May 2016 Legal Briefs

It’s an election year, and your OBA Compliance Team has received a lot of questions concerning documentation needed in order to open campaign and other political related accounts. This article will cover what a bank needs in order to open accounts for federal, state, county and municipal campaign committees, political actions committees (PACs), and political party committees. Forms for state campaign committees, PACs, and political party committees can be viewed here but are filed on line witht the Oklahoma Ethics Commission.

Requirements for all accounts. An EIN is required for ALL accounts. Under no circumstances should any of these accounts be set up using a social security number. The account type generally will be designated as an “unincorporated association” when the owner has not been incorporated, but designating the account as “nonprofit” is a better choice. Why? Whether incorporated or not, these accounts are eligible for NOW accounts, however, you will need to obtain a copy of the letter from the IRS of tax exempt status. If it is newly formed, it will take several weeks for the application for tax exempt status to be processed and for the receipt of the letter from the IRS.

Campaign committee account for state office.  Potential candidates are permitted to conduct exploratory activities, such as polling and other techniques designed exclusively to assist the individual in making a decision as to whether to seek any state office or offices. The individual may accept contributions and make expenditures limited to exploratory activities without designating a candidate committee. He or she must keep all records required of a candidate committee. Such “testing of the waters” is limited to accepting or expending no more $25,000.00 for exploratory activities for a statewide office or $10,000.00 for any other state office, at which point, s/he must either become a candidate and file a Statement of Organization or cease all exploratory activities. No individual may conduct exploratory activities for a state office or offices as provided in this section more than one time between regular general elections for state offices.

A candidate committee for state office (governor, secretary of state, judges, etc.) must file a Statement of Organization with the Oklahoma Ethics Commission using the form found here.

This form contains the following information per Title 74 O.S., Appendix 1, Rule 2.75:

The Statement of Organization for a candidate committee shall include, but shall not be limited to, the following information: (1) The name of the candidate as it will appear on the ballot; (2) the names of the Chair, Treasurer and, if applicable, Deputy Treasurer of the committee; (3) the name of the committee, which shall include at least the full name, first name, middle name or last name of the candidate and the year of the general election or special general election for the office being sought; (4) the official and complete name of the state elective office to which the candidate seeks election; (5) the candidate’s party affiliation, if any; (6) the mailing address and, if applicable, residence address, electronic mailing address, telephone numbers and Internet website, if applicable, of the candidate committee, the candidate, the Chair, Treasurer and, if applicable, Deputy Treasurer and (7) the full name and address of each depository in which the committee will maintain an account. The candidate shall be responsible for notifying the Commission of any change in information provided on the Statement of Organization by filing an Amended Statement of Organization within ten (10) days of a change being made. An Amended Statement of Organization shall contain the same information as the Statement of Organization.

A candidate (or judge) may only have one campaign committee, but two committees are allowed for no more than 60 days to allow for transfer of funds from the first committee to the second. This could happen when the incumbent chooses to run for a different office.

The person who is the chair of the committee may also serve as treasurer. The candidate may serve as the deputy chairman. The treasurer and deputy treasurer must be residents of Oklahoma. Funds cannot be expended nor accepted any time there is a vacancy in the offices of both treasurer and deputy treasurer. Any vacancy in the office of chair, treasurer or deputy treasurer must be filled within 30 days. In this case, an Amended Statement of Organization must be filed with the Oklahoma Ethics Commission within 5 days after the position is filled. These statements are also true with regard to PACs and political party committees, discussed below.

Title 74 O.S., Appendix 1 Rule 2.95 provides:

Every candidate committee, political action committee and political party committee shall maintain a campaign account in each campaign depository in the name of the committee as it is registered with the Commission. All contributions to a committee except in-kind contributions, including contributions by a candidate to his or her candidate committee, shall be deposited in a campaign account. All expenditures made by a committee shall be made on a check or by debit card, signed by the candidate, Treasurer or Deputy Treasurer of a candidate committee and by the Treasurer or Deputy Treasurer of a political action committee. Checks for a political action committee shall include the identification number of the committee assigned by the Commission.  A campaign account may earn interest paid by the financial institution in which the account is maintained, but campaign funds shall not be invested in any other way. Contributions from corporations, labor unions, a limited liability company that has one or more corporate members or a partnership that has one or more corporate partners shall not be commingled with other contributions made to a candidate committee, a limited committee or a political party committee.

The bank must obtain the Statement of Organization, however, it is not required to be filed with the Oklahoma Ethics Commission until more than $1,000 has been collected of disbursed under Title 74 O.S., Appendix 1, Rule 2.70, so what you will see is the unfiled copy at account opening in order to obtain the account number for filing. Note that the opening deposit may be less than $1000 since personal funds used by the candidate are included in the determining at what point the Statement of Organization is required.

Campaign committee account for county or municipal offices. The Statement of Organization form (the same form used for state office) is required for candidate committees for county offices (county commissioner, county clerk, etc.) and municipal offices (mayor, counsel person, city treasurer, etc.). When the Statement must be filed is the also the same as that for state offices, i.e., within 10 days of receiving or disbursing $1,000). The Statement of Organization is filed is with the county election board for candidates for county office pursuant to Tit. 19 O.S. § 138.13 and with the municipal clerk for municipal offices pursuant to Title 11 O.S. § 56-104. Note that it § 56-103 limits requirements to those municipalities with populations of 10,000 or more as stated by the last census and the general fund expenditure budget is in excess of Ten Million Dollars ($10,000,000.00) in the fiscal year in which the municipal elections are held. Smaller municipalies, however, may be subject to rules enacted by the municipality, so you will need to check for those.

What happens if the candidate loses or dies? Title 74 O.S., Appendix 1, Rule 2.48. will apply:

Surplus funds of a candidate committee are those funds not otherwise obligated following the election at which the office for which the candidate committee was formed has been determined which, in the candidate’s discretion, are not required to be used for campaign expenses or officeholder expenses. Such surplus funds may be:

(A) Retained in any amount for use in a future campaign for the next succeeding term for the same office;

(B) Retained for a future campaign for a different state elective office, excluding a judicial office;

(C) Donated to a charitable organization as described in Section 501(c)(3) of Title 26 of the United States Code as it currently exists or as it may be amended;

(D) Returned to any contributor, as long as the amount returned does not exceed the contributor’s aggregate contribution during the immediately preceding primary, runoff primary and general elections; or

(E) Contributed to a political party committee in any amount not to exceed Twenty-five Thousand Dollars ($25,000.00) in the aggregate.

Political Action Committee (“PAC”).   If a state PAC is created, state law will apply. Under Title 74 O.S., Appendix 1, Rule 279:

A political action committee is any group of two or more persons that receives contributions or makes expenditures for any of the following purposes: (1) Making contributions to candidates or candidate committees; (2) making contributions to other political action committees; (3) making independent expenditures; (4) making electioneering communications or (5) advocating the approval or defeat of a state question. Unless they choose to be considered as such, family members, as defined by these Rules, or members of the same household shall not be considered a political action committee.

The bank will need a Statement of Organization form found here. Like the Statement of Organization for a candidate committee, this is required to be filed when contributions or expenditures of the PAC exceed $1,000.00.  Candidates cannot be PAC officers.

Note that Title 74 O.S. Appendix 1, Rule 2.98 provides that a political action committee registered with the Federal Election Commission (discussed below) that makes a contribution or contributions to a candidate or candidates for state office shall not be required to register or to file a Report of Contributions and Expenditures with the Oklahoma Ethics Commission, provided the contribution or contributions are reported to the Federal Election Commission and are available to the public.

An out of state PAC (i.e., one that is registered in a state other than Oklahoma) comes under Title 74 O.S., Appendix 1, Rule 2.92. If it is not registered with the Federal Election Commission, registration with the Oklahoma Ethics Commission is not required provided it submits a certified copy of registration from the other state to the Oklahoma Ethics Commission that contains the information contained in the Oklahoma form, so this is what the bank will request  rather than the Oklahoma Statement of Organization. The PAC will still have reporting requirements.

PACs that are registered with either the Oklahoma Ethics Committee, the Federal Election Commission or are out of state PACs meeting the requirement discussed immediately above, do not have file with the county election board or municipal clerk.

Political Party Committee. The bank will need a Statement of Organization found here. The Statement of Organization is governed by Title 74 O.S., Appendix 1 Rule 2.104:

State political party committees shall file a Statement of Organization in July of any odd-numbered year. The Statement of Organization shall include, but not be limited to, the following information: (1) The names of the Chair, Treasurer and, if applicable, Deputy Treasurer of the committee; (2) the full name of the committee; (3) the mailing address and, if applicable, residence address, electronic mailing address, telephone numbers and Internet website , if applicable, of the committee, the Chair, Treasurer and, if applicable, Deputy Treasurer and (4) the full name and address of each depository in which the committee will maintain an account. The Treasurer shall be responsible for notifying the Commission of any change in information provided on the Statement of Organization by filing an Amended Statement of Organization within ten (10) days of a change being made. An Amended Statement of Organization shall contain the same information as the Statement of Organization. Congressional District, county and precinct political party committees and any other political party committee officially recognized by the party’s bylaws or similar governing document, shall file a Statement of Organization containing the same information prior to filing a Report of Contributions and Expenditures as required hereafter. Congressional District, county and precinct political party committees and any other political party committee officially recognized by the party’s bylaws or similar governing document, shall be required to file a Report of Contributions and Expenditures in any year the committee makes an independent expenditure, an electioneering communication or a contribution to a candidate for state office. The Report of Contributions and Expenditures shall be made at the quarterly reporting period next following the making of the independent expenditure, electioneering communication or contribution to a candidate for state office. The Report shall cover the period beginning January 1 of the year in which the report is filed (or January 1 of the immediately preceding calendar year for a quarterly report filed in January) or the end of the last preceding reporting period filed by the committee during the same calendar year, if the committee has filed a prior report in the same calendar year, and ending on the last day of the month prior to the month in which the quarterly report is filed…

Campaign Committee for federal office, PACs and political parties. Per federal statutes found in Title 2 USC Sec. 431 et seq., the candidate for a federal office will file a Statement of Candidacy (FEC Form 2) found here: http://www.fec.gov/pdf/forms/fecfrm2.pdf

The candidate will also file a  Statement of Organization for the Candidate Committee (FEC Form 1) for the principal and other campaign committees using  Form 1 is found here: https://www.fec.gov/resources/cms-content/documents/fecfrm1.pdf and designate a Treasurer. This form must be filed with the FEC within 15 days of receiving contributions or making expenditures in excess of $5,000.

You can find the filings for Statement of Candidacy and Statement of Organization from this link: https://www.fec.gov/data/browse-data/?tab=candidates

The Federal Election Committee requires federal PACs and political parties to file a Statement of Organization using FEC Form 1. You will need to obtain a copy and/or confirm the filing. You can obtain information regarding Campaign Committees, PACs and political parties at this link: https://www.fec.gov/data/committees/

By John S. Burnett

Even though the CFPB’s “Know Before You Owe” real estate disclosure rules (also known as the TILA/RESPA Integrated Disclosure, or TRID, rules) are now seven months old, there are still many low-volume lenders who are just now issuing their first Closing Disclosures (CloDs) under the new rules. There are also many other lenders who are offering anecdotal comments about difficulties dealing with some title companies and other settlement agents when it comes to obtaining seller loan payoff amounts and copies of separate seller CloDs. In this article, we’ll review the applicable sections of the TRID rules to help clear up any lingering misinformation and confusion.

There have been a lot of comparisons drawn between the RESPA HUD-1 requirements (which still apply to any lingering loans for which applications were received before October 3, 2015, and to all reverse mortgages), and the TRID rules. Several “old rule” practices are carried over into the TRID environment, but there are also a number of departures—some of them significant—from the old rule. One of those departures is the way in which separate disclosures for buyers and sellers are handled.

Under both the old rule and TRID, a single disclosure can be used for both the buyer and the seller, each party getting the whole disclosure “story.” In this sort of arrangement, a single HUD-1/CloD is prepared with all the information required in the respective regulations (Appendix A to Regulation X under the old rule; Section 1026.38 of Regulation Z under TRID), with the copies for the buyer, seller, lender and settlement agent being virtually identical. For reasons of confidentiality, however, the old rule had a simple one-paragraph instruction:

“Lines and columns in section J which relate to the Borrower’s transaction may be left blank on the copy of the HUD–1 which will be furnished to the Seller. Lines and columns in section K which relate to the Seller’s transaction may be left blank on the copy of the HUD–1 which will be furnished to the Borrower.”

Note that these two sections of the HUD-1 are on page 1 of that form, and are the only sections that a settlement agent can omit or mask under Regulation X, withholding section J buyer information from the seller, and section K seller information from the buyer. We understand that some settlement agents omitted from seller copies the HUD-1 page 3 lower portion on Loan Terms, but there is no provision in the Regulation itself for withholding that information from sellers. However, Q&A #4 in the “HUD-1: General” section of HUD’s FAQ on the old (2010) RESPA rule offers this:

“Q: May separate HUD-1s be given to the seller and the borrower with only their own information on each HUD-1?

“A: Yes. It is permissible to have two separate HUD-1s in a transaction; one with the buyer‘s credits and charges only, and one with the seller‘s credits and charges only. The settlement agent must provide the lender with a copy of both HUD-1s when the borrower’s and the seller’s copies differ.”

It’s likely that this Q&A has been used as justification for expanding on the specific instructions on handling sections J and K quoted earlier, in order to omit page 2 and 3 buyer figures from the seller’s copy and page 2 seller figures from the buyer’s copy of the HUD-1.

The TRID rule also permits selected information to be omitted from the buyer and seller CloDs, but it does so more precisely than the old rule did. First, the familiar Sections J and K provision from the old rule is repeated. Under TRID, that provision is found in Regulation Z section 1026.38(t)(5)(v)(A), and applies if Model Form H-25 is being used for both the buyer’s and seller’s CloDs:

“The information required to be disclosed by paragraphs (j) and (k) of this section may be disclosed on separate pages to the consumer and the seller, respectively, with the information required by the other paragraph left blank. The information disclosed to the consumer pursuant to paragraph (j) of this section must be disclosed on the same page as the information required by paragraph (i) of this section.”

Section 1026.38(j) covers the summary of the buyer’s/borrower’s transaction on the left side of the “Summaries of Transactions” table on page 3 of the CloD; section 1026.38(k) covers the summary of the seller’s transaction in that table. If using Model Form H-25 for the CloD provided to both the buyer and the seller, you can “hide” the buyer’s summary from the seller and the seller’s summary from the buyer on this page of the CloD.

So far, the TRID rule seems much like the old rule regarding keeping information about the buyer’s and seller’s sides of the transaction confidential from the other party. But this is where the similarity ends. As we will see next, there is more information about the buyer’s transaction that can be withheld from the seller; however the reverse is not true under the TRID rule.

Section 1026.38(f) covers closing costs for the loan (sections A through D, on page 2 of the CloD), and section 1026.38(g) covers other closing costs (sections E through I on page 2). When using Model Form H-25 for both the buyer and the seller, the buyer’s/borrower’s closing costs can be omitted from the seller’s copy, relying on section 1026.38(t)(5)(v)(B):

“The information required to be disclosed by paragraphs (f) and (g) of this section with respect to costs paid by the consumer [the buyer] may be left blank on the disclosure provided to the seller.”

There are other specific items relating to the buyer’s transaction that can be omitted from the seller’s copy of the H-25 format of the CloD. They are listed in section 1026.38(t)(5)(v)(C):

“The information required by paragraphs (a)(2) [Description at top of page 1 of the disclosure with instruction to compare it with the Loan Estimate], (a)(4)(iii) [the name of the creditor making the disclosure in the middle column at the top of page 1], (a)(5) [six pieces of Loan Information in the right column at the top of page 1] , (b) through (d) [the Loan Terms, Projected Payments and Costs at Closing tables on page 1], (i) [Calculating Cash to Close table on page 3], (l) through (p) [all the information about the loan on page 4 and the Loan Calculations and Other Disclosures tables on page 5], (r) [Contact information] with respect to the creditor and mortgage broker, and (s)(2) [signature statement on page 5] of this section may be left blank on the disclosure provided to the seller.”

Here again, there is no provision for omitting anything related to the seller from the copy of the CloD provided to the buyer.

One other section that has been causing problems is section H on page 2 of the CloD. Because the scope of information that the TRID rule brings to the disclosure has been expanded to include more costs of the overall  real estate transaction (i.e., more than simply information about the cost of the loan transaction, and even including costs of the seller), we have to pay attention to the requirements of Section 1026.38(g)(4):

“Other. Under the subheading “Other” and in the applicable column as described in paragraph (g) of this section, an itemization of each amount for charges in connection with the transaction that are in addition to the charges disclosed under paragraphs (f) and (g)(1) through (3) for services that are required or obtained in the real estate closing by the consumer, the seller, or other party, the name of the person ultimately receiving the payment, and the total of all such itemized amounts that are designated borrower-paid at or before closing.” [Emphasis added]

Selected Interpretations of 38(g)(4):

“1. Costs disclosed. The costs disclosed under § 1026.38(g)(4) include all real estate brokerage fees, homeowner’s or condominium association charges paid at consummation, home warranties, inspection fees, and other fees that are part of the real estate closing but not required by the creditor or not disclosed elsewhere under § 1026.38.”

“4. Real estate commissions. The amount of real estate commissions pursuant to § 1026.38(g)(4) must be the total amount paid to any real estate brokerage as a commission, regardless of the identity of the party holding any earnest money deposit. Additional charges made by real estate brokerages or agents to the seller or consumer are itemized separately as additional items for services rendered, with a description of the service and an identification of the person ultimately receiving the payment.” [Emphasis added]

Some lenders have been omitting real estate commissions paid by the seller from this section, either because they have missed the detailed instructions in Comment 4 above, or because they have had “push back” from settlement agents or others when asking for the information. This information belongs in Section H, and it is not part of the information that can be omitted from the buyer’s/borrower’s disclosure.

A settlement agent that uses the modified seller’s disclosure (Model Form H-25(I)) will find it a lot simpler to use, since it doesn’t ask for information concerning the buyer’s transaction. Use of this form is covered by section 1026.38(t)(5)(vi):

“Modified version of the form for a seller or third-party. The information required by paragraphs (a)(2), (a)(4)(iii), (a)(5), (b) through (d), (f) and (g) with respect to costs paid by the consumer, (i), (j), (l) through (p), (q)(1), (r) with respect to the creditor and mortgage broker, and (s) of this section may be deleted from the form provided to the seller or a third-party, as illustrated by form H-25(I) of appendix H to this part.”

Note that these instructions address all of the same information to be excluded from the seller’s disclosure that is addressed in section 1026.38(t)(5)(v)(A)–(C), plus the first sentence in the “Questions notice” that’s found on page 5 of the borrower’s CloD (the Bureau’s model form H-25(I) does not omit that sentence).

Somewhere, somehow, some settlement agents or title companies acting as settlement agents got it into their heads that the seller’s CloD didn’t have to be provided to the creditor. Nothing could be further from the truth. In Regulation Z section 19(f)(4), in addition to the settlement agent’s responsibility for providing the seller with the CloD (see 1026.19(f)(4)(i)), we see a requirement that, if the buyer’s and seller’s CloDs are provided on separate documents, the settlement agent “shall provide to the creditor (if the creditor is not the settlement agent) a copy of the disclosures provided to the seller …” (1026.19(f)(4)(iv)). The creditor is required under section 1026.25 to retain a copy of that disclosure for five years after consummation, even if the loan is sold or transferred or otherwise disposed of within that period (1026.25(c)(ii)(A)).

Partnership agreements.  Oklahoma does not require a general partnership to have a written partnership agreement.  Does your bank require one, nonetheless?  If so, you are basically forcing the partnership to do something it would not need to do otherwise, just to satisfy your documentation requirements.  And if they give you a partnership agreement, precisely what do you do with it?  Do you read it?  Act on it?  Or just stick it in a file and check off a checkbox?  Ask yourself why you would want to obtain a partnership agreement, and determine whether there is a less burdensome way to procure the information that might be obtained in it, such as the percentage of ownership of the partners, the name of the partnership, the official address of the partnership.  A properly drafted partnership resolution might fit the bill.  If the partnership already has a partnership agreement and you wish to ask for a copy, ask away, but don’t just get it to say you have it.  Get it only if having it accomplishes something.  Of course if your Customer Identification Program requires it, you’ll need to amend it before you can change your course.

Keeping a copy of a Will.  In the wake of the death of music icon Prince, one of his sisters has told the court that Prince did not leave a will or a trust.  In view of his meticulous handling of all his other business affairs, it seems difficult to believe.  One wonders whether he truly didn’t have estate planning documents, or whether they were discovered and destroyed by someone who would have been disadvantaged by their provisions.  (Cue the conspiracy theory music.)  The Oklahoma legislature imagined such shenanigans and attempts to guard against them in the safe deposit search procedure on death statute contained in Section 1308 of the State Banking Code.  There are four items that can be searched for in a decedent’s safe deposit box.  Two of those items are a writing purported to be a will of the decedent and a document purporting to be a trust agreement wherein the decedent was the grantor.  If a purported will is found, the bank can either deliver it to the court having jurisdiction of the decedent’s estate, or the bank can allow the will to be taken by the person performing the search of the box, but only if the bank retains a copy.  Imagine Ned’s daughter searching his safe deposit box, finding Ned’s will, and being horrified to learn that it leaves everything to his favorite charity, deliberately disinheriting all his children.  If the bank didn’t retain a copy, the will might conveniently “disappear,” and a court might be told Ned died intestate.  The same issue could arise with a trust of the decedent.  The statute requires the bank to retain a copy.