Conn. Gen. Stat. § 36a-261 - (Formerly Sec. 36-99). Mortgage loans

Cite as:Conn. Gen. Stat. § 36a-261
Currency:Current through the 2020 Special Session
 
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(a) As used in this section, the term "mortgage loan" means a loan, line of credit or letter of credit secured wholly or substantially by a lien on or interest in real estate, including a leasehold interest, for which the lien or interest is central to the extension of credit, but does not include the following loan transactions:

(1) Loans that are to be sold by the Connecticut bank promptly after origination by such bank, without extended recourse for payment default, to a financially responsible third party, provided such loans shall be considered mortgage loans for purposes of purchases and participations by a Connecticut bank if such loans otherwise qualify as mortgage loans under this subsection.

(2) Loans for which a lien on or interest in real estate is taken as additional collateral through an abundance of caution by the Connecticut bank, including loans pursuant to which the bank takes a blanket lien on all or substantially all of the assets of the borrower, and the value of the real estate is low relative to the aggregate value of all collateral.

(3) Loans made to manufacturing, industrial or commercial borrowers with a lien or interest in real estate taken as all or a portion of the collateral to directly or indirectly secure such loans, when the bank looks for repayment out of the operations of the borrower's business, relying on the borrower's general credit standing and the borrower's forecast of operations.

(b)

(1) The assets of Connecticut banks may be invested in mortgage loans, subject to the general limitations set forth in this section.

(2) Any such mortgage loan shall be secured either by (A) a first mortgage which is a first lien or (B) a mortgage which is subordinate to another mortgage or other mortgages, provided, in the case of a loan secured by a mortgage which is subordinate to another mortgage or other mortgages, which other mortgage or mortgages are held by a person other than the Connecticut bank, the real estate securing such loan is (i) residential real estate, or (ii) nonresidential real estate provided the loan does not exceed, at the time of origination, a loan-to-value ratio of fifty per cent, or (iii) nonresidential real estate in a loan transaction which, at the time of origination, exceeds a loan-to-value ratio of fifty per cent, provided the aggregate amount of all such loans made pursuant to this subparagraph (B)(iii) does not exceed, at the time of origination, twenty-five per cent of the equity capital and reserves for loan and lease losses of the Connecticut bank. A loan which was included within the aggregate limit of subparagraph (B)(iii) of this subdivision subsequently may be excluded if the loan is repaid or if the applicable loan-to-value ratio is reduced to fifty per cent or below because of a reduction in principal or senior liens, additional contributions of real estate collateral, or an increase in equity value substantiated by a current suitable appraisal or evaluation.

(c) "Real estate", as used in this section, includes refrigerating equipment, dishwashing equipment, stoves and clothes washing machines, hereinafter called "household equipment", used on the premises at the time of execution of the mortgage or substituted after the mortgage is executed if such equipment is specifically declared in the mortgage deed to be used as a part of the mortgaged realty, and if such mortgage declares that household equipment substituted for the original household equipment mentioned in such mortgage shall be part of the mortgaged realty.

(d) The real estate shall be unencumbered, except to the extent that prior mortgages are permitted by subdivision (2) of subsection (b) of this section. A satisfactory certificate of title or other suitable form of title review issued by a suitable person approved by such Connecticut bank, or a satisfactory policy of title insurance, shall be filed with the lending bank until the loan is paid or until the loan is sold. The following are not encumbrances within the meaning of this section: (1) Reservations to the United States of America of fissionable materials, (2) leases, provided the impact of the lease is adequately reflected in the appraisal or evaluation required by subsection (e) of this section, and (3) easements, restrictions, interests and other rights (A) which do not materially adversely affect the marketability of the real estate, (B) which are otherwise adequately reflected in the appraisal or evaluation required by subsection (e) of this section, (C) where the attendant risks are satisfactorily insured under an acceptable policy of title insurance, or (D) which the bank otherwise reasonably determines do not present a material adverse risk after consideration of the relevant underwriting risks for the loan or class of loans. Connecticut banks shall adopt and implement a real estate lending policy which reflects, in accordance with safe and sound banking principles, consideration of acceptable standards for title review and title insurance.

(e) The real estate shall be appraised or otherwise suitably evaluated, before any loan is made on its security, by one or more suitable persons who are familiar with real estate values in the community where the real estate is located. Such persons shall be approved by the governing board of the Connecticut bank making the loan, or by a management committee, board committee or agent appropriately designated by such governing board in accordance with the appraisal policy required by this subsection, provided, if the loan under consideration is a loan to be insured or guaranteed by a governmental agency, the appraiser may be one who appraised the property for the governmental agency. Such appraisal or evaluation shall be in writing, shall state the amount at which the property has been appraised or evaluated and shall be filed with the Connecticut bank until the loan is paid or until the loan is sold. Connecticut banks shall adopt and implement an appraisal policy which reflects, in accordance with safe and sound banking principles, consideration of appraiser qualifications, procedures for the approval and selection of appraisers, appraisal and evaluation standards, and the bank's administration of the appraisal and evaluation process.

(f) Notwithstanding the provisions of subdivision (2) of subsection (h) of this section, the Connecticut bank, in its discretion and for such a period as it deems advisable, may excuse the borrower on a mortgage loan from amortization of the principal of such loan, provided the governing board of the Connecticut bank, or a management committee or board committee appropriately designated by such governing board, has reviewed the particular mortgage loan and has determined such action to be prudent under the circumstances.

(g) Loans not exceeding fifty per cent of the value of the real estate may be made without further restriction than is set forth in subsections (a) to (f), inclusive, of this section. The requirements of this section relating to the relationship between the loan amount and the value of the real estate shall be calculated on the basis of the aggregate amount of such loan plus the unpaid amount of any obligation secured by any prior mortgages or liens and the amount of any advancements permissible under any loan secured by such prior mortgage or mortgages in relation to the value of the real estate interest.

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