Guidance on Reconsiderations of Value for Residential Real Estate Valuations
The National Credit Union Administration (NCUA), along with four other regulatory agencies, recently proposed guidance addressing “reconsideration of value” (ROV) for residential real estate transactions which can be found here. For purposes of the proposed guidance, an ROV is a request from the financial institution to the appraiser or other preparer of the valuation report to re-assess the report based upon potential deficiencies or other information that may affect the value conclusion.
Comments on this proposed guidance are due in 60 days.
As explained the discussion of the proposed guidance – “Deficient collateral valuations can contain inaccuracies due to errors, omissions, or discrimination that affect the value conclusion and can result in either overvaluing or undervaluing real estate collateral.”
Several questions accompany the proposed guidance such as – “To what extent does the proposed guidance describe suitable considerations for a financial institution to take into account in assessing and potentially modifying its current policies and procedures for addressing ROVs? What, if any, additional examples of policies and procedures related to ROVs should be included in the guidance? Which, if any, of the policies and procedures described in the proposed guidance could present challenges? What model forms, or model policies and procedures, if any, related to ROVs would be helpful for the agencies to recommend? What other guidance may be helpful to financial institutions regarding the development of ROV processes? To what extent, if any, does the proposed ROV guidance conflict, duplicate, or complement the existing Interagency Appraisal and Evaluation Guidelines or a financial institution’s policies and procedures to implement those Guidelines?”
The proposed guidance provides that a credit union, or other financial institution, may initiate a request for an ROV because of the financial institution’s valuation review activities or after consideration of information received from a consumer through a complaint, or request to the loan officer or other lender representative.
The proposed guidance concludes with examples of policy/procedures and control systems that credit unions may consider when developing their process that identify, address, and mitigate the risk of deficient valuations, including valuations that involve prohibited discrimination.
The Federal Trade Commission (FTC) recently announced actions it has taken against Microsoft for violating the Children’s Online Privacy Protection Act (COPPA) by collecting personal information from children who signed up to its Xbox gaming system without notifying their parents or obtaining their parents’ consent, and by illegally retaining children’s personal information. This action aims to impose a $20 million civil money penalty that Microsoft will have to pay in addition to other injunctions and steps it is being ordered to take. The Complaint charges that Microsoft violated the COPPA Rule and Section 5 of the FTC Act, 15 U.S.C. § 45, by failing to provide complete direct notice to Parents, failing to provide complete online notice of its information practices with regard to Children, failing to Obtain Verifiable Parental Consent before Collecting, using, or Disclosing Personal Information from Children, and retaining Personal Information Collected online from Children for longer than reasonably necessary.
At the end of May, the FTC announced Amazon has also violated COPPA and was seeking a $25 million civil penalty. Amazon’s complaint related to its Alexa voice assistance service. The FTC alleged that Amazon “prominently and repeatedly assured its users, including parents, that they could delete voice recordings collected from its Alexa voice assistant and geolocation information collected by the Alexa app. The company, however, failed to follow through on these promises when it kept some of this information for years and used the data it unlawfully retained to help improve its Alexa algorithm, according to the complaint.”
Let these enforcement actions serve as a friendly reminder about the compliance requirements of COPPA. The Children's Online Privacy Protection Act (COPPA) was enacted to prevent unfair or deceptive acts or practices in the collection, use, and/or disclosure of personal information from and about children under 13 years of age on the Internet. Operators of websites or online services (operators) who have actual knowledge that they are dealing with a minor must comply with COPPA. InfoSight (due supported service for all affiliated credit unions) includes a detailed analysis, additional resources such as FAQs, NCUA regulatory alerts and model policies, which can all be found here.
ND Law Changes
This last legislative session, we saw 990 bills introduced and considered, with 630 ultimately being filed with the Secretary of State thus being law. In general, most bills impacting credit unions will take effect August 1. North Dakota law provides that a law enacted during a regular session of the Legislative Assembly takes effect on August 1 after its filing with the Secretary of State. An appropriation measure for the support and maintenance of state departments and institutions or a tax measure that changes tax rates takes effect on July 1 after its filing with the Secretary of State. Later effective dates can be specified in a bill, and a law declared an emergency measure which passes each house by a vote of two-thirds of the members-elect of each house can take effect upon its filing with the Secretary of State.
To highlight a few of the changes that may have some impact on North Dakota credit unions:
Notary Public – HB 1054 made a small amendment to provide that a notary public commission may be renewed up to sixty days before the commission's expiration date by reapplying in the same manner as required for an original commission. HB 1083 also amended Chapter 44-06.1 relating to the Revised Uniform Law on Notarial Acts. The changes primarily relate to remote notary services. A new section was added to address situations when the document is with the notary, but the individual is remote - A notary public located in this state may use communication technology under subsection 3 (of NDCC 44-06.1-13.1) to take an acknowledgment of a signature on a tangible record physically present before the notary public if the record is displayed to and identified by the remotely located individual during the audiovisual recording under the statute. HB 1083 also added new provisions relating to situations when the record/document is not physically present before the notary public including providing specific language for a declaration that the remote individual must sign.
Small Claims – HB 1058 amended NDCC 27-08.1-04 to provide that if the defendant appeals a district court judgment to the supreme court, the supreme court shall award reasonable attorney's fees to the prevailing appellee.
Residential mortgage loan servicers – HB 1068 added a new section relating to residential mortgage loan services. As defined under this new section - "Residential mortgage loan servicing" means “receiving any scheduled periodic payments from a borrower pursuant to the terms of any federally related mortgage loan, including amounts for escrow accounts under section 10 of the Real Estate Settlement Procedures Act [12 U.S.C. 2609], and making the payments to the owner of the loan or other third parties of principal and interest and such other payments with respect to the amounts received from the borrower as may be required pursuant to the terms of the mortgage servicing loan documents or servicing contract. In the case of a home equity conversion mortgage or reverse mortgage as referenced in this section, servicing includes making payments to the borrower.” New section 13-13-03 requires the residential mortgage loan servicer to obtain a license from the DFI commissioner. However, section 13-13-04 provides the entities that are exempted from the licensing requirements – “This chapter does not apply to:…2. Credit unions.” For those entities that would be covered by this new licensing requirement, the new statute details financial condition requirements, corporate governance requirements, including financial statement audits, risk management program. The chapter details when a license may be revoked and also what acts and practices are prohibited.
Uniform Commercial Code (UCC) – HB 1082 amended several areas of the UCC. You may recall this was the bill that was also introduced in South Dakota, but vetoed by the Governor. This amendment to the uniform law has been introduced in 23 states and enacted in 5 (as of the time of this writing). Briefly, for purposes of today’s highlights - the 2022 amendments to the UCC address a limited set of transactions largely involving emerging technologies, such as virtual (non-fiat) currencies, distributed ledger technologies, and, to a limited extent, artificial intelligence. The amendments span most of the Articles of the UCC and add a new Article addressing, in part, certain digital assets.
HB 1082 amended several definitions within the UCC including adding “electronic” which means “relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities.” Another addition was “sign” which means “with present intent to authenticate or adopt a record, to execute or adopt a tangible symbol, or attach to or logically associate with the record an electronic symbol, sound, or process. "Signed", "signing", and "signature" have corresponding meanings.”
It also amended the definition of “money” to exclude certain things, namely – “The term does not include an electronic record that is a medium of exchange recorded and transferable in a system that existed and operated for the medium of exchange before the medium of exchange was authorized or adopted by the government.”
Various UCC provisions are amended to replace obsolete terms that applied only to transactions on paper. For example, the term “sign” is redefined to include electronic signatures, the term “record” is substituted for “writing” to encompass electronic documents, and the term “conspicuous” is redefined to apply more broadly to the terms of both paper and electronic agreements.
Chapter 41-12 was added which covers - Controllable Electronic Records. Under this section, "Controllable electronic record" means a record stored in an electronic medium that can be subjected to control under the new statute. The term does not include a controllable account, a controllable payment intangible, a deposit account, an electronic copy of a record evidencing chattel paper, an electronic document of title, electronic money, investment property, or a transferable record. In general, the new Article 12 provides rules for transactions involving certain new types of digital assets, including cryptocurrency and non-fungible tokens (NFTs). Under the UCC, these intangible assets are called “controllable electronic records,” or “CERs.” To ensure that the UCC remains relevant, CERs are defined to include not only assets created using today’s distributed ledger or “blockchain” technology, but also any assets that may function similarly using future technologies.
Amendments to Article 9 will facilitate the use of digital assets as collateral for loans. Under the prior version of Article 9, there was no effective way for a lender to perfect a security interest in digital assets except by filing a financing statement, and no way to ensure priority of the security interest without obtaining a release or subordination from all other secured parties, if they are even disclosed. The amended Article 9 will provide that a lender with control of digital assets has a perfected security interest with priority over the interests of any other lenders who do not have control.
Publication of legal notices by newspapers – HB 1197 added two new definitions to section 46-05-01, which covers newspapers qualified to do legal printing. For purposes of that statute, "E-edition" means a “digital facsimile of a newspaper print edition which is substantially the same in both format and content as the print edition” and "Publish" means “the dissemination in the print edition of a qualified newspaper or in the newspaper's e-edition if it has one, or in both.”
Another amendment to the UCC came from SB 2392 which amended the definition of “deposit account” as it related to secured transactions. As amended,"Deposit account" means a demand, time, savings, passbook, or similar account maintained with a bank. The term does not include investment property, a United States central bank digital currency, or an account evidenced by a certificate of deposit or an instrument.
Auto Renewal Agreements – HB 1228 amended provisions of Chapter 51-37 which relates to customer contract clauses and automatic renewals. The definition of “agreement” was added which means “a written agreement between a customer and a party acting in the usual course of business in which a customer borrows, buys, leases, or obtains merchandise, personal property, real property, or services for valuable consideration.” Also, amendments extended the requirements/protections of this chapter to include service (previously limited to merchandise). The chapter requires specific language in the agreement and written notice if a person sells or offers to sell merchandise or a service for a specified period under an agreement containing a provision for automatic renewal. These revisions apply to contracts entered after July 31, 2023.
Execution of a Judgement – HB 1291 increased the timeframe to enforce a judgment from 10 years to 20 years. Specifically, NDCC 28-21-01 will provide, “A judgment creditor or the party's duly appointed personal representatives at any time within twenty years after the entry of judgment may proceed to enforce the judgment by execution as provided in this chapter. If the judgment creditor in a mortgage foreclosure does not proceed within sixty days after entry of judgment in the foreclosure to serve a special execution and proceed without delay to a sheriff's sale, any other lienholder or other interested person may obtain the special execution and proceed to arrange for a sheriff's sale.”
Unclaimed Property – HB 1360 amended provisions related to record retention, specifically, upon receipt of a notice for an examination a holder shall retain, until the conclusion of the examination or any related appeal or litigation, all relevant records dating back ten years from the commencement of the examination, plus the applicable dormancy period before the date of the administrator's delivery of a notice of an examination to a holder.
Use of Merchant Codes – HB 1487 added a new provisions relating to financial entities use of merchant codes to track firearm and ammunition-related purchases. For purposes of these new provisions, "Financial entity" means “a person involved in facilitating or processing a payment card transaction, including a bank, acquirer, payment card network, or payment card issuer.” HB 1487 goes on to provide that a financial entity or its agent may not require the use of a firearms code in a manner that distinguishes a firearms retailer located in this state from a general merchandise retailer or a sporting goods retailer. Furthermore, a financial entity may not engage in the following discriminatory conduct: declining a lawful payment card transaction based solely on the assignment of a firearms code; or taking any action against a customer which is intended to suppress or track lawful commerce involving firearms or ammunition.
Violations are required to the attorney general who may investigate the alleged violations. If the attorney general finds a financial entity willfully violated this chapter, the attorney general shall assess a fee of $10,000 per transaction.
Voluntary liquidation of Credit Unions – SB 2092 updated provisions relating to the removal of officers, directors and employees of financial corporations or institutions. It also adopted new provisions relating to the voluntary liquidation of a credit union, including the steps that the board of directors must take, notice requirements, and the timing of the process.
Abandoned motor vehicles – SB 2118 made revisions to NDCC 23.1-15 to provide that an abandoned motor vehicle for which the value as determined by the party with custody is no more than one thousand dollars and for which the owner, lienholders, or secured parties cannot be identified with reasonable certainty after a search of the department of transportation records is immediately eligible for disposition by a permitted scrap iron processor and is not subject to the notification, reclamation, or title provisions of this chapter. Any license plate displayed on an abandoned motor vehicle must be removed and destroyed prior to the purchaser taking possession of the vehicle. An abandoned motor vehicle qualifying for immediate disposal is not eligible for reimbursement of storage costs under section 23.1 - 15 - 09. As a note, “secured party” in this context means “an insurer covering the abandoned motor vehicle under an insurance policy.”
New provisions were also added related to submerged vehicles, including, “Upon the owner's stated refusal to remove the submerged vehicle or after thirty days from the submerged vehicle entering the water or being discovered in the water if the owner, lienholders, or secured parties are identified after a search of the department of transportation records. The department may use a commercial towing service that is a permitted scrap iron processor for extracting, towing, and disposal of a submerged vehicle. The department may seek reimbursement from the owner for any costs related to extracting, towing, and disposal of the submerged vehicle.”
Money transmitters – SB 2119 added extensive provisions relating to money transmission which is defined as any of the following: “a. Selling or issuing payment instruments to a person located in this state. b. Selling or issuing stored value to a person located in this state. c. Receiving money for transmission from a person located in this state. The term includes payroll processing services. The term does not include the provision solely of online or telecommunications services or network access.”
However, new section 13 - 09.1 – 02 lists the exemptions and provides that “this chapter does not apply to:… A federally insured depository financial institution, bank holding company, office of an international banking corporation, foreign bank that establishes a federal branch pursuant to the International Bank Act of 1978 [12 U.S.C. Section 3102], corporation organized pursuant to the Bank Service Company Act [12 U.S.C. Sections 1861-1867], or corporation organized under the Edge Act [12 U.S.C. Sections 611-633].” The new statute defines, “Federally insured depository financial institution" as a bank, credit union, savings and loan association, trust company, savings association, savings bank, industrial bank, or industrial loan company organized under the laws of the United States or any state of the United States, when such bank, credit union, savings and loan association, trust company, savings association, savings bank, industrial bank, or industrial loan company has federally insured deposits.
Escrow Accounts – SB 2263 revised provisions relating to escrow accounts in North Dakota adding the term and definition for “surplus account.” Notice requirements for surplus escrow payments and refunding of surplus escrow payments were revised and addressed under this bill.
As always, DakCU members may contact Amy Kleinschmit with any compliance related questions.
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