Maryland Laws Update for Financial Services

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2009 Maryland Laws Update

The 2009 session of the Maryland General Assembly adjourned on April 13. During this session, the problems in the residential mortgage lending arena continued to generate new laws and restrictions on mortgage lending. The powers of the Maryland Commissioner to impose civil penalties against Maryland banks and credit unions for violations of law were substantially enhanced.  Several changes were made to Maryland employment law, including raising the amount of unemployment insurance. The 2009 laws present both opportunities and challenges for financial services providers.  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 Loans, Foreclosure and Real Estate

Proof of Ability to Repay Mortgage Loan
SB 1036/HB 1535 (Chapters 114 and 115) (effective April 14, 2009)
Last year, the General Assembly required residential mortgage lenders to give due regard to a consumer borrower's ability to repay a loan.  Giving due regard to the borrower's ability to repay includes consideration of the borrower's debt to income ratio and verification of the borrower's gross monthly income. This emergency law expands existing exemptions and exempts a lender from the consideration and verification requirements for any mortgage loan that is approved for government guaranty by the United States Department of Agriculture or the Maryland Department of Housing and Community Development and any mortgage loan offered under the new federal Homeowner Affordability and Stability Plan that refinances an existing mortgage loan. 

Practice Pointer: Federally-chartered institutions may want to consider the availability of federal law preemption in connection with Maryland's requirement to consider the borrower's ability to repay a residential mortgage loan.

Foreclosure of Mortgages and Deeds of Trust on Residential Property
Notice to Occupants

SB 842/HB 776  (Chapters 614 and 615) (effective May 19, 2009)
Under current Maryland Rules of Procedure, notices of foreclosure must be sent to all occupants of the property by the person conducting the sale at the time the foreclosure proceeding is filed, prior to the actual sale and by the person who buys the property when a judgment awarding possession is entered and before any attempt to execute the writ of possession. This law enacts these Rules into law and enhances the content of the notices. The law applies only prospectively, and does not apply to any foreclosure action filed before the effective date.

Notice to Local Governments
HB 640 (Chapter 149) (effective July 1, 2009)
Current law requires the person authorized to make a foreclosure sale to notify the county or municipal corporation in which the real property is located not less than 15 days prior to the sale. This new law authorizes local Maryland governments to enact laws requiring notice of a foreclosure relating to "residential property" (defined as real property improved by 4 or fewer single-family dwelling units that are designed principally and intended for human habitation) within 5 days after filing an order to docket or a complaint to foreclose. Any law enacted under this authority must provide that notice to the local government include the name, address and contact information of the person authorized to make the sale, the street address of the residential real property and the names and addresses, if known, of all property owners. The notice requirement will not be effective until the local government takes action.

Recordation and Foreclosure
HB 798/SB 807 (Chapters 691 and 692)
(effective June 1, 2009)

Maryland law provides substantial protections to consumers when "residential property" is foreclosed. Currently, "residential property" is defined simply as real property improved by 4 or fewer single family dwelling units. Judges have determined in some cases that the protections apply to commercial building foreclosures simply because the borrower occasionally uses the property for personal purposes, e.g., the borrower sleeps at the office from time to time. This law clarifies the definition (and, thus, the applicability of the more protective provisions of the foreclosure process) by adding "designed principally and intended for human habitation" to the definition of "residential property."

Mortgage Lenders and Mortgage Loan Originator Licensing
SB 269 (Chapter 4) (effective July 1, 2009)
Chapter 4 revises Maryland's mortgage lender (i.e., company) and originator (i.e., employee) licensing laws to conform to the requirements of the federal Secure and Fair Enforcement Mortgage Licensing Act of 2008. Among other provisions, it requires applicants and licensees to use the Nationwide Multistate Licensing System and Registry. It also increases civil penalties for violations of those Maryland licensing laws. 

These Maryland requirements do not apply to employees of banks, savings associations, credit unions and their subsidiaries, who will be subject to registration through the system being developed by the federal banking agencies.  "Subsidiaries" means entities owned and controlled by a financial institution and regulated by a federal banking agency. However, employees of mortgage lenders that are affiliates (and not subsidiaries) of a financial institution are subject to Maryland mortgage loan originator licensing.

Practice Pointer: Mortgage originators who are not exempt from these Maryland licensing laws must take prompt action to conform prior to July 1, 2009. Prior exemptions (i.e., for company owners or for employees who never broker loans) have been eliminated.

Mortgage Fraud
HB 79 (Chapter 126) (effective October 1, 2009)
Chapter 126 amends the current mortgage fraud law by including a prohibition against knowingly creating or producing a document for use during the residential mortgage lending process that contains a deliberate misstatement, misrepresentation or omission with the intent that the document be relied on by the lender, borrower or any other party to the loan transaction. 

Financing Contingency Clauses in New Home Sales Contracts
SB 657 (Chapter 92) (effective October 1, 2009)
Chapter 92 amends existing new home sales law to provide that, unless the contract expressly states otherwise, a contract for the
initial sale of a new home (as defined in the Maryland Home Builder Registration Act) is contingent on the purchaser obtaining a written commitment for a loan secured by the property and must state the maximum interest rate that the purchaser is obligated to accept.

Repair or Replacement of Damage by Condominium Council of Unit Owners
SB 201/HB 287 (Chapters 522 and 523) (effective June 1, 2009)
The Maryland Task Force on Common Ownership Communities made recommendations in 2006 to the General Assembly on improvements to the law governing common ownership communities (condominiums, homeowners associations and cooperative housing corporations).  This law, and several others, implements some of those recommendations.

Overturning the Maryland Court of Appeals 2008 decision in Anderson v. Council of Unit Owners of The Gables on Tuckerman Condominium, this law places an affirmative duty on all Condominium Councils of Unit Owners to repair damage to a condominium that originated in a unit. The law requires the CCUO to maintain property insurance on the common elements and units, exclusive of improvements installed in a unit by the unit owner. The unit owner must pay the deductible of the condominium's master insurance policy, up to $5,000, if the cause of the damage originated from the owner's unit.  Notice of this unit owner duty must be included in the condominium sales contract, or the sales contract is not enforceable, and must be provided annually thereafter.

Bank Regulation


Branch Banking and Civil Penalties
HB 1555 (Chapter 741) (effective July 1, 2009)
The Commissioner of Financial Regulation currently has the ability to issue cease and desist orders against banks and credit unions.  This law gives the Commissioner the ability to assess civil money penalties against banks and credit unions for violating cease and desist orders and for engaging in unsafe or unsound banking practices or practices that are injurious to the public interest. The maximum penalty is $1,000 per violation and $1,000 per violation for each day that the violation continues. 

The law also establishes a branching reciprocity scheme for out-of-state banking institutions. An out-of-state bank may not establish a de novo branch in Maryland if the out-of-state bank's home state would not allow a Maryland bank to establish a de novo branch in that state. The law does not limit the authority of an out-of-state bank to establish additional branches in Maryland as permitted under the federal Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (i.e., through mergers and acquisitions) or further branching by an out-of-state bank already in Maryland. Finally, the law permits well-capitalized Maryland banks with composite CAMELS ratings of 1 or 2 to establish branches without the Commissioner's approval. Such institutions need only submit an expedited notice, pay a $400 filing fee and wait 30 days, although the Commissioner has the authority to request additional information from the bank.

Deposits of Unexpended or Surplus Money by Local Governments
SB 617/HB 1191 (Chapters 84 and 85) (effective April 14, 2009)

This law addresses the recent increases in the FDIC insurance limits by increasing the maximum amount of unexpended or surplus funds a local government may deposit at a Maryland financial institution from $100,000 to an amount equal to the FDIC maximum insurance coverage limit, if the institution arranges for the funds to be deposited in one or more certificates of deposit at one or more federally insured banks or savings and loan associations.

Clean Energy Loans
HB 1567 (Chapter 743) (effective October 1, 2009)

This law authorizes a county or municipal corporation to enact law establishing a Clean Energy Loan Program to provide loans to residential and commercial property owners for the financing of energy efficiency and certain renewable energy projects. Loan repayment is through a surcharge on the owner's property tax bill.

Practice Pointer: Mortgage lenders should consider how they will respond when these local programs are created. To the extent taxes on properties involved in these loans significantly increase, escrows may need to be created or increased.


Commercial and Workers' Compensation Insurance
SB 768/HB 648 (Chapters 98 and 99) (varying effective dates)
Section 1 of this law (effective October 1, 2009) deals with transfer of policies between admitted insurers, and applies the rules that currently are in place for personal insurance and private passenger motor vehicle liability insurance to commercial insurance and workers' compensation insurance. Section 2 (effective January 1, 2010) requires insurers seeking to increase the renewal policy premium for policies of commercial insurance and workers' compensation insurance to give the insured and the insurance producer either notice of the increased premium not less than 45 days prior to the renewal date or a renewal policy that includes the premium by that date. Notice is not required if the insurer has given notice of its intention not to renew. It also is not required for increases in premiums resulting from increased exposure, application of an experience rating or retrospective rating plan, changes made by the insured, an audit of the insured or with respect to policies issued to certain commercial policyholders.

Title Insurance Producers
SB 86 (Chapter 361) (varying effective dates)
In addition to increasing the amount of the fidelity bond and surety bond required for title insurance producers from $100,000 to $150,000 (effective October 1, 2009), this law prohibits any person other than licensed title insurance producers, title insurers or certain law firms from exercising control over funds held in an escrow account established for a real estate closing (effective July 1, 2009). In addition, the law requires the Maryland Insurance Administration to study the title insurance industry and the laws that govern the industry and identify and make recommendations to the General Assembly. 

Practice Pointer: Licensed title insurance producers should contact their bonding agents to discuss what is needed to increase the amounts of their Maryland bonds by October 31, 2009. 

Premium Rebating
SB 8 (Chapter 9) (effective October 1, 2009)
It is illegal to "rebate" insurance premiums as an inducement to purchase insurance. There are exceptions, including certain promotional materials. Chapter 9 increases the cost of the promotional materials excepted from the rebate prohibition from $10 to $25.

Notice of Cancellation or Non-Renewal
SB 85 (Chapter 23) (effective October 1, 2009)
This law clarifies that notice of cancellation must be sent to the insured's last known address.

Anti-Fraud Plans
HB 142 (Chapter 372) (effective October 1, 2009)
Chapter 372 requires a third party administrator to maintain an anti-fraud plan. The anti-fraud plan law is changed to authorize insurers (and third party administrators) to require recipients of disability benefits to confirm on a periodic basis that they remain entitled to benefits. If a confirmation is required, the insurer (and third party administrator) must remind the individual receiving benefits that providing false information is a crime.

Consumer Protection

False Advertising
SB 10/HB 175 (Chapters 10 and 11) (effective October 1, 2009)
Non-Maryland based businesses have been advertising in local telephone books using local phone numbers and false local addresses. This new law prohibits a business from placing a telephone directory advertisement (including telephone listing) that misrepresents the location of the business. These prohibitions do not apply to any federal or Maryland bank, trust company, savings bank, savings and loan association, or credit union or any other state bank that maintains a branch in Maryland. A person who violates this law is subject to a $500 civil penalty for each violation.

Practice Pointer: Out-of-state retailers should review their advertisements to ensure compliance. 

Funds Management and Trusts

Uniform Prudent Management of Institutional Funds Act
HB 200 (Chapter 134) (effective April 14, 2009)
Chapter 134 enacts the Maryland Uniform Prudent Management of Institutional Funds Act, a modified version of the uniform law recommended for enactment in all states by the National Conference of Commissioners on Uniform State Laws. This law updates standards for the management and investment of charitable funds and endowment spending and applies to institutional funds existing on or established after April 14, 2009. With respect to funds existing on April 14, 2009, the law only governs decisions made or actions taken on or after that date.

Senior Investment Protection Act
SB 684/HB 571 (Chapters 301 and 302) (effective May 7, 2009)
This law makes it unlawful for any person to use a senior or retiree credential or designation in a way that is or would be misleading in connection with the sale of securities, valuing securities or acting as a broker-dealer, agent, investment adviser or investment adviser representative. The Maryland Securities Commissioner is directed to define what constitutes a misleading use of a senior or retiree credential or designation and establish enhanced criminal penalties for a willful violation of the law.

SB 154 (Chapter 37) (effective October 1, 2009)
This law provides a procedure for admission of a copy of a will for probate if the original will is alleged to be lost or destroyed, a copy is available and all heirs and legatees execute a specified consent. The law only applies to estates of decedents who die on or after the effective date.



Unemployment Insurance for Part-Time Workers
SB 270/HB 310 (Chapters 5 and 6) (effective April 14, 2009)
This law makes "part time workers" (defined as individuals who work predominantly on a part-time basis throughout the year for at least 20 hours per week) eligible to receive unemployment insurance.

Unemployment Insurance Benefits
HB 242 (Chapter 383) (June 1, 2009, applying to all claims filed establishing a new benefit on and after June 7, 2009)
Maryland law previously reduced or delayed the commencement of unemployment benefits where an employee received severance payments or payments in lieu of wages, except where the loss of employment was due to job elimination. Chapter 383 amends the law to treat the payment of unemployment insurance benefits for employees whose jobs are eliminated the same as benefits for persons unemployed for all other reasons. Under the amended law, severance or termination payments made by the employer now reduce or delay weekly unemployment benefits in all cases.

Unemployment Insurance Benefit Increase
SB576/HB 740 (Chapters 287 and 288) (varying effective dates)
This law increases the maximum amount of weekly unemployment insurance benefits from $380.00 to $410.00 for claims establishing a new benefit year on and after October 4, 2009 and increases the maximum to $430.00 for claims establishing a new benefit year on and after October 3, 2010. These provisions become effective on October 1, 2009.

Expansion of Disability Rights
SB 670/HB 393 (Chapters 299 and 300) (effective October 1, 2009)
This law expands the definition of disability under the Maryland discrimination law to include not only having a physical or mental disability, but also a record of having such
disabilities or being regarded as having such disabilities
. In addition, employers are
prohibited from failing to make reasonable accommodations for a disability, unless the accommodation would impose an undue burden on the employer. The amendment brings Maryland law into accord with the definition of disability under the federal Americans With Disabilities Act.

Flexible Leave
SB 562 (Chapter 560) (effective May 19, 2009)
Chapter 560 amends and clarifies the Maryland Flexible Leave Act enacted in 2008. Under the law, employers with 15 or more employees must allow an employee to use leave with pay to care for an immediate family member who is ill under the same rules that would apply if the employee took leave for the employee's own illness. The amendments clarify that "leave with pay" includes sick leave, vacation, paid time off and compensatory time and also defines the terms "child" and "parent." The amendment excludes the following types of leave from the Act:  a benefit provided under a plan subject to the federal ERISA statute; an insurance benefit, including benefits from an employer's self-insured plan; worker's compensation and unemployment compensation; and disability benefits. 

Chapter 560 also clarifies that the Flexible Leave Act applies to any employee who is "primarily employed" in Maryland. However, the Flexible Leave Act's failure to define the term "illness" (perhaps its major flaw), was not addressed. Thus, use of flexible leave is not limited to "serious health condition" as is the case under the federal Family and Medical Leave Act.

Practice Pointer: Employers should educate human resources/payroll staff on how to properly account for flexible leave.  Employers should review absenteeism policies, many of which impose disciplinary actions based on the number of absences, to ensure that employees are not sanctioned for absences permitted under the law.

Corporate Governance

Records and Distributions
SB 626/HB 378 (Chapters 295 and 296) (effective October 1, 2009)
Current law permits a corporation to eliminate fractional shares by "rounding off" to a full share. Historically, corporations have rounded down. The new law contemplates only "rounding up" to a full share. 

A corporation's ability to make distributions to stockholders is limited by a two prong test: after giving effect to the distribution, the corporation must have the ability to pay its debts as they come due in the ordinary course of business and its assets must be greater than the sum of its liabilities and the amount needed to satisfy any liquidation preferences of preference stock. This law provides an exception to the asset test by allowing the corporation to make a distribution from net earnings for the fiscal year of the distribution, from net earnings for the preceding fiscal year or from the sum of the net earnings for the preceding 8 fiscal quarters (assuming that it will retain the ability to pay its debts as they come due).

The law also imposes new requirements for stockholder requests to inspect and copy the bylaws, minutes of the stockholders' meeting, annual statement of affairs and voting trust agreements.

Proof of Good Standing for Foreign Entities
SB 67 (Chapter 355) (effective October 1, 2009)
Beginning October 1, 2009, foreign business entities must provide proof of good standing in their home states acceptable to the Maryland Department of Assessments and Taxation to qualify to do business in Maryland.

SB 720/HB 245 (Chapters 93 and 94) (effective October 1, 2009)
This law eliminates the current requirement to have an annual meeting of shareholders after the delivery of the annual report and permits any provision of the REIT bylaws to be made dependent on facts ascertainable outside the bylaws.

General Business and Tax

SB 239/HB 657 (Chapters 43 and 44) (effective October 1, 2009)
This law amends the Maryland antitrust act to define as a per se violation the establishment of a minimum price below which a retailer, wholesaler or distributor may not sell a good or service.

Certificates of Tax Sale
SB 348 (Chapter 246) (effective July 1, 2009) 
There have been alleged abuses of the Maryland tax sale process, particularly the inclusion of allegedly sham expenses that must be paid by the property owner to redeem. When property owners want to redeem the property, they may be required to pay certain costs of the tax sale certificate owner. Beginning July 1, 2009, property owners no longer may be required to pay attorney fees for recording a certificate of tax sale.

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:

Bankruptcy and Workouts
Consumer Credit
Corporate and Securities
Deposit Accounts
Government Relations/ Lobbying
Mergers and Acquisitions
Mortgage Lending & Brokering
Regulatory Issues
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