Filed under: Current Issues in Credit Unions, Uncategorized | Tags: CEO, comment letter, Cordray, Current Issues in Credit Unions, loan participation
Guy, Hal, Katherine & Rob bring you this first show of 2012. Here are the topics.
–Wish list for the dream CU CEO.
–How to write a comment letter.
–Appointment of Richard Cordray.
–TDR IRPS proposal
–Proposed Loan Participation Reg.
Big K Roundup.
By Larry R Rothenberg, Esq.
Ohio foreclosure procedures are covered by the pertinent state statutes and the Ohio Rules of Civil Procedure. In addition, individual courts often adopt local rules, which must be followed in cases filed in the particular county. Furthermore, individual judges generally have discretion in the administration of their cases, and some impose standing orders that apply to all cases in their courtrooms. Judge Nancy Margaret Russo of the Cuyahoga County, Ohio, Court of Common Pleas has such a standing order for foreclosures.
Mortgage servicers should take particular note, as Judge Russo’s standing order contains some unique requirements that are not found elsewhere. For example, within 20 days of filing the Complaint, the plaintiff’s attorney must file a Property Status Report on a form prescribed by the Court, and include the submission of a photograph of the subject property taken within 10 days of filing the complaint. The failure to do so may be grounds for dismissal.
In an apparent effort to prevent bank walkaways, the order further requires that once a judgment for foreclosure is granted in favor of the plaintiff, the plaintiff must file within 30 days thereafter, all necessary documents to cause a Sheriff’s sale to be scheduled, or be subject to a possible finding of contempt of court. Any request to withdraw an Order of Sale must be filed at least seven days prior to the date of the sale (even though this provision can frustrate last-minute loss mitigation negotiations).
The standing order mandates that in the event the parties enter into a forbearance agreement, loan modification, payment plan or other similar arrangement, a copy of the agreement must be filed with the court. An updated version of the standing order now requires that within three days of the date of the agreement, a copy of the agreement must be filed with the court. The failure to do so may also result in a possible finding of contempt of court.
We will advise when a case we have filed has been assigned to Judge Nancy Margaret Russo, so that you can flag your file accordingly. In the event of a forbearance agreement, loan modification, payment plan, or any other similar settlement in one of Judge Russo’s cases, you should provide us with a copy of the signed agreement immediately, so that we can file it with the court prior to the three-day deadline.
For a complete copy of Judge Nancy Margaret Russo’s Standing Order for foreclosure cases, go here: http://www.realestatedefaultgroup.com/uploads/Client%20Advisory-%20LRR%20Judge%20Russo%20Standing%20Order-%20order.pdf
If you have any questions on this matter, please contact Mr. Larry R. Rothenberg, Esq. Larry is the partner in charge of WWR’s Real Estate Default Group in the Cleveland office who focuses on complex foreclosures, evictions and title insurance issues. He is the author of the Ohio Jurisdictional Section within the treatise, “The Law of Distressed Real Estate”, and was a contributing author to “Ohio Foreclosures, What You Need To Know Now”, published by The West Group. He can be reached at 216.685.1135 or email@example.com.
By David W. Cliffe, Esq.
Over the past several years in Ohio, lenders increasingly modified their goal in foreclosures from the speedy recovery and resale of the property toward achieving loss mitigation and borrower retention of the property. As result of this trend, lenders are requesting a greater volume of their sheriff sales withdrawn. In the past, sheriff sales were commonly withdrawn only due to the borrower’s filing a bankruptcy petition. Today, lenders’ motives to withdraw sales expanded to charge-offs, a borrower’s eleventh hour proposal for loss mitigation or receipt of an updated appraisal indicating no equity in the property. The sheriff’s representative in one large Ohio County stated that lenders now request a withdrawal of approximately one-fifth of all initial sheriff sales scheduled. Lenders file many of those requests within twenty-four hours of the sale.
As there is no state statute governing the withdrawal of sheriff sales, each Ohio county court system develops its unique policy for handling these requests. Prior to the advent of mandatory e-filing, the common practice for withdrawal of sheriff sales immediately before sales, involved the lender’s attorney sending a court runner to the courthouse and then “walking” the motion from the clerk’s office to the judge’s chambers, then back to the clerk’s office and on to the sheriff with a signed, stamped order, all frequently being done within hours of the sale.
In the interest of promoting a more efficient and cost-effective court system, the Ohio Supreme Court and its Advisory Committee on Technology promoted the goal of Ohio counties converting to a mandatory e-filing system. First, Montgomery County, then Franklin County in October 2011 and, this month, Hamilton County implemented mandatory e-filing systems. As a result, the old method of a court runner “walking” through orders withdrawing sales became obsolete, and control over obtaining orders to withdraw sales shifted away from the attorney to the court system. In Montgomery County, the Court replaced this traditional method of withdrawing a sheriff sale with a mandatory e-filing system that included a special queue for filing emergency orders. From that queue, a clerk electronically forwards the motion to withdraw the sale to that day’s designated judge and, assuming the judge grants the order, that order is then filed with the clerk. Although a court runner no longer physically delivers the motion and order through the clerk and judge’s office, a court runner may still assist in nudging an order through the process and then can take the eventual order to the sheriff to get the sale stopped. This new procedure increases the potential for delay and an attorney attempting to withdraw a sale in Montgomery County now has a much slimmer chance of a withdrawal on the actual date of the sheriff’s sale.
When the Franklin County Common Pleas Court established, by administrative order, its e-filing guidelines, the Court specifically acknowledged that the practice of attorneys filing motions to withdrawal sales on the date of sheriff sales “would no longer be feasible with e-filing”. Unlike Montgomery County, Franklin County has no special queue for e-filing emergency motions and the Franklin County Court specifically warned that the procedure relating to motions requesting sales withdrawals would follow the same process “like all other filings”. The motion and order are electronically submitted to the clerk and then to the queue of a judge’s specified assistant for review. After that review, the motion and order are electronically forwarded to that judge’s own queue. After the judge’s approval, the judge’s office electronically returns the approved order to the clerk for recordation and storage on the court’s docket system.
By longstanding practice, the Franklin County Sheriff will not stop a sale in the absence of a docketed entry ordering it. The Court’s administrative order, referenced above, contains the aspirational goal that motions for orders withdrawing sheriff sales filed prior to 5 p.m. on the eve of the sheriff sale would be approved. As foreseeable delays occur, however, as a result of so many electronic exchanges of the motion and order to withdraw a sale, prudence dictates the timely submission of any request to withdraw a Franklin County Sheriff Sale by the Monday preceding that Friday’s sheriff sale.
In Hamilton County, the phase-in of mandatory e-filing began January 3, 2012. The judges have not yet set a formal procedure regarding withdrawals of sheriff sales. Based on discussions with both court staff and a representative of the sheriff’s office, however, the introduction of mandatory e-filing has not altered the preexisting practice of the Sheriff’s Office to cancel a sale upon its receipt of a motion requesting withdrawal. Provided that practice continues, a request to withdraw a sale early on the morning of the sheriff’s sale in Hamilton County, while not guaranteed or even recommended, remains possible.
As more counties implement mandatory e-filing systems in Ohio, lenders may expect this new technology to expand the period of advanced warning that their attorneys require to successfully withdraw sales and also make same-day sales withdrawals virtually impossible in some counties. As a result, lenders and their attorneys need to partner together to streamline communications and the formation of bidding strategies. In the event a sheriff’s sale occurs in spite of a late withdrawal request, lenders may take comfort that, in many circumstances, the court will vacate the sale. Most judges would set aside a sale when the lender was the winning bidder and it obtained a reinstatement, short sale, or similar loss mitigating arrangement from the borrower. Judges are not as sympathetic, however, where a lender makes a late determination not to sell the premises due to poor condition or an unfavorable valuation. In light of mandatory e-filing, lenders and their attorneys must thus work together and fix a bidding strategy well prior to the sale date to prevent problems in getting sheriff’s sales withdrawn.
If you have any questions on this matter, please contact Mr. David W. Cliffe, Esq. David is an associate in the Real Estate Default Group of Weltman, Weinberg & Reis Co., LPA, focused on foreclosure and eviction services. He can be reached at 513.333.4054 and firstname.lastname@example.org.
by Matthew M. Young, Esq.
As more and more businesses embrace the concept of the phrase “going paperless”, more and more people are asking the question: Are electronic contracts enforceable and are the signatures used on such electronic contracts enforceable in a court of law? The short answer to this question is yes! In 2000, congress passed the Federal Electronic Signatures in Global and National Commerce Act (E-Sign Act). At the state level, 47 states passed the Uniform Electronic Transactions Act (UETA) (only IL, NY and WA have not adopted UETA, and yet have passed legislation governing the use of electronic signatures and records). With the adoption of E-Sign and UETA, electronic contracts and signatures have the same force and effect as paper contracts signed in ink, which we typically associate with enforceable contracts. To be clear, any signature, contract or record may not be denied legal effect, validity or enforceability solely because it is in electronic form and not in writing or not signed or affirmed by signature.
As with any law or regulation, it is important to review its definitions to understand how the regulation applies. Under E-Sign and UETA, an electronic record is defined as “a contract or other record created, generated, sent, communicated, received, or stored by electronic means.” An electronic signature is defined as “an electronic sound, symbol, or process, attached or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record.” Therefore, a web generated document that is signed with a “click the box” checkmark would satisfy the definitions of an electronic record and electronic signature. As another example, you could write a contract on your computer and email it to a third party for acceptance; if the third party replies to the email accepting its terms, such a reply could create an enforceable agreement.
As with any regulation there are exceptions. In order to protect consumers, certain electronic documents are invalid and unenforceable including those related to:
- Wills and Trusts
- Domestic Relations matters
- Court Orders
- Notices of Utility Turnoff
- Foreclosures and Evictions
- Cancellation of Health Insurance
- Serious Product Recalls or Failures
Even if the agreement you are entering is not one of those excluded above, a party to any agreement cannot be forced to enter into an electronic agreement. Under E-Sign and UETA, consumers who prefer traditional, paper contracts can elect not to enter into an electronic contract. The Credit Union must obtain its member’s consent in order to enter into an electronic contract. Moreover, Credit Unions entering into electronic contracts with its members must provide certain disclosures including the following:
- The right to receive notice or record in paper form
- The ability to withdraw consent to receive electronic records
- Identifying records subject to consent
- Procedures to withdraw consent
- How consumers may obtain a paper copy
In addition to the foregoing, the Credit Union must also provide a statement to its members, outlining any hardware and software requirements necessary to receive electronic records. If the hardware or software requirements change, the Credit Union must notify its members of the change and give the member the option, without penalty, to revoke his or her consent to use the electronic records.
So long as you adhere to the disclosure requirements above and are not using electronic contracts in the excluded contexts above, a court will accept an electronic contract and electronic signature. However, much like traditional paper and ink counterparts, every document intended to be entered into evidence at trial must be “admissible.” Is the document what it purports to be? Does the document present the intent of the signatory? How was the signature created and how was the document accessed to for signature? These are admissibility questions that must be answered whether an agreement involves an electronic signature or a traditional ink signature.
To be sure, traditional paper documents containing signatures enjoy more creditability than electronic signatures, which are viewed more critically by the court. There are ways to overcome this skepticism but that is the subject for another article. Stay tuned!
Matt Young is an associate in the Credit Union Practice Group at Weltman, Weinberg & Reis Co., LPA. He can be reached at 216.739.5726 and email@example.com.
One of the most common problems in collection actions arise when creditors attempt to collect deficiencies resulting after the sale of repossessed collateral. More specifically, these problems relate to sending proper notices of sale after repossessing the collateral, before a sale occurs. Failure to send a proper notice of sale can be a complete bar to recovering any resulting deficiency after the sale. Not only must you send this notice timely, but you must also include certain terms in order for the notice to be considered valid.
Most states, including Ohio, have adopted provisions of the Uniform Commercial Code (UCC), which specifies how repossessed collateral must be sold and what notices consumers must receive prior to and after the sale of the collateral. In this article, we focus on the most critical component of these requirements, the notice of sale. In Ohio and most states, the consumer must be notified of a sale at least ten days prior to the sale of the collateral. To be safe, a creditor should account for time to mail the notice. Accordingly, a good rule of thumb is to mail the notice out at least fourteen days prior to the sale of the collateral.
Under the Ohio Revised Code, a model notice of sale is provided for creditors to use, which I recommend. (Most states have notice requirements that are the same or similar to this notice.) The following provisions are in this model notice and must be included in any notice of sale in Ohio:
- Describe the debtor and the secured party;
- Describe the collateral that is the subject of the intended disposition;
- State the method of intended disposition;
- State that the debtor is entitled to an accounting of the unpaid indebtedness and states the charge, if any, for an accounting;
- State the time and place, by identifying the place of business or address or by providing other information that, in each case, reasonably describes the location, of a public disposition or the time after which any other disposition is to be made;
- Describe any liability for a deficiency of the person to whom the notification is sent;
- Provide a telephone number from which the amount that must be paid to the secured party to redeem the collateral is available; and
- Provide a telephone number or mailing address from which additional information concerning the disposition and the obligation secured is available.
Among the biggest missteps creditors make when sending notices of sale occur when the collateral is put up for sale multiple times. Often, collateral does not sell the first time it is put up for sale (typically in an auction setting) and is put up for sale a second, third or even fourth time, usually in an effort to obtain a higher bid price. In these instances, a new notice of sale is typically required or specific language needs to be included in the notice to reflect the recurring sale date. All too often, this subsequent notice or tailored initial notice is overlooked.
In the event such a recurring sale date is likely, you may want to check your state’s laws to see if a recurring notice of sale is allowed (or required). For example, in Ohio, where a public sale that begins on a specific date and time recurs daily at the same time and place, a notice of sale is considered timely if it reflects this recurrence. In such an instance, Ohio law only requires the notice to be sent ten days or more before the earliest time of sale after a default has occurred. Therefore, if your notice of sale is properly crafted with appropriate language, you can avoid sending out a new notice of sale before each sale date.
In the event your loan is an indirect loan, “three party paper” wherein the loan is originally entered into between a dealer and a member, and the dealer thereafter assigns its interest in the note to the Credit Union, additional requirements may apply. In Ohio, this includes an initial right to cure and the requirement that the collateral be sold at a public auction; in these cases a private sale is prohibited. Indeed, there are many other elements, beyond the notice of sale requirements, which could impact whether a sale is commercially reasonable, and you should consult your legal counsel if you are unsure if your Credit Union is compliant with all elements of the sale process. After all, you don’t want to risk voiding your ability to collect a deficiency judgment.
 See UCC 9-613;9-614
Filed under: credit unions
Do I dare
Disturb the universe?
In a minute there is time
For decisions and revisions which a minute will reverse.
– T.S. Elliot, The Lovesong of J Alfred Prufrock
What should our wish list look like for the perfect credit union CEO? My angle is forever skewed by my role as counsel and fixer. However, I have seen CEOs step in it and survive and I’ve seen CEOs who never dare disturb the universe.
No one is perfect. No one will have all of these qualities and frankly, those who do have these qualities can still have bad days. Being human is still what we are.
In any event:
Integrity: Without ethics, we have nothing. A credit union CEO should have a strong moral compass and never self-deal or make sweet-heart deals for friends and relatives. Putting the interests of the members first, needs to be primary. Without strong ethics, you can’t have a good CEO.
Humility: The credit union should not be about the CEO. Usually, this is not a problem in the credit union movement because you’re normally not dealing with billions of dollars. Yet, I have seen it and I’ve seen it lead to downfall. We all have talents, but we are working toward a common goal to do the best for the credit union’s members. A CEO that puts herself first cannot be a great CEO.
Engagement: Another way to put this is that a good CEO is not asleep at the switch. A good CEO understands what products are being offered, what the members’ needs are and what compliance burdens the credit union must shoulder. A good CEO hires the best people available and delegates whatever can be delegated. However, after the delegation comes follow up and accountability. The buck must stop with the CEO, and the CEO must accept responsibility for everything that happens at the credit union. There are no excuses.
Passion: This word is overused, but still required. In my opinion, passion is what gives a CEO the ability to get the Board of Directors to take the right course of action for the credit unions’ members. The passion is what enables a CEO to lead the credit union’s employees on the mission of member service. Passion and the accompanying enthusiasm drive the whole organization. A perfect CEO is passionate about the movement and his or her credit union.
Competency: You would think at the CEO level this would be assumed. There are many paths to this. I have seen credit union CEOs without college degrees do just fine. I have seen well-educated CEOs fail. Competency has as much to do with an individual’s own understanding of his or her strengths and weaknesses as it does in the management of the credit union. The CEO does not need to be a master accountant, a flamboyant marketer or even the best politician. However, a CEO does need to be able to hire good people to work in these areas and then be plugged in to what they are doing. He or she needs to understand the concept of project management and how to drive a project from beginning to end.
Vision: I feel silly for saying this, because it has already been said by so many others, but vision is what separates the great from the merely good. A perfect CEO has the ability to reject the motto of the credit union movement (“We Have Always Done It That Way”) and try new things. No one has figured out how to teach vision or how to bottle it. But people with the gift of vision see life differently than most people. They have the almost mystical power to create something from nothing. Examples of vision that I’ve seen include taking an old lending product and turning it into something new and exciting that delivers an amazing ROI. It includes forming CUSOs that aren’t on the approved list but that turn out to be fantastic business ideas. The visionary believes that there are always possibilities but more than that, he or she can see them and turn them into reality.
So that’s it. You can probably think of examples I’m missing. But this is what my experience has shown me in being the guy who cleans up the mess left by the imperfect CEO after the fact. You are never going to have a perfect anything. You might get someone who makes mistakes but generally gets the overall picture. I would ask you though- who would you rather have, a leader who tries new things and makes mistakes but who moves the credit union forward, or a leader who is so cautious or asleep at the switch that nothing ever changes until the credit union is merged or fails?
Credit unions are often confronted with unpaid debts prior to one’s death. If not paid prior to the death of a member, state probate laws will govern who will be paid and in what priority. For example, in Ohio, the order in which debts are to be paid is set forth in O.R.C. 2117.25. This is regardless of the amount of assets, or insolvency of an estate. Understanding this priority classification is critical to payment.
When someone passes, all assets held by the person that do not otherwise transfer automatically to another person, must pass through probate. Each of those assets is subject to recovery by a creditor, such as a c, for repayment of sums due. In Ohio, like most states, there is a very specific law that governs if, how, and when a creditor can obtain payment from a decedent’s estate.
Recently, the Ohio law that provides the order of priority in which expenses are to be paid by an estate, was amended by the 129th General Assembly File No. 28, HB 153 § 101.01. The changes took effect on September 29, 2011. The changes affect the priority of debts due long-term care facilities and the debts due the State of Ohio relating to the Medicaid Estate Recovery program.
Prior to the amendment, O.R.C. § 2117.25 provided that the executors or administrators of a decedent’s estate must proceed with diligence to pay the debts of the decedent and were to apply the assets in the following order:
1. (Unlimited as approved by the Court) Costs and expenses of administration;
2. (up to $7,000) An amount, not exceeding four thousand dollars, for certain funeral expenses, and an amount, not exceeding three thousand dollars, for burial and cemetery expenses. Burial and cemetery expenses shall be limited to the following:
a. The purchase of a right of interment;
b. Monuments or other markers;
c. The outer burial container;
d. The cost of opening and closing the place of interment; and
e. The urn.
3. (up to $100,000) The allowance for support made to the surviving spouse, minor children, or both under section 2106.13 of the Revised Code;
4. Debts entitled to a preference under the laws of the United States;
5. Expenses of the last sickness of the decedent (under which healthcare providers often classify unpaid claims);
6. (up to $2,000) If the total bill of a funeral director for funeral expenses exceeds four thousand dollars, then, in addition to the amount described above in division (2) of this section, an amount, not exceeding two thousand dollars, for funeral expenses that are included in the bill and that exceed four thousand dollars;
7. Personal property taxes, claims made under the Medicaid estate recovery program instituted pursuant to section 5111.11 of the Revised Code, and obligations for which the decedent was personally liable to the state or any of its subdivisions;
8. Debts for manual labor performed for the decedent within twelve months preceding the decedent’s death, not exceeding three hundred dollars to any one person;
9. Other debts for which claims have been presented and finally allowed (under which all other creditor claims fall).
The Ohio statute, as amended, creates a new priority claim for creditors defined as nursing homes, residential facilities and hospital long-term care units. This new provision places expenses of the decedent’s last continuous stay with one of those healthcare providers, 7th in the order of debts to be paid. A decedent’s last continuance stay includes up to thirty consecutive days during which the decedent was temporarily absent from the nursing home, residential facility, or hospital long-term care unit.
This amendment, along with the expenses of last illness, protects healthcare providers and creates a clear priority above general creditor claims. Without this latest amendment, many healthcare providers were left with little to no recovery. This is because the priority under ORC § 2117.25 for expenses of the decedent’s last illness does not apply to all expenses incurred during a protracted illness: In re Estate of Wilson, 75 Ohio Misc. 2d 11, 662 N.E.2d 104, 1995 Ohio Misc. LEXIS 73 (CP 1995). Priority number 7 may cover this type of expense.
This amendment also impacts the claims of other creditors, as only the assets of the decedent are allocated among claims. In the event there are insufficient assets to pay creditor claims, the estate may be insolvent. Personal property of decedent is primarily liable for debts: Ginder & Smith v. Ginder, 72 Ohio L. Ab. 277, 134 N.E.2d 603 (PC 1954). In the event there are not sufficient assets, when all preferred claims against the estate of a deceased person have been paid in accordance with the statute, a pro rata distribution of the remaining funds therein must be made among the general creditors in accordance with GC § 10509-122 (RC § 2117.25): Moore v. Midland Buckeye Fed. Sav. & Loan Assn., 72 Ohio App. 323, 51 N.E.2d 758 (1943).
As with many statutory amendments, good news for some isn’t always good news for all.
If you have any questions on this matter, please contact Mr. W. Cory Phillips, Esq. Cory is an associate who practices in Consumer Collections and is located in the Cleveland office of Weltman, Weinberg & Reis Co., LPA. Cory can be reached at 216.685.1157 and firstname.lastname@example.org.
 O.R.C. § 2117.06 et seq.
 O.R.C. § 2117.25.
Content being king and all, I’m constantly looking around the firm for articles written by our attorneys that I can shamelessly exploit here on TCUB. David Brown, one of our more prolific writers wrote this piece which I liked a lot. Of course when you read it you’ll see that it is entirely B-A-N-K related and, well, that’s not really the TCUB focus if you know what I mean.
But I honestly didn’t know what the story was down in Columbus on the issue for credit unions, so I called my friend John Kozlowski at the Ohio Credit Union League. John has actively lobbied to get a bill for credit unions on this issue and has testified before the Ohio Legislature to this effect. However, it didn’t happen this time. John told me that 22 states allow credit unions to hold public funds, but Ohio does not seem to be too quick to join them.
It’s unfortunate. I don’t see this as having any basis in terms risk to funds. John did point out to me that one things that banks can do that credit unions cannot is to take advantage of the CDARS system. CDARS splits Certificates of Deposit among many banks to take advantage of FDIC insurance while still getting certificate of deposit level returns. Credit Unions can put money into CDARS but they cannot be holders of CDARS funds. That is apparently a big deal, although perhaps not for the 22 states that do allow credit unions to hold public funds.
I suspect the only solution here is to try to raise more money for the League to continue to lobby the issue.
Filed under: credit unions, Fraud Prevention, NCUA | Tags: examiners, regulators, St. Paul
When this story broke, it happened to be around the same time that the Corporates went through their debacle. Thus the astonishing amount of theft paled in comparison to the investment losses of the likes of WesCorp and, incredibly, the story did not get the same amount of attention. Yet, the incident continues to affect credit unions now and will continue to impact the movement for years to come.
It’s not just the damage to the insurance fund that makes the effects of the fraud so far reaching. The examination process has been forever changed. No examiner wants this to happen on their watch going forward. The amount of the loss, estimated at $170,000,000, is breathtaking for a natural person credit union and constitutes the single largest loss to National CU Share Insurance Fund for a natural person credit union. Reading the NCUA report on how it happened is compelling.
But the damage is done. I’m seeing it firsthand. Not only are the state and federal regulators feeling pressure from the economy, they are also managing the specter of St. Paul. This translates on the street level to more inquisitiveness on the part of examiners and more work for CEO’s and their staff. Some might say that’s a good thing but others might be less sanguine. Credit unions are already scrambling to meet greater compliance burdens on the lending side as well as increased monitoring burdens under BSA, OFAC and the PATRIOT Act. Board members are starting to adjust to a world where greater competency is mandated and personal liability for credit union missteps is very real.
But at least as the people involved with St. Paul have been brought to justice. It’s up to us to live in the post St. Paul world.