Endorsements: Form 2037 Instructions

NOTES:

Coverage: A revolving credit mortgage is a loan in which the lender may from time to time make loans or advances to or from the account of the debtor. The debtor obtains these loans or advances using drafts, orders for the payment of money, evidence of debt or similar written instruments, signed by the debtor. These loans or advancements are charged to an account for which the lender bills the debtor at regular intervals. The bills or statements are payable by the debtor on a specific date or in installments. A revolving credit arrangement may include provisions granting the lender a security interest in real property or in a beneficial interest in a land trust to secure amounts of credit extended by the lender. In Illinois, a revolving credit loan is governed by statute, 815 ILCS 205/4.1, et seq. If the loan amount is $5,000 or greater, it may be secured by a mortgage. The statute further provides that the lien of the mortgage is considered valid even though it secures advances of money made subsequent to the day of its execution, and the advances take priority as of the date of recording of the mortgage.

The revolving credit endorsement insures that advances made after the Date of Policy are insured up to the Amount of Insurance and that those advances have priority as of the Date of Policy. The endorsement specifically excepts from coverage the priority of advances made after a sale or transfer of any part of the real estate, and also excepts the priority of advances over: (1) ad valorem real estate taxes or assessments, (2) mechanics' liens, (3) bankruptcies, and (4) federal taxes.

The statute provides that any contractual rate agreed upon by the parties would be appropriate, but, there are significant restrictions on variable rates. Additionally, any hidden interest charges will be considered usurious. The mortgage policy does not provide coverage for loss of priority due to usury law violations; however, lenders sometimes require a usury endorsement, in which case, the interest rate must comply with the statute.

Procedure: The Revolving Credit Endorsement 2 may only be issued on Loan Policies in which there is a variable interest rate. To issue a Revolving Credit Endorsement 2, obtain a copy of the mortgage, note and agreement. Examine these documents to determine that it is actually a revolving credit mortgage and not a future advances mortgage. Check the provisions of these documents relating to the interest rate. Adjustments to the interest rate must correspond to an independent index, such as the Consumer Price Index. If you have any doubt that the proposed revolving credit mortgage is insurable, contact the ATG Underwriting Department for review.

If requested to issue a usury endorsement for a revolving credit loan, confirm that no usury violation exists.

Questions? Contact an underwriter.