October 2016 Legal Briefs

• 2016 Oklahoma Statutory Amendments
  • Banking Code
  • Savings and Loan Code
  • Garnishments
  • Small Estate Affidavit – Probate Code
  • Guardian and Ward
  • Eminent Domain, Mortgagee Liability

• Are Your Forms Files Up to Date?
  • Flood
  • URLA

2016 Oklahoma Statutory Amendments

By Pauli D. Loeffler

During the last Oklahoma legislative session, a number of statutory changes were enacted, and this article will cover changes of interest to Oklahoma bankers. Some are minor. Some, such as the ones resulting from OBA’s push for changes to the garnishment laws and mortgagee liability in connection with eminent domain proceedings, are significant.

Oklahoma Banking Code Amendments. Several sections of Title 6 were amended effective April 20, 2016. In addition to the sections listed below, there were amendments to sections of the Oklahoma Financial Transaction Reporting Act (that covers money transmitters found in Article XVI; banks are excluded from coverage of that Act).

Title 6 O.S. §414 B.2. This subsection covers OREO. Real estate must be accounted for at the lower of the recorded investment in the loan satisfied or its fair market value (“FMV”). The amendment removes: a) the requirement for an appraisal after foreclosure, and b) full or supplemental appraisals annually thereafter if FMV is used. The FMV must be supported by an appropriate evaluation consistent with safety and soundness, and it must be updated from time to time to reflect current market conditions and other factors that affect FMV. OREO held by the bank prior to the effective date of the amendment will not require full or supplemental appraisals if FMV is used and supported under b).

Title 6 O.S. § 714 A. Before amendment, the board of directors of a bank was required to: a) meet at least once every month, and b) submit a copy of the minutes of each meeting within 40 days after the meeting. The amendment provides:

[T]he Commissioner may prescribe circumstances, which if satisfied by a bank, will permit the bank’s board of directors to meet no less often than once every two months. If the Commissioner permits a board of directors to meet less often than monthly, any requirement in this title or in the rules of the Oklahoma Administrative Code for monthly reviews by the board shall be interpreted to mean review at each meeting of the board of directors… A copy of the minutes of each meeting of the board of directors shall be furnished to the Commissioner upon request.

I am not aware of what conditions must be met in order for the board of directors to meet less often than monthly, but any bank that does meet the requirements would do well to review its bylaws. If the bylaws state the board shall meet monthly, if the Commissioner agrees to allow the bank’s board to meet less often, the bank should amend its bylaws to permit this.

Oklahoma Savings and Loan Code. Statutes governing Oklahoma savings and loan associations are located in Title 18. The OBA was informed by a member S&L that statutes in Title 6 had been amended since that date which benefitted banks but no similar amendments were enacted under the Oklahoma Savings and Loan Code.

Title 18 O.S. § 381.39a. The statute covers pay on death (POD) beneficiaries, the counterpart to Sec. 901 of Title 6. Banking Code Sec. 901 was amended in 2006 (effective November 1, 2006) to permit contingent POD beneficiaries when a sole primary beneficiary is named, so that in the event the primary beneficiary predeceases the account owner, the funds go to the contingent beneficiaries rather than the estate of the primary POD. The statute for Oklahoma credit unions had likewise been, but § 381a remained the same.

Title 18 O.S. § 381.48a. The statute covers the transfer of funds upon death of the sole owner of a deposit covered by Sec. 906 of Title 6. Banking Code § 906, which applies to both banks and credit unions, differs from § 381.48a in two significant ways because of amendments made since November 1, 2000. The first change, effective November 1, 2011, increased the amount of aggregate deposits held in sole ownership that could be transferred using an affidavit of heirs from $5,000 to $20,000. The second change, effective November 12, 2012, was the provision authorizing transfer of the contents of a safe deposit box upon the death of the sole owner under an affidavit of heirs when certain conditions are met.

Title 18 O.S. § 381.52a provided:

In addition to other provisions of this act relating to deposit accounts, an association may exercise the powers and authorities applicable under the provisions of Article IX of the Oklahoma Banking Code, Sections 901 through 907 of Title 6 of the Oklahoma Statutes. An association may also exercise the powers and authorities applicable under the provisions of Article XIII of the Oklahoma Banking Code, Section 1301 et seq. of Title 6 of the Oklahoma Statutes, as amended from time to time…

While this section of the Savings and Loan Code contains language which would include any subsequent amendments to Article XIII (safe deposit boxes) of the Banking Code enacted since November 1, 2001, it fails to accomplish this for amendments to the Sections 901 through 907 The statute was amended by adding “as amended from time to time” at the end of the first sentence of § 381.52a, so savings and loan associations will have the same provisions as banks and credit unions.

Title 12 – Oklahoma Garnishment Statutes. Two amendments to the garnishment statutes were enacted effective November 1, 2016. First, a “good faith” requirement has been added to Title 12 O.S. § 1171. The OBA Compliance team heard from several bankers that some creditors were sending garnishment summons to any bank within a certain number of miles of the debtor’s residence or place of business with no reasonable basis to believe the debtor had any relationship with the bank. This amendment basically requires the creditor to have some factual basis to believe the debtor has or previously had a relationship with the garnishee bank. For instance, if a credit report indicates an inquiry, loan or account with a bank or the creditor has received checks drawn by the debtor on the bank, this requirement is met.

Title 12 O.S § 1190. The other change to the garnishment statutes is amendment of § 1190 that deals with fees. Subsection A provides that the bank may retain $10.00 from sums captured by the garnishment as reimbursement for responding to the garnishment summons. If the debtor is overdrawn or has no deposit account, the bank can assess the creditor $10.00 for answering the garnishment summons. The fee has been $10.00 for at least two decades, when there are no funds to remit, many creditors fail to comply with the bank’s request for the $10.00 fee since it costs more in time to pursue collection of the fee than the amount of the fee itself.

Effective for garnishment summons issued on and after November 1, 2016 Subsection A has been amended. Subsection A.1. will continue to contain the provisions indicated in the prior paragraph, but will not apply to “federally insured deposit institutions” that are garnishees. Instead, new subsection A.2 covers these garnishments:

A judgment creditor shall remit a fee of Twenty-five Dollars ($25.00) as reimbursement for costs incurred in answering a garnishment issued pursuant to subparagraph d of paragraph 2 of subsection B of Section 1171 of this title to garnishees which are federally insured depository institutions. Such fee shall be delivered to the garnishee with the garnishment summons. Any fee paid to a garnishee pursuant to this paragraph shall be taxed and collected as costs.

We realize that the $25.00 fee does not fully compensate the bank for the time involved in processing garnishments, but it is a vast improvement over the current $10.00 fee.

I have contacted the Oklahoma Administrative Office of the Courts (AOC) for assistance in making creditors aware of this new provision. We are discussing various ways to accomplish this such as adding a cover letter to garnishment forms available from the court clerks, adding a statement in bold to the non-continuing general garnishment summons (the form is promulgated by the AOC and required to be used by creditors per the garnishment statutes), or possibly have the court clerks acknowledge the creditor presented a check payable to the bank as garnishee when the garnishment summons is issued. Look for updates regarding this in a future Legal Briefs article.

Although it remains to be determined by a court, it is our position that a plain reading of the amendment is that if a check for the fee is not include at the time the garnishment summons is served on the bank, the bank is not required to freeze the debtor’s account nor to respond to the summons.

Please note the fee is not required to be made by cashier’s check, so what should the bank do if the check is dishonored? Title 12 O.S. § 1178.2 requires the garnishee’s answer must be filed and a copy of it must sent to the judgment creditor’s attorney or the judgment creditor if there is no attorney and a check for any funds payable to the judgment creditor. This must be done within 10 business days (defined as the days the courthouse is open) of service of the garnishment summons. This allows the bank time to have the check clear or be returned. If it is returned, the bank should immediately notify the drawer, inform him of the dishonor, and unless the fee is remitted and received prior to the date the answer is due by cashier’s check, certified check, cash or wire transfer, the bank will be under no obligation to respond to the summons or remit the funds.

Title 58 Small Estate Affidavits. Title 58 provides an alternative to the procedures under Titles 6 and 18 for handling deposits of deceased customers. By way of background: Title 6 and Title 18 permit (but do not require) financial institutions to disburse aggregate deposits of a certain amount or less held in sole ownership by a natural persons at time of death to heirs using an affidavit signed by all heirs setting out each heir’s relationship to the deceased. In addition to the restriction on the amount, there are other restrictions on when this affidavit can be used. The deceased owner must have: 1) died “intestate” which means s/he cannot have a Will, and 2) died a resident of Oklahoma. Why do we have these two requirements? As to the first, the bank is not a probate court and should not determine the validity of a Will nor its provisions. As to the residency requirement, Title 84 O.S. § 213 – Descent and Distribution tells us who the heirs of a deceased account owner are based on relationship so we know who must sign the affidavit for those who die Oklahoma residents. It also tells us the fractional share each is entitled to receive. However, the Oklahoma statute does not apply to non-Oklahoma residents. The intestacy laws of the state or country of the deceased customer’s residency apply, not those of the state where the deposit is located.

If the affidavit of heirs under Title 6 or Title 18 is accepted, the affidavit described in subsection A of this section shall be a valid and sufficient release and discharge for any transfer made in good-faith reliance on the affidavit and will serve to discharge the bank, savings and loan or credit union from liability to any other party (e.g., other heirs or a personal representative of the estate).

Title 58 O.S. § 393. The small estate affidavit under this section of the Probate Code has different requirements than the affidavits under Title 6 and Title 18. The affidavit under this section can be used even when the deceased had a Will or died a resident of another state. The § 393 affidavit, which must be signed by all heirs entitled to a share, whether under a Will or by intestate succession, may be used whenever the assets of the deceased located in Oklahoma (which includes not only deposits but also real and personal property that does not pass by way of joint tenancy, POD, TOD or under a formal trust) reduced by the amount of debts, does not exceed the amount of $20,000 (net estate in Oklahoma). Effective November 1, 2016, the net estate amount increases to $50,000.

In addition to the net estate in Oklahoma amount limitation, there are some additional requirements. The affidavit must include a statement of whether the deceased died intestate or with a Will, the relationship and percentage or amount each heir is entitled to, a statement that no application or petition for the appointment of a personal representative is pending or has been granted in any jurisdiction, and all taxes and debts of the estate have been paid or otherwise provided for or are barred by statute of limitations. If all conditions are met, § 394 of Title 58 applies:

The person paying, delivering, transferring, or issuing personal property or the evidence thereof to the successor or successors named in the affidavit is discharged and released to the same extent as if the person dealt with a personal representative of the decedent. Such person is not required to inquire into the truth of any statement in the affidavit. If any person to whom an affidavit is delivered refuses to pay, deliver, transfer, or issue any personal property or evidence thereof, it may be recovered or its payment, delivery, transfer, or issuance compelled upon proof of their right in a proceeding brought for the purpose by or on behalf of the persons entitled there to. Any person to whom payment, delivery, transfer, or issuance is made is answerable and accountable therefor to any personal representative of the estate or to any other person having a superior right.

As indicated earlier, a financial institution that receives an affidavit of heirs under either Title 6 or Title 18 is protected from liability if it relies on it in good faith, but there are no consequences if refuses to honor the affidavit. Good faith reliance requires the institution to make some inquiry such as whether the deceased had a Will or whether the deceased had children or living parents or grandparents if the surviving spouse is claiming as the sole heir in order to be protected. On the other hand, there is no such requirement to make inquiry when presented with an affidavit under § 393, but refusal to accept the affidavit may result in liability if the claimant has to file a probate or otherwise seek a court order. However, if the institution knows the deceased had other heirs who did not sign the affidavit (the deceased died intestate and had an account with a child who did not sign the affidavit) or had a Will (a prior search of the safe deposit box was done under Title 6 O.S. § 1308, and a Will was discovered), refusal to accept the affidavit would not make the bank liable under § 394.

Guardian and Ward. The amendments to the statutes listed below are effective November 1, 2016.

Title 12 O.S. § 2024 A.2. This statute covers the right of parties to intervene in a pending action. The italicized language has been added:

2. When the applicant claims an interest relating to the property or transaction which is the subject of the action and the applicant is so situated that the disposition of the action may as a practical matter impair or impede the applicant’s ability to protect that interest; provided, there shall be a rebuttable presumption that disposition of a petition requesting the appointment of a guardian for an incapacitated or partially incapacitated person will impair or impede the ability to protect property or other rights of the persons required to receive notice of the appointment pursuant to Section 3-110 of Title 30 of the Oklahoma Statutes.

The amendment covers persons required to receive notice when a petition for appointment of guardian is filed. Sec. 3-110 of Title 30 requires the spouse, the attorney for the person, and all adult children to receive notice. If there are no adult children, then living parents must receive notice. If there are neither living parents nor adult children, then all adult siblings shall receive notice. The effect of the amendment is to allow a person who is required to receive notice and has interest in property, such as joint owner of real or personal property, a joint account, etc. to intervene in the guardianship. If the person does, the guardian will have to provide evidence to rebut the presumption that s/he as court appointed representative of the ward impairs or impedes the rights of the joint owner. It would be easy to rebut the presumption, if for instance, the father is the ward, and has a joint account with his son or spouse. All deposits are payable to the ward. On the other hand, if deposits to the account are made by both joint owners, the court may limit or deny the guardian’s ability to access the joint on the account or require the funds be split and either the ward or the joint owner removed.

Title 30 O.S. § 3-110. This section deals with who shall receive notice of a petition for appointment of guardian for an adult (see, preceding paragraph). The statute was amended to include notice to the adult children of a deceased sibling. As indicated above, the amendment would only apply if the person had no living spouse, adult children or living parents.

Title 30 O.S. §§ 4-104, 4-105. Sec. 4-104 has been amended to require, when a guardian of a child or incapacitated or partially incapacitated adult is requested to be appointed, the guardian shall be a U.S. citizen, legal resident of or legally present in the United States. Sec. 4-105 requires the court to make inquiry, regarding such status, but if the court determines there are no qualified persons available and it is in the best interest of the ward, the court may appoint an individual regardless of his/her status in the U.S.

Eminent Domain, Mortgagee Liability

Title 69 O.S. § 1203. A condemning authority seeks to condemn property for public purposes. The condemning authority then enters into negotiations to acquire the property, and if the negotiations fail, the condemning authority has the power and authority to file a condemnation action, seek the appointment of three disinterested persons to be commissioners to value the property to be taken. When three commissioners determine a value, the commissioners’ award is then deposited into the Court and immediately upon the sums being deposited into the registry of the Court Clerk, the condemning authority has the right under the Oklahoma Constitution to take possession of and use the property. i.e., fee title passes to the condemning authority. Lien and mortgage holders are deemed to be owners and entitled to compensation. The owners of the property have the constitutional right to withdraw the commissioners’ award after deposit. This can become a problem because the condemning authority or any owner of the property has a right to object to the commissioners’ award as either being excessive (in the case of the condemning authority) or insufficient (in the case of the owner).

If an objection is made, a jury trial determines the “just compensation” for the taking of the property under subsection h. of § 1203. If “just compensation” exceeds the commissioners’ award, no worries, but if “just compensation” is less than the commissioners’ award, the owners of the property (including the mortgage holder), may be liable under the Pendergraff case (State ex rel. Department of Transportation v. Pendergraff, 919 P.2d 451) for a proportionate share of the amount that just compensation is less than the commissioners’ award. For example, if the commissioners’ award was $2,700,000 and the determination of just compensation by a jury was $1,400,000, the excess contribution or deficiency would be the difference or $1,300,000. In the Pendergraff case, the Court held that the mortgage holder by applying for and accepting a direct distribution of the commissioners’ award to pay off the mortgage is subject to an order to repay a proportionate share of the excess found by a jury when just compensation is less than the commissioners’ award. The Pendergraff case noted that this protects against a mortgage holder making a loan secured by the property exceeding the value of the property and then insulating mortgagor and the landowner from liability for the deficiency.

An issue that was not addressed under Pendergraff: what is meant by proportionate liability of a mortgagee or lien holder. Is liability a) joint and several and all “owners” are jointly liable, b) proportionate to the amount received by the owner of the commissioners’ award, or c) proportionate based upon lien priority (e.g., a lien for ad valorem tax would have priority over the mortgagor’s first mortgage)? § 1203 was amended, effective July 1, 2016, to add a new subsection:

(i) In the event that the determination of just compensation of a property is less than the commissioners’ award for such real property, any mortgagee or lien holder who received payment from the commissioners’ award in an amount in excess of the finding of just compensation value of the real property taken will only be liable for and required to pay back to the condemnor no more than the difference between what was actually received by the mortgagee or lien holder from the commissioners’ award and the jury’s just compensation value. In all respects a mortgagee or lien holder will only be liable to return to the condemnor any sums actually paid to and received by such party in excess of the determination of just compensation for the real property. The mortgagor would be and remain liable to the mortgagee or lien holder for the excess that is paid by the mortgagee or lienholder to the condemning authority.

 

Are Your Forms Files Up to Date?

By Andy Zavoina

Changes to the Flood Form

Many lenders were not aware FEMA released a new Standard Flood Hazard Determination Form (SFHDF) last June. This form is dated June 2016 and expires October 31, 2018. It is available at FEMA.gov.

This may have been a sleeper because, while the previous form expired May 30, 2015, it could continue to be used during the phase-in period of the new form. FEMA doesn’t indicate how long this phase-in period will be, but promises to provide more information soon. Most lenders don’t worry too much about use of the forms because flood verifications are outsourced and that is where the forms are generated. But this is a good time to look for the change and if you haven’t seen it yet, initiate dialogue with your vendor to inquire when they will start using this revised form. My fear is that FEMA made no real announcement to launch this revised form and if they select a date for required use, that date needs to be known and followed. Flood criticisms and penalties are still very prevalent in exams.

The changes to the form are relatively minor, but here is a list of what is updated:

1. The expiration date is now October 31, 2018

2. “Lenders” are now referenced as “Lender/Servicer

3. The form itself has Yes and No boxes and requires details of changes if there has been a “Letter of Map Change.”

4. The instructions are updated:

a. “Lender/Servicer ID No” no longer provides detailed instructions separately for various lender types, by regulator, who fund loans sold to or securitized by FNMA or FHLMC.

b. Details related to item 3 above require the LOMC date/number, the date and case number, if Yes, and if No it may be left blank.

c. As an alternative to detailed instructions on how to handle multiple buildings, the instructions are to “contact your regulator, servicer, lender or other entity as applicable.”

For the time being this is a matter (1) to watch so that any required transition date will not be missed or (2) to initiate the change now and not worry about it for two years.

Changes to the URLA

Uniform Residential Loan Application (URLA): Last December there were changes to the URLA announced by Freddie Mac and Fannie Mae. The intent of these changes is to provide an application that is easier to complete and has better information and assists in standardizing information into the Uniform Loan Application Dataset (ULAD). The current URLA has been in use for some 20 years.

The new form is not required for use until January 1, 2018 but the CFPB announced at the end of September that the form may be used beginning in 2017. It will comply with both Regs B and C for issues such as race and other protected characteristics, spousal information, marital status, or income from alimony and other sources as well as HMDA requirements. This may be something your bank wants to review and adopt as it will be required soon in any case and it makes sense to start at the first of the year for consistent data collection for ethnicity and race throughout the year.

The Commentary to Reg B provides a safe harbor for use of the 2004 version of the URLA and for the prior 1992 version. The CFPB noted that it will consider updating the Commentary at a later date. While the safe harbor is not currently expressly granted for use of this new form, we believe it is safe to use it because the Bureau has given it an official “blessing.”

A key change in the form is related to the changes in HMDA data and the ability of applicants to identify themselves using disaggregated ethnic and racial categories. The CFPB indicated it believes there will be significant benefits to lenders by permitting use of the expanded categories under the new HMDA rules, prior to 2018. The CFPB notice in the Federal Register specifically says this will not violate Reg B to do so. It explains in the instructions how to submit information for ethnicity and race on applications submitted during 2017. The instructions are specific, based on whether the final action is taken during 2017, or 2018.

When the final action on an application is taken during 2017, you would submit the data on ethnicity and race using only the aggregate categories and codes provided in the filing instructions guide for HMDA data collected in 2017, even if you permitted self-identification using disaggregated categories. For applications with final action on or after January 1, 2018, you have the option to submit the ethnicity and race data using disaggregated categories if the applicant provided it instead of using the transition rule adopted by the 2015 HMDA final rule, or to submit the data using the transition rule.

Use of the new URLA now may make transition to the new HMDA rules easier for those who deploy the new form in 2017. It will also provide more experience with the information as your loan systems are modified. You should ensure that any automatic mapping of information from an electronic URLA is verified before opting to use it. Unless you’ve tested that out, you may want to limit your use of the new URLA to paper versions only.