Maryland Laws Update for Financial Services

Hero Image for page

2008 Maryland Laws Update

The 2008 session of the Maryland General Assembly adjourned on April 9. During this session, the problems in the residential mortgage lending arena precipitated new laws and restrictions on mortgage lending. In an atmosphere of suspicion concerning the financial services industry, however, some very positive laws were passed. The 2008 laws present both opportunities and challenges for financial institutions. Some new laws are effective now, and others are effective later. Some of these new laws may require changes to your procedures or forms.

Mortgage Lending

Information in Deeds of Trust on Residential Property
SB 216/HB 365 - Chapters 1 and 2 (effective April 3, 2008)
Chapters 1 and 2 require security instruments (deeds of trust and mortgages) secured by "residential property" to contain certain information about mortgage originators and lenders. "Residential property" means real property improved by 4 or fewer single family dwelling units. The information is (1) if a licensed Maryland Mortgage Originator (the employee of a licensed mortgage broker) originated the loan, that individual's name and license number, or if the loan was originated by an individual not licensed as a Mortgage Originator, then an affidavit to that effect, and (2) if a licensed Maryland Mortgage Lender made the loan, that lender's name and license number, or if the loan was made by a lender exempt from licensing under the Maryland Mortgage Lender law, then an affidavit by the lender to that effect. The Commissioner of Financial Regulation must issue regulations to implement this law, including consequences for failure to include this information in the mortgage or deed of trust.

Practice Pointer: "Residential property" is not limited to owner-occupied properties nor is it limited to consumer credit transactions. This law applies to business credit secured by residential real property, including indemnity deeds of trust, as well as consumer purpose home loans.
 
Practice Pointer: The law provides that until the Commissioner adopts regulations, failure to include the new information when recording a mortgage or deed of trust may not be the basis for a clerk to fail to record the instrument. The clerks do not deem this information essential to recordation in any event, and the Commissioner's regulations may need to establish a different result to "motivate" lenders to include the information in recorded documents.

Foreclosing Deeds of Trust on Residential Property
SB 216/HB 365 - Chapters 1 and 2 (effective April 3, 2008)
Chapters 1 and 2 also significantly modify the timing and change the process for a foreclosure action on "residential property" (with the same definition as described above). An action to foreclose a security instrument on residential property may not be commenced until the later of (1) 90 days after a default that allows the secured party to foreclose, or (2) 45 days after a "notice of intent to foreclose" has been sent. The "notice of intent to foreclose" must be sent by certified and first class mail to the borrower and to the record owner and a copy must be sent to the Commissioner of Financial Regulation. The notice must be in the form that the Commissioner prescribes by regulation.
 
Practice Pointer: The Commissioner has issued the required form of "notice of intent to defend" in emergency regulations. 

Chapters 1 and 2 also establish new, detailed content requirements for foreclosure action filings. Unless a court grants a waiver (available for very limited circumstances), a foreclosure sale cannot occur until 45 days after the filed/docketed foreclosure complaint has been served on the borrower (the method of service is prescribed by the law.) A foreclosure complaint must now include the license numbers of the mortgage originator and the mortgage lender, if applicable, an affidavit stating the date on which the default occurred and the nature of the default and, if applicable, that a notice of intent to foreclose was sent as required and the date on which the notice was sent. The complaint must be accompanied by very specific documents describing the loan transaction. The law gives the mortgagor or grantor a right to cure the default and reinstate the loan at any time up to 1 business day before the foreclosure sale occurs. Upon request, the secured party must tell the mortgage or grantor the amount necessary to cure the default.
Practice Pointer: There are many unanswered questions about the new foreclosure process. Anticipated regulations should answer some of these questions.

Payment of Interest after Foreclosure Sale in Garrett County
SB 875/HB 901 - Chapters 628 and 629 (effective October 1, 2008)
In certain Maryland counties, interest provided in a mortgage or note secured by a deed of trust is payable for only 60 days following the earlier of a foreclosure sale or the ratification of the audit of the sale. This law adds Garrett County.

Mortgage Fraud
SB 217/HB 360 - Chapters 3 and 4 (effective April 3, 2008)
Chapters 3 and 4 make it a crime to commit "mortgage fraud." Mortgage fraud always requires the intent to defraud. It also requires involvement of a loan secured by owner-occupied residential property and as further defined in Maryland's Mortgage Lender licensing law (primarily consumer purpose loans). Both the Attorney General and local States' Attorneys may prosecute cases of mortgage fraud. Property derived from mortgage fraud may be forfeited to assist victims. The law also authorizes private causes of action for mortgage fraud and gives the court authority to award 3 times the actual damages.

Foreclosure "Rescue Scams"
SB 218/HB 361 - Chapters 5 and 6 (effective April 3, 2008)
Chapters 5 and 6 address problems with  Maryland's Protection of Homeowners in Foreclosure Act, enacted in 2005 to combat the growing problem of foreclosure rescue scams. In addition to new requirements and prohibitions regarding foreclosure "rescue" activities, coverage of the law is expanded. Title insurers and title insurance producers are no longer exempt. The exemptions for certain loan owners, mortgage lenders and real estate brokers and salespersons are narrowed. The law continues not to apply to banks and other insured depository institutions or their subsidiaries or affiliates while engaged in normal business activities. Any business that is not exempt and that will be assisting homeowners who are in default on their home loans or face foreclosure should carefully review this law.

New Mortgage Credit Law and Mortgage Lender and Broker Licensing Requirements
SB 270/HB 363 - Chapters 7 and 8 (effective June 1, 2008, with certain licensee net worth requirements effective January 1, 2009)
This law imposes changes on lending and business practices of mortgage lenders and brokers in Maryland. Among the provisions impacting lenders, it eliminates the final vestige of a permissible prepayment fee on consumer mortgage loans. The law also prohibits lenders from making any consumer mortgage loan, or any commercial mortgage loan of up to $75,000 secured by owner-occupied property, without giving due regard to the borrower's ability to repay the loan. Lenders must take into account the fully indexed rate of the mortgage loan and any property taxes and insurance, whether or not an escrow account will be established. Due regard is established by considering the borrower's debt to income ratio and verifying the borrower's gross monthly income and assets by review of third party written documentation. Third party written documentation includes a W-2, an income tax return, payroll receipts, bank account, other financial institution records or other third party documents that provide reasonably reliable evidence of the borrower's income or assets. These requirements do not apply to reverse mortgages or loans approved for government guaranty under FHA, VA or Community Development Administration programs.
Among the provisions impacting mortgage brokers, the law requires brokers to add a provision to their written broker agreements clarifying that they are brokers and not lenders. Among provisions impacting both mortgage lenders and brokers licensed under the Mortgage Lender licensing provisions, this law increases all licensing fees and surety bond requirements and, for the first time, imposes net worth requirements on lenders and brokers. The increased surety bond and new net worth requirements are effective, for the most part, when new licenses for mortgage lenders, brokers and servicers are issued or existing licenses renewed after June 1, 2008. Effective January 1, 2009, the net worth requirements will increase again for lender licensees who make $5 million or more in mortgage loans during the applicable 12-month period.

Foreclosure of Contract Liens
HB 645 - Chapter 286 (effective October 1, 2008)
This law increases from 3 to 12 years the period within which an action to foreclose a lien created under the Maryland Contract Lien Act may be brought.

Exemption from Recordation and Transfer Taxes for Domestic Partners
SB 597 - Chapter 599 (effective July 1, 2008)
This law exempts from recordation and transfer taxes a transfer of residential property when the transferor and transferee are domestic partners or former domestic partners. Exemption is conditioned on the submission of certain evidence of the domestic partnership or former domestic partnership.

Credit Regulation

Fees, Charges and Penalties
SB 347/HB 852 - Chapters 34 and 35 (effective April 3, 2008)
This law was adopted in the wake of the Bednar v. Provident Bank case regarding recapture of mortgage loan closing costs. Subtitles 9 and 10 of the Maryland Credit Grantor Provisions were amended to clarify that actual closing costs that are waived by the lender at the time of closing may be recaptured if the borrower prepays and that the recapture of these costs is not a prohibited prepayment penalty. In addition, the law now protects lenders who rely on or act in accordance with guidance (either an opinion or written interpretation) from the Maryland Attorney General or the Commissioner of Financial Regulation in taking action or using a form in connection with a loan made under Subtitles 9 and 10. If the lender's practice has been blessed by the Attorney General or the Commissioner, but is later found by a court to violate Subtitles 9 or 10, the lender will not be subject to a forfeiture of all costs, fees and other charges collected in respect of the loan, other than the charges that a court determines to have been collected in violation of the law. This protection is retroactive and applies to lenders who relied on guidance before the law's effective date.

Practice Pointer: Lenders now are able to rely on written guidance from the Commissioner of Financial Regulation or Attorney General.

Financial Institutions

Task Force to Study How to Improve Financial Literacy in the State
SB 533/HB 1242 - Chapters 186 and 187 (effective July 1, 2008)
This law creates a task force to study how to improve financial literacy in Maryland. The task force is created to study (1) the current ability of high school students and consumers over the age of 21 with high school diplomas to understand basic financial concepts, (2) the effectiveness and utility of Maryland's public school systems' provision of financial literacy education and (3) the problems for consumers associated with a lack of financial literacy. The task force will make recommendations to the General Assembly regarding how to address problems and the benefit of requiring primary and secondary schools to teach financial literacy.

Commissioner of Financial Regulation Cooperative Agreements and Information Sharing
HB 417 - Chapter 499 (effective July 1, 2008)
This law authorizes the Commissioner of Financial Regulation to enter into cooperative and information sharing agreements with federal and state agencies having authority over the types of businesses supervised by the Commissioner and also to exchange information about these types of businesses with those agencies. The Commissioner may not share information in a manner prohibited by federal law. The Commissioner is not authorized to exercise this power over banks that have their principal offices or have branches in Maryland or over those banks' affiliates, unless the affiliate maintains or is required to maintain a license issued by the Commissioner.

Financial Institutions Regulatory Reforms
HB 751 - Chapter 89 (effective October 1, 2008)
This law streamlines the processes that Maryland chartered banks must follow when installing ATMs and establishing or acquiring "affiliates."  Applications for ATMs no longer will be required.  Instead, a bank must provide the Commissioner of Financial Regulation with 15 days' prior written notice of its intent to install the ATM. No notice is required if the ATM will be installed at the bank's principal office or a branch. Likewise, a bank rated CAMELS 1 or 2 and that is well-capitalized will not be required to submit an application before acquiring or establishing an affiliate or conducting a new activity in an existing affiliate if the affiliate's activities will be limited to (1) holding and managing assets acquired in foreclosure or otherwise in good faith to compromise a doubtful claim or in the ordinary course of collecting a debt previously contracted, (2) providing direct services to the bank or its other affiliates, (3) making, purchasing, selling or servicing loans or other extensions of credit or (4) leasing personal property.  Instead, the bank will have to provide the Commissioner with a notice within 10 days after acquiring or establishing the affiliate. No notice will be required to acquire or establish an affiliate if it only will engage in activities that previously have been approved for an existing affiliate. The Commissioner's prior approval is still required for all other affiliates. 
The law requires each incorporator, executive officer and director of a new bank to submit fingerprints when the bank files its Articles of Incorporation with the Commissioner. The law also increases the maximum civil penalty that may be imposed for failing to timely make a report or file a proof of publication required by the Financial Institutions Article from $50 to $500 for each day that the report or proof is overdue.

Financial Institutions Regulation, Fees and Assessments
HB 752 - Chapter 293 (effective July 1, 2008)
This law increases the fees and annual assessments imposed on Maryland chartered financial institutions. Most notably, examination fees will increase to $15,000, filing fees for mergers, consolidations and transfers will increase to $3,000 to $5,000 depending on the number of entities involved, the application fee for affiliates will increase to $750, the branch application fee will increase to $600 and a foreign banking permit will increase to $500. The annual assessment rates will increase to $8,000 plus an amount determined by reference to the institution's assets (12 cents per $1,000 in assets for assets between $50 million and $250 million, 10 cents for each $1,000 of assets between $250 million and $500 million, 9 cents for each $1,000 of assets between $500 million and $1 billion, 8 cents for each $1,000 of assets between $1 billion and $10 billion and 7 cents for each $1,000 of assets over $10 billion). The assessment amounts are lower for non-depository institutions. If an institution is rated CAMELS 3, 4 or 5, however, the amount of the assessment is subject to a 25% increase. Finally, the law increases the duration of a foreign banking permit from 2 years to 3 years.

Debt Management and Credit Counseling

Debt Management Services
SB 646/HB 947 - Chapters 605 and 606 (effective June 1, 2008)
When Maryland adopted the Debt Management Services Act in 2003, one of the first state laws to comprehensively regulate those who help debtors deal with consumer debt by paying it off over time with counseling support, only debt management service providers with a 501(c)(3) tax exempt status were permitted to perform these services. This law permits tax paying debt management services providers to perform services for Maryland consumers.

Taxes

Maryland Individual Tax Preparers Act 
SB 817 - Chapter 623 (effective June 1, 2008)
This law requires individuals to be registered by the Maryland State Board of Individual Tax Preparers before providing individual tax preparation services in the State. To qualify for registration, an individual must be at least 18 years old, be a high school graduate and pass an examination equivalent to the Special Enrollment Examination prepared by the Internal Revenue Service. Registration is valid for 2 years, with continuing education requirements established for renewal. An individual who provides tax preparation services has until June 1, 2010 to meet the registration requirements.

Computer Services Tax
SB 46 - Chapter 10 (effective July 1, 2008)
A law enacted during the 2007 Special Session expanded the Maryland sales and use tax to "computer services." Chapter 10 repeals this law. 

Individual Income Tax Rates
SB 46 - Chapter 10 (effective for taxable years beginning after December 31, 2007)
This law increases the State income tax rate for high-earning Maryland taxpayers. Maryland taxpayers with annual taxable income in excess of $1,000,000 will be taxed at 6.25%, rather than at the previous rate of 5.5%.

Corporate Tax Reporting Requirements
SB 444/HB 664 - Chapters 177 and 178 (effective July 1, 2008)
New tax reporting obligations on corporations that file Maryland income tax returns and are members of a "corporate group" were enacted by the 2007 Special Session. Chapter 178 significantly modifies those tax reporting obligations. A corporate group excludes a corporation that is not subject to federal income tax, an insurer under the Maryland Insurance Article or a regulated investment company under the federal Internal Revenue Code. Corporations fitting this criteria are required to file a pro-forma "water's edge" combined corporate income tax return, information that shows differences in Maryland income and income that the corporation claims is not apportionable to Maryland operations and the tax that would have been paid on that non-apportionable income had it been apportioned to Maryland operations.

Property Tax Credit - Commercial Waterfront Property
HB 612 - Chapter 281 (effective June 1, 2008)
This law authorizes counties and municipalities to provide a property tax credit for "commercial waterfront property." Commercial waterfront property is real property that is adjacent to the tidal waters of the State, is used primarily for a commercial fish operation or as a commercial marina or commercial marine repair facility and has produced an average annual gross income of at least $1,000 in the most recent 3-year period. Local governments may provide for the amount, duration, eligibility criteria and other requirements for the tax credit.

Real Estate

Critical Areas - Revisions to Lot Coverage, Buffer Area and Growth Allocations
HB 1253 - Chapter 119 (effective June 1, 2008)
This law restricts the developable areas in the Critical Area (water front property) by limiting the amount of "Lot Coverage," which is defined more broadly than the prior "impervious surface," and makes obtaining growth allocations more difficult. The buffer is expanded from 100 feet to 200 feet in the Resource Conservation Area. The law authorizes new regulations and updated maps and provides tougher penalties for violations, including possible license revocation for contractors. The law has phase-in applicability to existing projects in the development pipeline.

Penalties Increased for Maryland Real Estate Brokers and Salespersons
HB 626 - Chapter 282 (effective October 1, 2008)
This law significantly increases penalties that may be imposed on licensed real estate brokers, associate real estate brokers and licensed real estate salespersons who violate the Maryland Real Estate Brokers Act. A licensee may be subject to a $15,000 fine for a second violation and a $25,000 fine for a third or subsequent violation. In addition, this law increases the penalties for multiple violations of certain sections of the Act to a fine of up to $15,000 or 2 years imprisonment or both for a second violation, and a fine of up to $25,000 or 3 years imprisonment or both for a third or subsequent violation.

New Recordkeeping Requirements for Real Estate Licensees
SB 762/HB 1316 - Chapters 449 and 450 (effective October 1, 2008)
This law imposes new recordkeeping requirements for licensed real estate brokers, associate real estate brokers and real estate sales persons. Beginning October 1, 2008, these licensees will be required to keep copies of their listings and any other document executed or obtained by them including any electronic signature contained on a document. These records must be kept for a minimum of 5 years from the date of the closing or, if no closing occurs, the date of the listing. A licensee who provides property management services must keep these records until 5 years after the management contract terminates. A record may be kept in electronic format under certain circumstances. A licensee must permit the Real Estate Commission to enter the licensee's place of business and inspect its records, provide the Commission with a paper copy of any requested record and display to the Commission all records, books and accounts of any money held in trust.

Construction Contracts - Retention Proceeds
SB 313 - Chapter 390 (effective October 1, 2008)
This law provides that the retainage withheld by the owner on payments to the general contractor under a construction contract may not exceed 5% of the contract price, the retainage withheld by the general contractor on payments to subcontractors may not exceed the percentage of the retainage withheld by the owner, and the retainage withheld by a subcontractor on payments to other subcontractors may not exceed the percentage of the retainage withheld by the general contractor. An owner, contractor or subcontractor may withhold additional amounts in the event the owner, contractor or subcontractor determines that the contractor or subcontractor's performance under the contract provides reasonable grounds for withholding additional amounts. The law does not apply to construction contracts of less than $250,000 or to contracts funded wholly or in part through the Maryland Department of Housing and Community Development.

Action Item: Construction loan agreements may need to be amended to limit the retainage of the lender to 5% of the contract amount to be consistent with the owner's permissible retainage.

Condominiums - Unit Owner Responsibility
HB 646 - Chapter 513 (effective October 1, 2008)
This law increases the maximum potential liability of a condominium unit owner that causes damages to the condominium. The law provides that the condominium bylaws may provide that the responsible owner is liable for up to $5,000 of the council of unit owners' property insurance deductible. The excess over $5,000 is a common expense. 

Insurance

Insurance Producers: Some Exempt from Study, others Required to have more Education
HB 1589 - Chapter 331 (effective October 1, 2008 and January 1, 2009)
This law adds to the list of insurance producer applicants who are exempt from the requirement to complete a pre-approved course of study. Insurance producers with accreditations specified in the statute are now exempt. This law also changes the continuing education requirements imposed on insurance producers. The maximum number of hours that the Insurance Commissioner can require has been increased to 24 hours for each renewal period, except that the maximum for title insurance producers is 16 hours for each renewal period. For producers who have held a license for at least 25 years, however, the maximum number is 8 hours for each renewal period. 

Omnibus Coastal Property Insurance Reform Act
HB 1353 - Chapter 540 (effective October 1, 2008)
This law prohibits an insurer that issues a policy of homeowner's insurance from adopting an underwriting standard that requires a deductible that exceeds 5% of the "Coverage A - Dwelling Limit" of the policy in the case of a hurricane or other storm, unless the insurer has made a filing and obtained approval from the Insurance Commissioner. The filing must be made at least 60 days before the insurer proposes to implement the underwriting standard. The deductible only may apply beginning at the time a hurricane warning is issued and ending 24 hours following the termination of the last hurricane warning.
The law also requires the Maryland Department of Housing and Community Development to review statewide building codes and develop enhanced building codes for coastal regions of Maryland and report the findings to the Senate Finance Committee and House Economic Matters Committee by October 1, 2010.

Preservation of Right to Jury or Judge Trial
HB 577 - Chapter 665 (effective January 1, 2009)
This law prohibits any consumer insurance contract from containing a waiver of jury or judge trial by requiring binding or nonbinding arbitration.

Commission to Study the Title Insurance Industry 
SB 61/HB 600 - Chapters 356 and 357 (effective July 1, 2008)
This law establishes a commission to study the title insurance industry in Maryland. The purpose of the commission is to make recommendations for changes to laws relating to the title insurance industry based upon its review of the current rate structure in Maryland, the effect of the industry's current structure upon consumers and other issues. 

Vehicles

Motor Vehicle Excise Tax - Leased Vehicles
SB 924/HB 1570 - Chapters 633 and 634 (effective May 22, 2008)
This law clarifies that an individual trading in a nonleased vehicle to enter into a vehicle lease is eligible for a trade-in allowance against the excise tax imposed on the vehicle being leased. It alters the definition of "total purchase price" for the purposes of the vehicle excise tax to prohibit the lessor from passing the portion of the motor vehicle excise tax paid by the lessor on the residual value of the trade-in vehicle in either a sale or lease transaction on to the lessee. The law applies retroactively to January 1, 2008.

Credit Cards

Student Applicants
HB 1210 - Chapter 312 (effective October 1, 2008)
This law requires institutions of higher education to develop policies regarding the credit card marketing activities and merchandising conducted by credit card issuers on the institution's campus. The policy must require that credit card issuers inform students about good credit management practices and must be available to students on request. The policy also must consider registration of issuers conducting activities on campus, include limits on the times and locations at which such activities may be conducted and prohibit merchandising unless students are provided credit card debt education literature. 

Consumer Protection

Advertisement of Rebate for Consumer Goods
HB 1350 - Chapter 539 (effective October 1, 2008)
This law requires merchants who advertise a rebate for consumer goods that is available only if the consumer mails in a rebate form to state clearly in the advertisement that the rebate is only available by mail.

Boat Brokers
HB 648 - Chapter 287 (effective October 1, 2008)
This law requires a boat broker to place trust money received in anticipation of a boat purchase in a trust account until disbursed to the beneficial owner at purchase. If the purchase is not completed, the trust money must be returned to the purchaser. The trust account must be separate from the boat broker's operating account. 

Labor and Employment

Pay Disparity Data
HB 1156 - Chapter 114 (effective October 1, 2008)
This law will require all Maryland employers, regardless of size, to keep records regarding the pay of their employees by race and gender, so that the Commissioner of Labor and Industry can analyze the data to study pay disparity issues. It is anticipated that the Commissioner of Labor and Industry will promulgate regulations specifying the reports to be required. Federal contractors are already obligated to report this type of data under OFCCP regulations.

Action Item: The data collected under this new law may be used by employees bringing pay disparity suits under Title VII, the Equal Pay Act and other discrimination statutes. Employers should analyze their potential exposure to liability under the discrimination laws based on pay disparities. 

Wage Payment on Termination of Employment/Accrued Leave
SB 797 - Chapter 220 (effective April 24, 2008 and retroactively to November 1, 2007)
It had long been the law in Maryland that employees are not entitled to vacation pay upon termination of their employment if the employer adopted (and made employees aware of) a policy under which unused leave will be lost or forfeited. For example, many employers have policies which provide that employees who fail to give sufficient notice of resignation, or who are fired for cause, forfeit accrued vacation pay upon termination.  The August 2007 decision of the Maryland Court of Special Appeals in Catapult Technology, Ltd. v. Wolfe, held that such policies violated Maryland law. In November 2007, the Maryland Department of Labor, Licensing & Regulation changed its long-standing interpretation of the law and adopted the position of the Catapult court. 
This law was enacted on an emergency basis to amend the Maryland Wage Payment & Collection Act and restore the prior interpretation of the Act.  Employers are once again permitted to set the conditions under which accrued vacation leave will be paid upon termination of employment as long as they timely inform employees of their policy.
 
Action Item: Employers should review their existing vacation, PTO, and other paid leave policies to make sure that such policies accurately describe the circumstances under which leave will be paid and/or forfeited upon termination of employment. 

Flexible Leave Act
HB 40 -Chapter 644 (effective October 1, 2008)
This law applies to all employers that have 15 or more employees and requires that employees be allowed to use any "leave with pay" to cover an absence caused by the illness of a child, spouse or parent. (Under the law, "leave with pay" includes sick leave, vacation time and compensatory time).  The law applies to leave that has been earned and which is used in compliance with the terms of the employer's leave policies. Unlike the federal Family and Medical Leave Act, the Maryland flexible leave law does not contain eligibility requirements that an employee must meet before the employee is covered by the law. Moreover, the Maryland law does not address issues such as defining the term "illness" or providing for notice and medical certification requirements. These issues may be addressed by future regulations.
 
Action Item: Because the law requires employees using leave to comply with their employer's leave policies, it is important to have leave policies that will provide the employer with the maximum protection. Employers should review their leave policies that are subject to this law. 

Corporate Law

Right to Fair Value of Stock
SB 556 - Chapter 191 (effective June 1, 2008)
Under current law, when a Maryland corporation is a party to a consolidation, merger or share exchange and will not be the successor, sells all or substantially all of its assets, or amends its charter in a way that adversely alters the contract rights of stockholders, any objecting stockholder is entitled to demand the fair value of his or her stock. When the corporation's stock is listed on a national securities exchange, however, this right does not exist. This law eliminates the exception for listed company stock in connection with a merger, consolidation or share exchange where (1) the stockholder's stock is to be converted into anything of value other than stock of the surviving or resulting corporation, stock of any other corporation, or depositary receipts for any such stock, and/or cash in lieu of fractional shares or fractional depositary receipts, (2) the directors and executive officers of the non-surviving corporation beneficially own 5% or more of the corporation's outstanding voting stock at any time within the 1-year period ending on the date of the stockholder vote or, in the case of a merger, the date the merger is effective, and (3) except in limited circumstances, in the transaction the stock held by the directors and executive officers will be converted into or exchanged for stock of a person that is a party to the transaction on terms that are not available to all holders of that stock. 

Altering and Updating Corporate Procedures
HB 743 - Chapter 292 (effective June 1, 2008)
On October 1, 1995, the Maryland General Corporation Law was amended to provide that no stockholder of a Maryland corporation has preemptive rights to subscribe for additional shares of stock or any security convertible into shares of stock unless the charter expressly provides for preemptive rights. This law clarifies that the 1995 change was not intended to adversely impact preemptive rights that existed prior to October 1, 1995. The general rule against preemption will apply only to corporations that were incorporated on or after October 1, 1995. For corporations incorporated before that date, stockholders have the preemptive rights that existed before October 1, 1995. Accordingly, if the charter of a pre-October 1, 1995 corporation is silent as to preemptive rights, then stockholders have them in certain circumstances.
 
Practice Pointer: A corporation incorporated prior to October 1, 1995 should review its charter to determine if it expressly excludes preemptive rights. If not, you should consult with counsel to determine whether the charter should be amended. 
This law also sets a minimum quorum requirement for stockholder meetings of registered open-end investment companies and of corporations that have a class of equity securities registered under the Securities Exchange Act of 1934 and at least 3 non-employee directors. Although the Maryland General Corporation Law gives these entities the freedom to establish in their charters or bylaws the number of shares that constitute a quorum, this law provides that a quorum provision in the bylaws cannot be less than 1/3 of the votes entitled to be cast at the meeting. 

Environmental Law

Controlled Hazardous Substances
HB 977 - Chapter 106 (effective October 1, 2008)
This law requires certain persons to notify the Maryland Department of the Environment if they receive a Phase II assessment indicating that a hazardous substance has been released into the environment (subject to certain threshold levels). The owner or operator and any person who was the owner of the property at the time a hazardous substance was released are among those who must make the report. 

Practice Pointer: Depending on the threshold levels set by the Department of the Environment, this law may result in greater governmental involvement in industrial redevelopment projects, leading to potential reluctance to finance projects on sites reported until the Department has reviewed the results. Such reports should be part of a lender's environmental due diligence.

Privacy

Access to Public Records
HB 689 -Chapter 83 (effective October 1, 2008)
This law authorizes a custodian to deny inspection of a part of a record kept by a public institution of higher education that contains "personal information" relating to a student, former student or applicant, if the information is requested for commercial purposes. The law authorizes a custodian to require requests to inspect a record containing personal information to be in writing and sent by first-class mail. Personal information means an address, phone number, electronic mail address or "directory information." If the information is requested for commercial purposes, the custodian has the discretion to deny inspection of the part of the record containing the personal information.

Identity Fraud
SB 60/HB 1113 - Chapters 354 and 355 (effective October 1, 2008)
This law modifies the criminal law concerning identity theft, data base access and computer access. It will be a crime to intentionally and without authorization possess, identify, publish or distribute an access code to a computer system or database. Unauthorized use of a "re-encoder" or "skimming device," which store credit card information, to obtain things of value also is a crime.  In addition, proof of certain credit card crimes is made easier. An affidavit sworn to by a credit cardholder may be introduced under certain circumstances as evidence that the credit card was taken or used without authorization.

FINANCIAL SERVICES GROUP
Gordon Feinblatt's Financial Services lawyers advise clients that offer financial, banking, and insurance services in Maryland. Our clients include banks, thrifts, credit unions, mortgage bankers and brokers, insurance companies and producers, HMOs, consumer finance companies, check cashers, industry trade associations, debt management service providers, and businesses that provide data processing and other services to the financial services sector. We regularly handle matters that include the following:

  • Advertising
  • Bankruptcy and Workouts
  • Consumer Credit
  • Corporate and Securities
  • Deposit Accounts
  • Employment
  • Environmental
  • E-Commerce
  • Government Relations/ Lobbying
  • Lending
  • Licensing
  • Litigation
  • Mergers and Acquisitions
  • Mortgage Lending & Brokering
  • Regulatory Issues
  • Trademark and Tradename

Please contact us at www.gfrlaw.com or (410)576-4000 to help you solve your legal challenges.