Maryland Legal Alert for Financial Services

In this issue:
• BANK MORTGAGE LOAN ORIGINATORS CAN NOW REGISTER UNDER S.A.F.E. ACT
• IF EXECUTED TOO EARLY, DEED IN LIEU OF FORECLOSURE IS VOID
• SEC RULES ON APPROVAL OF EXECUTIVE COMPENSATION PROVIDE SOME RELIEF
• SMALL BUSINESS LENDING FUND PRESENTS AN OPPORTUNITY FOR CAPITAL
BANK MORTGAGE LOAN ORIGINATORS CAN NOW REGISTER UNDER S.A.F.E. ACT
You have waited patiently, worked hard on your policies and procedures, and now it is finally time to begin the registration process for bank employees who are “mortgage loan originators.” The federal regulators announced on January 31, 2011 that the Nationwide Mortgage Licensing System is ready for the registration process to begin. Bank employees (and employees of bank subsidiaries) subject to mortgage loan originator registration have until July 29, 2011 to register. After that date, bank employees may not act as mortgage loan originators unless they first register through NMLS. Click here for an outline of the S.A.F.E. Act registration requirements for depository institution employees. Please contact Margie Corwin or John Morton if you would like to discuss these registration requirements.

IF EXECUTED TOO EARLY, DEED IN LIEU OF FORECLOSURE IS VOID
Maryland’s highest court recently opined that a deed in lieu of foreclosure is void if signed at the time a mortgage loan is first made. In C. Phillip Johnson Full Gospel Ministries, Inc. v. Investors Financial Services, LLC, decided January 28, 2011, the Court of Appeals relied on the long-held rule against “clogging the equity of redemption” (simply put, eliminating a property owner’s right to redeem the equity in property). The Court drew a distinction between requiring execution of a deed in lieu as a precondition to the loan in the first instance, and negotiating a deed in lieu after an event of default has occurred. The Court was clear that after loan default, a party facing foreclosure may legitimately enter into an arrangement which includes a deed in lieu of foreclosure. An interesting twist in this case: the real property underlying the deed was located in Virginia. The Court nevertheless believed it had jurisdiction to decide this case because it viewed the deed in lieu of foreclosure executed at the origination of a loan as simply a mortgage contract and not an absolute conveyance of property. One question raised by this decision: must a foreclosure be initiated before a deed in lieu of foreclosure may be validly executed? Please contact Margie Corwin if you would like to discuss this case.

SEC RULES ON APPROVAL OF EXECUTIVE COMPENSATION PROVIDE SOME RELIEF
There is some good news for smaller reporting companies and public companies who participated in the Troubled Asset Relief Program Capital Purchase Program (“TARP”). In our October 28, 2010 issue of the Dodd-Frank Survival Guide, we discussed Dodd-Frank’s provisions relating to executive compensation and corporate governance matters that apply to public companies. On January 25, 2011, the Securities and Exchange Commission (“SEC”) adopted final rules to implement these and other Dodd-Frank requirements. The rules were adopted substantially as proposed, except that any company who met the definition of “smaller reporting company” as of January 21, 2011 is exempt from the “say on pay” vote and the frequency on “say on pay” vote requirements until the first annual or special meeting occurring on or after January 21, 2013 at which directors will be elected and for which the proxy rules require disclosure of executive compensation. The final rules do not exempt smaller reporting companies from the requirement relating to the approval of golden parachute arrangements. In addition, the final rules provide that public companies who participated in TARP do not have to comply with the Dodd-Frank “say on pay” vote requirement and also do not have to solicit votes as to the frequency of the Dodd-Frank “say on pay” vote (they are already required to annually solicit a “say on pay” vote under the TARP rules). Once a TARP participant satisfies its obligations under TARP, however, the Dodd-Frank rules will apply. Please contact Andy Bulgin if you would like to discuss these final rules.

SMALL BUSINESS LENDING FUND PRESENTS AN OPPORTUNITY FOR CAPITAL
We recently discussed in our January 24, 2011 Legal Bulletin that the Small Business Jobs Act of 2010 has made up to $30 billion of funding available to community banks for the purpose of encouraging small business lending. This is important news for community banks in Maryland that engage (or want to engage) in small business lending. This funding has the potential to be one of the cheapest sources of capital available today. The funds are available through the Small Business Lending Fund, administered by the U.S. Department of the Treasury. Treasury recently issued guidance for depository institutions and holding companies who are interested in participating. Applications are due by March 31, 2011. If you have questions about this program or would like assistance in applying, please contact Andy Bulgin.