified amount or in some other manner that allows the consumer to easily ascertain at the time of entering into the obligation the maximum interest rate that will apply. Commentary -Reg (8) Example: "The annual interest rate in effect on this note will not at any time be more than 15%." C-10 (Variable Rate Only) If there will be a floor on the interest rate (a rate which the interest rate cannot go below), describe the floor on the blank line. A floor is not required by federal law. " Form PM-HLCU 4/2009 9

12 Example: The annual interest rate in effect on this note will not at any time be less than 12%." C-11 Check this box if you limit the amount by which the interest rate may change on any single change date. C-12 If you limit the amount by which the interest rate may vary over a certain period of time, describe that limit here. C-13 Check this box if you have checked box C-1 above and if the effect of a change in the interest rate will be to change each scheduled payment (not just the final payment). C-14 Check this box if you have checked box C-1 above and if the effect of a change in the interest rate will be to change the amount of the final payment. C-15 Check this box if you have checked box C-1 above and you have not checked either box C-13 or C-14 above. Fill in the blank line with a description of how an interest rate change will affect the repayment of the loan. EXAMPLE: Effect of Variable Rate: A change in the interest rate will have the following effect on the payments: the number of payments will be increased/decreased. or the amount of each payment will be increased up to a maximum of $425.00, after which any increases in the rate will increase the number of payments. C-16 If you contract for a late fee, check this box. Remember that a late fee on a single pay loan or a loan payable on demand with no periodic payments need not be disclosed here. Reg (1) and Commentary, and the Commentary at (a)(1). Note: Not all states allow for a late fee. C-17 Fill in the number of days in the "grace period." C-18 Fill in a description of how the late fee is calculated. C-19 Check this box if you are imposing any charges other than interest in connection with this loan, (e.g., a loan processing fee, an interest surcharge, service charge, etc.). You should also check this box if the customer is purchasing any form of credit insurance from or through you. If you do not check this box, skip to C-22 below. C-20 If you have checked the box at C-19, then check the appropriate box here to reflect whether the member will pay the charges separately (i.e., in cash) or whether the charges are included in the principal amount shown at B-1 (i.e., financing the charges). C-21 Describe the additional charge on this line. EXAMPLE: "$20.00 loan processing fee." EXAMPLE: "$ for single credit life insurance for coverage over the term of the note." Form PM-HLCU 4/

13 If you have more than one additional charge, here's an example for how to complete this area: EXAMPLE: "In addition to interest, I agree to pay the following charges which are are not included in the principal amount above: $25.00 interest surcharge and I agree to pay $ premium for single credit life coverage for the term of the loan. C-22 Use this space to spell out any terms of your agreement with the borrower which are not stated elsewhere on the form, or to clarify other terms on the form. SECURITY: The existence of a separate agreement securing this note, whether the security agreement is preexisting or is created at the time this note is written, may be referenced in this area. In some jurisdictions this reference to the security agreement may be important to establish the "relatedness" of a preexisting security agreement to a subsequent loan. EXAMPLE: I agree that this note is separately secured by a security agreement dated 5/9/04 (or a first mortgage dated 5/8/04, or an assignment of time deposit dated 5/8/04, etc.). CAUTION: If you are concerned about the "relatedness" of a promissory note to a preexisting security agreement a better practice is to enter into a new security agreement at the time the loan is entered into. D-1 Describe the payment schedule for this loan. Here are some examples: EXAMPLE: I agree to pay accrued interest only on April 1, 2004, on July 1, 2004, on October 1,2004, and I agree to pay the principal and accrued interest on demand, but if no demand is made, then on November 1, EXAMPLE: I agree to pay this note in 36 payments. The first payment will be in the amount of $ and will be due March 15, A payment of $ will be due on the 15th day of each month thereafter. The final payment of the entire unpaid balance of principal and interest will be due February 15, EXAMPLE: I agree to pay accrued interest with principal. EXAMPLE: I agree to pay principal quarterly. EXAMPLE: Borrower will pay 27 equal monthly installments of $ each month beginning February 1, 2004, and continuing monthly, except for the months of May, June and July of each year, until paid in full. (This is a Skip Payment example.) D-2 Check this box if you wish to take a security interest in any or all of your member's share and/or deposit accounts. (This does not affect your right of setoff under common law.) If you mark this box, you must review and complete D-3 through D-5. D-3 Select this box if you wish to take a security interest in all of the member's accounts. D-4 Select this box if you wish to take a security interest in one or more, but not all, of the member's accounts. D-5 Name the accounts (if not all of them) in which you wish to have a security interest Form PM-HLCU 4/

14 D-6 If you require the member to keep a specific amount in the accounts in which you have taken a security interest, enter that amount here. If the credit union takes a security interest in a member's account(s) and requires a specific balance be maintained in the account, the credit union MAY be established as a creditor in bankruptcy proceedings. The balance in the account(s) must be monitored to demonstrate the credit union's interest. D-7 If you require the member to keep a specific amount in the accounts in which you have taken a security interest, enter that amount here. If the credit union takes a security interest in a member's account(s) and requires a specific balance be maintained in the account, the credit union MAY be established as a creditor in bankruptcy proceedings. The balance in the account(s) must be monitored to demonstrate the credit union's interest. NOTE: Be sure that the separate agreement is in fact sufficient to secure this loan. Completing D-7 does not by itself tie this form to pre-existing security agreements (including mortgages and deeds of trust). Such security agreements must include "future advance" language to create this relationship. CAUTION: If you are concerned about the "relatedness" of a promissory note to an existing security agreement a better practice is to enter into a new security agreement at the time the loan is entered into. E-1 The borrowers should sign here. We have left space above and below the signature lines for you to type the names of the borrowers signing on the line. You may also want to type the name of a corporate borrower above the signature lines. E-2 This line is provided for your signature. Because both parties are bound by the terms of the note, each may be subject to legal action to enforce those terms. For this reason we consider it good practice for both parties to sign the note. Additionally, several states have statutes which focus on the presence of a lender's signature in an effort to protect the lender from allegations of an oral agreement modifying the terms of the note. Form PM-HLCU 4/

15 Form PM-HLCU 4/ Wolters Kluwer Financial Services Form PM-HLCU 4/2009