Financial Services Law Developments: FYI: Illinois Amends Licensing Statute As to Fraud Fines, Liability as to "Predatory Lending Database" Violations, Other Changes

Monday, August 6, 2012

FYI: Illinois Amends Licensing Statute As to Fraud Fines, Liability as to "Predatory Lending Database" Violations, Other Changes

On August 3, 2012, Illinois enacted numerous changes to the Illinois Residential Mortgage License Act, including: (1) increases in fines for fraud and deceptive conduct; (2) liability for violations of the "predatory lending database" law; (3) changes as to license fees, averments and NMLS-related amendments; (4) limitations on short sale activities "on behalf of a borrower or homeowner;" and (5) limitations on loan modification activities "on behalf of a borrower or homeowner."

A copy of the complete amendments is available at: http://www.ilga.gov/legislation/publicacts/97/PDF/097-0891.pdf

Among other things, the amendments include:

Definitions Changes and Additions:

- "Servicing" now also "includes management of third-party entities acting on behalf of a residential mortgage licensee for the collection of delinquent payments and the use by such third-party entities of said licensee's servicing records or information, including their use in foreclosure."

- "Mortgage loan originator" now also includes "an individual engaged in loan modification activities as defined in subsection (yy) of this Section. A mortgage loan originator engaged in loan modification activities shall report those activities to the Department of Financial and Professional Regulation in the manner provided by the Department; however, the Department shall not impose a fee for reporting, nor require any additional qualifications to engage in those activities beyond those provided pursuant to this Act for mortgage loan originators."

- "Broker" now includes persons who engage in "loan modification" activities.

- "Loan Modification" activities means "for compensation or gain, either directly or indirectly offering or negotiating on behalf of a borrower or homeowner to adjust the terms of a residential mortgage loan in a manner not provided for in the original or previously modified mortgage loan" (emphasis added).

- "Short sale facilitation" means "for compensation or gain, either directly or indirectly offering or negotiating on behalf of a borrower or homeowner to facilitate the sale of residential real estate subject to one or more residential mortgage loans or debts constituting liens on the property in which the proceeds from selling the residential real estate will fall short of the amount owed and the lien holders are contacted to agree to release their lien on the residential real estate and accept less than the full amount owed on the debt" (emphasis added).

Substantive Changes:

Increases $25k cap for fraud and deception fines to $75,000 for each separate count as to companies, and $3k for specific fraud or deception acts or $6k for pattern-and-practice fraud and deception as to LOs.

Creates liability for "failure to comply with or violation of any provision of Article 3 of the Residential Real Property Disclosure Act," which includes the so-called "predatory lending database" provisions. Parallel provision for title insurers, title agents, and escrow agents. Violations must now be referred to HUD. Information entered into the so-called "predatory lending database" now clarified to include "total monthly consumer debt" of the applicant.

Makes it unlawful for "any individual who holds a mortgage loan originator license to provide short sale facilitation services unless he or she holds a license under the Real Estate License Act of 2000."

New license averments: (1) that the licensee "will not charge or collect advance payments from borrowers or homeowners for engaging in loan modification" activities as defined by the amendments; and (2) the licensee "will not structure activities or contracts to evade provisions of" the IRMLA. Parallel provisions also now apply as to LOs.

Eliminates disciplinary action for non-complicit whistle-blowers (i.e., a "licensee who files a report with the Department of Financial and Professional Regulation that another licensee is engaged in one or more violations pursuant to this Act shall not be the subject of disciplinary action by the Department, unless the Department determines, by a preponderance of the evidence available to the Department, that the reporting person knowingly and willingly participated in the violation that was reported").

License application fees increased to $2,700 annually.

Makes various amendments to coordinate with the NMLS system.

Effective Date: Jan. 1, 2013

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
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Email: RWutscher@mtwllp.com

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The Editor's Bio

Ralph T. Wutscher
Maurice Wutscher LLP
20 N. Clark Street, 33rd Floor
Chicago, Illinois 60602
Direct: (312) 493-0874
RWutscher@MauriceWutscher.com
https://www.MauriceWutscher.com/

Ralph Wutscher's practice focuses primarily on representing depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, distressed asset buyers and sellers, loss mitigation companies, automobile and other personal property secured lenders and finance companies, credit card and other unsecured lenders, and other consumer financial services providers. He represents the consumer lending industry as a litigator, and as regulatory compliance counsel.

Ralph has substantial experience in defending private consumer finance lawsuits, including cases ranging from large interstate putative class actions to localized single-asset cases, as well as in responding to regulatory investigations and other governmental proceedings. His litigation successes include not only victories at the trial court level, but also on appeal, and in various jurisdictions. He has successfully defended numerous putative class actions asserting violations of a wide range of federal and state consumer protection statutes. He is frequently consulted to assist other law firms in developing or improving litigation strategies in cases filed around the country.

Ralph also has substantial experience in counseling clients regarding their compliance with federal laws, and with state and local laws primarily of the Midwestern United States. For example, he regularly provides assistance in connection with portfolio or program audits, consumer lending disclosure issues, the design and implementation of marketing and advertising campaigns, licensing and reporting issues, compliance with usury laws and other limitations on pricing, compliance with state and local “predatory lending” laws, drafting or obtaining opinion letters on a single- or multi-state basis, interstate branching and loan production office licensing, evaluations and modifications of new or existing products and procedures, debt collection and servicing practices, proper methods of responding to consumer inquiries and furnishing consumer information, as well as proposed or existing arrangements with settlement service providers and other vendors, and the implementation of procedural or other operational changes following developments in the law.

Ralph is a member of the Governing Committee of the Conference on Consumer Finance Law. He is also the immediate past Chair of the Preemption and Federalism Subcommittee for the ABA's Consumer Financial Services Committee. He served on the Law Committee for the former National Home Equity Mortgage Association, and completed two terms as Co-Chair of the Consumer Credit Committee of the Chicago Bar Association.

Ralph received his Juris Doctor from the University of Illinois College of Law, and his undergraduate degree from the University of California at Los Angeles (UCLA). He is a member of the national Mortgage Bankers Association, the American Bankers Association, the Conference on Consumer Finance Law, DBA International, the ACA International Members Attorney Program, as well as the American and Chicago Bar Associations.

Ralph is admitted to practice in Illinois, as well as in the United States Court of Appeals for the Seventh Circuit, the United States District Courts for the Northern and Southern Districts of Illinois, and the United States District Court for the Eastern District of Wisconsin, and has been admitted pro hac vice in various jurisdictions around the country.