02-029
CHAPTER 108
Regulation #8
LOANS SECURED BY A FIRST MORTGAGE ON RESIDENTIAL REAL ESTATE PAYABLE ON DEMAND
May 16, 1977
On December
23, 1976, the Superintendent proposed a new regulation pursuant to 9-B M.R.S.A.
Section 241(1), Anti-competitive or Unfair Practices.
Notice of the proposed Bureau regulation was given by publication and
by mail to interested parties affording them an opportunity to submit
written comments or request a hearing by January 21, 1977. At the request
of interested parties, a hearing was held on March 3, 1977. Written
comments and testimony presented at the hearing were considered in promulgating
the final regulation.
LOANS SECURED
BY A FIRST MORTGAGE ON
RESIDENTIAL
REAL ESTATE PAYABLE ON DEMAND
(A) The Superintendent has found substantial evidence
that, in the contest of residential financing, the demand note mortgage
is a potential source of considerable confusion to the general public.
The term "on demand" is often misunderstood by those lacking
expertise in financing procedures. Therefore, pursuant to the provisions
of 9-B M.R.S.A. Section 241(1) it is hereby declared to be an unfair
practice, injurious to the public interest, for any financial institution
authorized to do business in this state to make loans to an individuals(s)
secured by a mortgage on an owner occupied, one-family to four-family
dwelling evidenced by a note or other instrument that may require the
debtor to pay the note on demand. No such loan shall be made on or after the effective date of this regulation.
(B) Nothing in paragraph A of this regulation shall
be deemed to prohibit a financial institution authorized to do business
in this state from making the following loans on a demand basis: construction
loans for construction of a dwelling, and so-called "bridge"
loans (normally used to facilitate purchase of a second home pending
sale of the present home) or from using a dwelling as additional collateral
on a commercial loan or a additional collateral on any non-amortizing
loan permitted by law.
(C) Nothing in paragraph A of this regulation shall
be deemed to prohibit a financial institution authorized to do business
in this state from making a loan subject to paragraph A the payment
of which may be accelerated for a designated default described or referred
to in the note by the financial institution of such note or other evidence
of indebtedness clearly and conspicuously provides for such acceleration.
In the case of those loans addressed in paragraph B above, all conditions
under which the demand feature may be exercised must be clearly and
conspicuously listed on the note or other evidence of indebtedness.
Where the demand features is to be exercised solely for the purpose
of increasing the interest rate, a maximum of sixty (60) days written
notice to the borrower(s) must be provided before any upward adjustment
of said interest rate.
(D)
Nothing in paragraph A of this regulation
shall be deemed to prohibit a financial institution authorized to do business
in this state from making variable or flexible rate mortgage loans subject to
the controls generally associated with such loans, and subject to the
disclosure requirements of the Maine Truth-in-Lending Act.
(E)
This regulation shall apply only to the
loans made on or after the effective date hereof and shall have no effect
whatsoever on the validity of any note or mortgage executed before the
effective date of this regulation.
The new
regulation is adopted, effective May 16, 1977.
John
A. Durham
Superintendent
Augusta, Maine
April 5, 1977
