Maryland Legal Alert for Financial Services

In This Issue:

NEW AFFIDAVIT FORM FOR SUSPECTED FALSE FINANCING STATEMENTS

JOINT ACCOUNT HOLDER GUILTY OF THEFT FROM DEPOSIT ACCOUNT

HMDA: IT’S NOT TOO SOON TO START THINKING ABOUT CHANGES

MARYLAND’S REGULATORY REFORM COMMISSION RELEASES REPORT

MARYLAND’S LEGISLATIVE SESSION BEGINS JANUARY 13, 2016

NEW AFFIDAVIT FORM FOR SUSPECTED FALSE FINANCING STATEMENTS

On November 19, 2015, the Director of the State Department of Assessments and Taxation (SDAT) adopted regulations, including an Affidavit Regarding Financing Statements form required by Maryland’s version of the Uniform Commercial Code (UCC).

As reported in the Maryland Laws Update for 2015, recently enacted Commercial Law Article § 9-501.1 prohibits a person from filing a financing statement with SDAT or a clerk’s office if the person knows that the financing statement is false, unauthorized under the UCC, or not related to a valid existing or potential commercial or financial transaction.

If a filing office receives a financing statement that appears to be false or unauthorized, the filing office must send a notice to the persons identified on the financing statement. In part, the notice must advise the recipients that the financing statement may be terminated unless, within 45 days after the filing office sends the notice, the secured party, the debtor or another person filing the financing statement submits the affidavit form stating that the person believes the financing statement does not violate Commercial Law Article § 9-501.1 and providing the factual basis for that belief.

The filing office may terminate the financing statement if it does not receive an affidavit form and it reasonably believes the financing statement was filed in violation of Commercial Law Article § 9-501.1.

Secured parties, and commercial lenders in particular, should be aware that the affidavit form exists so they can respond quickly if a financing statement is ever challenged by SDAT.

Please contact Bob Enten if you have any questions about the financing statement affidavit or this new Maryland law.

JOINT ACCOUNT HOLDER GUILTY OF THEFT FROM DEPOSIT ACCOUNT

In a decision issued December 17, 2015, Maryland’s highest court held that a party to a jointly held multiple-party deposit account can be found guilty of theft from the account. This is true even though all parties have full access to withdraw from the account.

As a result, the Maryland Court of Appeals found evidence was sufficient to support the conviction of a daughter for theft and embezzlement (fraudulent misappropriation by fiduciary) from her father, where facts established that funds which belonged to the father were withdrawn and used by the daughter for her own benefit without the father’s knowledge or authorization.

The daughter argued that because Maryland’s Multiple-Party Accounts law gives all parties the right to withdraw funds from the account, she could not be guilty of theft.

The Court of Appeals disagreed, stating that a right to withdraw does not establish ownership of the funds in an account. Further, the Court recognized that Maryland’s Multiple-Party Accounts law expressly confers ownership only after one party to a multiple-party account dies.

In this case, both parties to the account were living. The Court commented that its decision is not inconsistent with prior decisions by the Court of Special Appeals holding there is a rebuttable presumption that all joint account holders own funds in a multiple-party account. This presumption is discussed in our November 2015 Maryland Legal Alert article concerning garnishments.

The Court of Appeals stated “[e]ven if a rebuttable presumption of equal ownership of funds among parties to a multiple-party account exists, we hold that the evidence adduced at trial [from both father and daughter, who agreed that the funds belonged to the father] rebutted that presumption in this case.” This Court of Appeals decision – to which 3 of 7 Court of Appeals Judges dissented – along with other recent litigation, suggests there is uncertainty about ownership of funds in Maryland multiple-party accounts. Much of this uncertainty can be eliminated through carefully drafted terms in a deposit account agreement.

We urge depository institutions to review and, if necessary, modify deposit account agreements and account opening procedures to make clear the ownership rights of various persons who are named on deposit accounts.

Please contact Christopher Rahl if you would like to discuss modifying deposit account agreements or procedures.

HMDA: IT’S NOT TOO SOON TO START THINKING ABOUT CHANGES

Revised federal Home Mortgage Disclosure Act (HMDA) regulations were published by the Consumer Financial Protection Bureau (CFPB) in the October 28, 2015, Federal Register.

The revised HMDA rules become effective January 1, 2018, except for one new coverage exclusion for depository institutions with very low mortgage loan volume (mentioned below).

While the year 2018 may seem far away, there are expansive changes to the types of transactions and types of information that must be reported and it is wise to put on someone’s “to do” list in 2016 an initial review of the revised HMDA rules to determine how they will affect future business activities. At the very least, someone needs to figure out how to get commercial lenders to comply (yes, some business purpose loans will be subject to HMDA reporting).

Significant for non-depository, for-profit mortgage lenders, coverage will expand. Very simply stated, beginning January 1, 2018, HMDA will apply to a non-depository, for-profit mortgage lender that on the preceding December 31 had an office in a metropolitan statistical area and that originated in each of the two preceding calendar years (i.e., 2016 and 2017) at least 25 closed-end dwelling-secured loans or at least 100 open-end dwelling-secured lines of credit.

These much lower loan volume triggers are expected to result in many more non-depository mortgage lenders being subject to HMDA beginning in 2018.

As mentioned above, there is one new coverage exclusion beginning January 1, 2017 for depository institutions that originated, in each of the two preceding calendar years (i.e., 2015 and 2016) fewer than 25 purchase money and first refinancings of purchase money dwelling-secured loans. This new coverage exclusion only applies for the calendar year 2017, after which a different exclusion applies. The CFPB has a HMDA Regulatory Implementation page that provides helpful information.

Please contact Christopher Rahl if you have questions about HMDA.

MARYLAND’S REGULATORY REFORM COMMISSION RELEASES REPORT

On December 1, 2015, Governor Larry Hogan’s Regulatory Reform Commission (co-chaired by Gordon Feinblatt’s own Abba Poliakoff) released its initial 2015 Report.

The report, which is based on comments received from citizens during regional public outreach meetings held by the Commission last fall, summarizes the Commission’s findings on Maryland’s current regulatory environment and provides initial recommendations for business-friendly regulatory reform.

Overall, the Commission recommends that state agencies adopt a customer service approach to business licensing in order to change the current adversarial regulatory environment many business representatives reported encountering.

Of particular importance to the financial services industry, the report recommends that regulations governing residential mortgage lenders, brokers and servicers be updated to eliminate rules unique to Maryland, coordinate with federal regulations, and recognize significant changes in the mortgage industry in general, and changes resulting from electronic business practices.

Moreover, the report specifically suggests that the General Assembly change the Maryland Mortgage Lender Law to eliminate the current licensing requirement for out-of-state state chartered banks as long as those banks are regulated by the FDIC.

If you are interested in pursuing legislation to eliminate Maryland Mortgage Lender licensing for out-of-state state chartered banks, or if you are simply interested in discussing the findings and recommendations of the Commission, please contact Christopher Rahl.

MARYLAND’S LEGISLATIVE SESSION BEGINS JANUARY 13, 2016

The Maryland General Assembly will convene for its annual 90-day session on January 13, 2016. It is anticipated that bills will be introduced dealing with a variety of issues affecting financial service providers, including foreclosure, HOA and condominium association liens, investment of public funds, debt collection, estates and trusts, deposit accounts, auto financing, and more. We will be tracking these bills and will be actively lobbying on behalf of a number of clients.

If you have any questions about or interest in legislative issues, please reach out to Bob Enten.