Maryland Legal Alert for Financial Services
Maryland Legal Alert May 2014
Maryland's 2014 General Assembly Session ended on April 7. The Governor has signed some bills into law and has a final scheduled signing session on May 15. Bills not signed or vetoed by May 31 become law without a signature. Before the end of June we will have available our annual Maryland Laws Update providing insights on new laws that impact financial service providers. In the meantime, we briefly describe three bills that have been signed by the Governor and are or will become effective early. Please let Margie Corwin or Bob Enten know if you have any questions about these or any other new Maryland laws.
Short Sales to Certified Community Development Financial Institutions
HB595 (Chapter 233) – Effective April 8, 2014
A certified community development financial institution ("CDFI") receives assistance from the United States Department of Treasury's Community Development Financial Institutions Fund to promote economic revitalization and community development of underserved populations and distressed communities. This law is intended to facilitate efforts by CDFIs to keep borrowers in their homes. It primarily impacts short sales. Of greatest significance to our clients, it prohibits a lender from requiring, as a condition of sale or transfer of owner-occupied residential property to a CDFI, any affidavit, statement, agreement, or addendum that limits ownership or occupancy of the property by the immediately preceding mortgagor or grantor. If such an instrument is given, it will be unenforceable against any person named in the instrument. While not directly related, we note that on May 8 the FDIC issued a resource guide entitled Strategies for Community Banks to Develop Partnerships with Community Development Financial Institutions which discusses how banks might get Community Reinvestment Act credit when working with CDFIs. Perhaps this new Maryland law will lead to CRA opportunities.
Interest on Mortgage Escrow Accounts and Specific Purpose Savings Accounts
SB583 (Chapter 306) – Effective June 1, 2014
In 2012, the General Assembly changed the rate of interest Maryland banks are required to pay on residential mortgage escrow accounts and certain specific purpose (e.g., "Christmas Club") deposit accounts from a fixed 3% per annum to an adjustable rate based on a national index for 6-month certificates of deposit published by the Federal Reserve. As reported in our March 2014 Maryland Legal Alert, the Federal Reserve stopped publishing the 6-month certificates of deposit index in December 2013, leaving banks uncertain as to what minimum rate was required. With this new law, the minimum interest rate on mortgage escrow accounts and specific purpose savings accounts will be based on the weekly average yield of United States Treasury Securities adjusted to a constant maturity of 1 year. The law becomes effective June 1, but applies to accounts in existence on or after January 1, 2014.
Patent Troll Claims – Assertions Made in Bad Faith
SB585 (Chapter 307) – Effective June 1, 2014
Intending to address a growing problem in the area of intellectual property, this new law provides tools to defend against bad faith assertions of patent infringement. It establishes factors for a court to consider to determine whether a person has made a patent infringement assertion in bad faith (or in good faith). If a court determines that an assertion of patent infringement was made in bad faith and the target of the assertion suffered damages, the target may be awarded court costs, reasonable attorneys' fees, exemplary damages, and any equitable relief that the court determines appropriate. The law grants the Maryland Attorney General's Division of Consumer Protection the same authority it has under the Consumer Protection Act to adopt regulations, conduct investigations, and bring civil and criminal actions for patent infringement assertions made in bad faith.
On April 28, 2014, the Baltimore City Council passed a "ban the box" law, which will prohibit most employers in Baltimore City from inquiring about an applicant's criminal background prior to making a conditional offer of employment. Click here for information from our Employment Law Group regarding this new law. Generally, the law applies to businesses that employ ten or more full-time equivalent employees in Baltimore City. However, the law does not apply to an inquiry about an applicant's criminal background that is required or expressly authorized by some other applicable federal, state, or city law or regulation. For example, the Federal Deposit Insurance Act prevents a bank from employing, without FDIC consent, any person who has been convicted of a criminal offense involving dishonesty, breach of trust, or money laundering. Therefore, we believe this federal law makes Baltimore City's "ban the box" law inapplicable to banks. Please contact Margie Corwin or Chuck Bacharach if you would like to discuss how this new law impacts your hiring practices.
On March 24, 2014, the Maryland Court of Appeals handed down a tax law decision in two related cases which may impact corporations that transfer investment assets to a subsidiary incorporated in another state (normally Delaware and often known as Delaware Passive Investment Corporations). Previous Maryland Court of Appeals decisions addressed issues involving taxation of income from such entities, finding that nexus for Maryland tax purposes could exist when the subsidiary had no real economic substance as a separate business entity. This new decision holds that factors which indicate a unitary business can be relevant in making the determination of economic substance. Click here for an analysis of the decision by Steven M. Gevarter, Chair of our Tax Group. If your institution has a Delaware Passive Investment Corporation, we believe you should review the impact of this decision with tax counsel and accounting advisors. Please contact Bob Enten if you have questions on this subject.