Maryland Legal Alert for Financial Services

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Maryland Legal Alert December 2014

In this issue:

CHANGES TO MILITARY ALLOTMENTS FOR CERTAIN LOAN PAYMENTS
BANKRUPTCY COURT UPHOLDS JUDGMENT CREDITOR'S ATTORNEY FEES
NEW MARYLAND FORECLOSURE FORMS EFFECTIVE DECEMBER 11, 2014
FDIC POLICY UPDATE FOR STATE BANKS WITH NATIONAL BANK ACTIVITIES

CHANGES TO MILITARY ALLOTMENTS FOR CERTAIN LOAN PAYMENTS

On November 21, 2014, the Department of Defense (DoD) announced changes to the military allotment process to address perceived abuses. The DoD noted that the changes are designed to address situations where "unscrupulous businesses" convince "service members to buy things using allotments, even though they may not be able to afford them . . . ." The DoD issued a fact sheet to announce the changes. The new DoD rules prohibit the use of military allotments for the purchase, lease, or rental of personal property. The new rules do not impact existing borrower allotments and do not apply to military retirees or DoD civilians – just to active duty service members. Starting on January 1, 2015, military allotments cannot be used for payments for vehicles, appliances or household goods, electronics, or other tangible consumer items that are movable. The new rules permit the use of allotments for payments to dependents/relatives, payments for insurance premiums, repayment of U.S. government debts, mortgages, savings account deposits (but not for any of the above prohibited allotment types), and certain combined federal campaign charitable contributions. On and after the January 1, 2015 effective date, military borrowers will now be required to certify that allotments are not for any of the above prohibited allotment types. Lenders that use military allotments in connection with loan repayments will need to review their allotment policies and procedures in order to make needed adjustments before January 1, 2015. Please contact Christopher Rahl with any questions concerning this topic.

BANKRUPTCY COURT UPHOLDS JUDGMENT CREDITOR'S ATTORNEY FEES

On November 18, 2014, Judge Mannes of the Maryland Bankruptcy Court, in the case of In re MWM & Sons, Inc., 2014 WL 6485592 (Bankr. D. Md. 2014) (available here), ruled that a proof of claim by a lender, who obtained an unchallenged Maryland state court confessed judgment prior to the debtor's bankruptcy which included a 15% attorneys' fee, would be allowed in full even though under Maryland law, a lender is only entitled to attorneys' fees in connection with a confessed judgment for fees that are actually incurred. The court held that under the United States Supreme Court Rooker-Feldman doctrine, a federal court lacks subject matter jurisdiction to overturn a state court judgment. Of note, a Maryland Court of Special Appeals decision in 2011 (available here), held that Maryland law limits the amount of contractual attorneys' fees to actual fees incurred, regardless of whether the contract provides for a greater amount. For that reason, most lender's counsel no longer request a percentage attorneys' fee in a complaint for entry of confessed judgment by a Maryland court. Nevertheless, the In re MWM & Sons, Inc. decision will apply to numerous confessed judgments that were entered before the law and practice were changed by the 2011 Court of Special Appeals decision. If you have any questions concerning this bankruptcy case or attorneys' fees available to judgment creditors, please contact Larry Coppel.

NEW MARYLAND FORECLOSURE FORMS EFFECTIVE DECEMBER 11, 2014

On November 13, 2014, the Maryland Commissioner of Financial Regulation adopted amendments to the residential property foreclosure regulations. These final changes to Maryland's foreclosure regulations are effective beginning December 11, 2014. The final regulations differ slightly from the proposals published on September 19, 2014. As discussed in our October 2014 Maryland Legal Alert, the primary purposes of the changes are to modify current mediation forms based on input from the Maryland Office of Administrative Hearings and to add new forms reflecting recent changes to RESPA's servicing regulations for the timing of foreclosures. The final regulations adopted the proposed regulations with one change. Specifically, the final form Notice of Foreclosure Action [Owner-Occupied – Preliminary Loss Mitigation Affidavit], Appendix H-1, has been revised to reflect that a homeowner has 25 days after the mailing (not receipt) of the final loss mitigation affidavit to request foreclosure mediation. We believe the new forms will apply to Notices of Intent to Foreclose sent and foreclosure actions filed on or after December 11. To the extent a form that complied with then-existing regulations was used prior to December 11, that form should be found compliant. Even so, lenders and foreclosure attorneys need to quickly change their forms in order to initiate new foreclosures. If you have any questions or would like to discuss the new regulations, please contact Margie Corwin.

FDIC POLICY UPDATE FOR STATE BANKS WITH NATIONAL BANK ACTIVITIES

Section 24 of the Federal Deposit Insurance Act and Part 362 of the Federal Deposit Insurance Corporation's regulations authorize an insured state-chartered bank to engage, directly or indirectly, in any activity that is permissible for a national banking association. On November 19, 2014, the FDIC, through Financial Institution Letter (FIL) 54-2014 (available here), updated the procedures that an insured state bank must follow before engaging in an activity pursuant to these authorities. Prior to the release of FIL 54-2014, the FDIC's policy was to require an insured state bank to submit a notice of the proposed activity or investment so that the FDIC could ensure that the proposal complied with any conditions that the Office of the Comptroller of the Currency (OCC) would impose on the bank if it were a national banking association. The FDIC's revised policy eliminates the prior notice requirement and now simply requires an insured state bank to establish and maintain files documenting that the activity or investment is permissible for a national banking association and that the state bank will comply with any conditions or restrictions that the OCC would impose on a national banking association under the same circumstances. The documentation may take the form of a letter from the bank's legal counsel, a copy of a relevant statute or OCC regulation, a copy of relevant OCC official circular, bulletin, order, or interpretive letter, or other written documentation satisfactory to the FDIC. If the activity will be conducted indirectly through an investment (majority or minority) in an unincorporated entity (e.g., a limited liability company, a limited partnership, a statutory trust, etc.), then the state bank's documentation must also establish that the investment complies with the conditions imposed on such investments by the OCC, including, among other things, that the investment will not expose the bank to unlimited liability and that the bank has the power to influence and, if necessary, withdraw from the entity if the entity engages in impermissible activities. If you would like more information or to discuss this topic further, please contact Andrew Bulgin.