Banking and Finance Webinar July 31, 2014. Lynn W. Hartman (319) 896-4083...

Banking and Finance Webinar

July 31, 2014

Lynn W. Hartman(319) 896-4083

[email protected]

New Rules for Consumer Mortgage Loan Servicing/Loss Mitigation and 2014 Iowa Legislative Update

Presenters:

Travis M. Cavanaugh(319) 896-4133

[email protected]

CLE Notice: This webinar is an accredited program under the regulations of the Iowa Supreme Court Commission on Continuing Legal Education. This program will provide a maximum of 1 hour of regular credit toward the mandatory continuing legal education requirements established by Rules 41.3 and 42.2. This webinar is also approved for 1 hour of Federal continuing legal education. [Activity # 151469]

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New Rules for Consumer Mortgage Loan Servicing and Loss Mitigation

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New Regulations

Pursuant to the Dodd-Frank Act, the Consumer Financial Protection Bureau (CFPB) has promulgated new rules governing the servicing of existing consumer mortgage loans.

Some changes in the rules impact all mortgage servicers and other exclude certain small servicers (servicers serving fewer than 5,000 mortgage loans as of January 1 of the applicable year).

The new rules have gone in to effect as of January 10, 2014.

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Notice and Contract Requirements Where a borrower has fallen behind on his/her mortgage

payments, the servicer must contact, or at minimum make a good faith effort to contact, the borrower within 36 days with information about loss mitigation options and within 45 days must provide a letter to the borrower outlining loss mitigation options and additional information including: A statement encouraging borrower to contact servicer; The telephone number to access servicer personnel assigned pursuant

to §1024.40(a) and the servicer's mailing address; If applicable, a statement providing a brief description of examples of

loss mitigation options that may be available from the servicer;

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Notice and Contract Requirements, continued

Letter must also include: If applicable, either application instructions or a statement informing

the borrower how to obtain more information about loss mitigation options from the servicer; and

The Web site to access either the Bureau list or the HUD list of homeownership counselors or counseling organizations, and the HUD toll-free telephone number to access homeownership counselors or counseling organizations.

The new rules forbid servicers, other than small servicers, from dual tracking whereby the servicer continues to pursue a foreclosure while considering a borrower’s loss mitigation application.

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Notice and Contract Requirements, continued

Exemptions. Servicers are not required to provide the notice and communications discussed if: The borrower is in bankruptcy; The bank has received from the consumer a written notice pursuant to

the Fair Debt Collections Practices Act (FDCPA) section 805(c) which requires the bank to cease communications.

Small Servicers are not subject to these notice requirements.

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Limitations on Foreclosure Foreclosure is prohibited until the mortgage loan obligation is

more than 120 days delinquent. The good news is that notices required to be given before

filing foreclosure can be sent during this 120 day period.

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Limitations on Foreclosure, continued Determining the date of delinquency may be difficult. Delinquency begins on the day a payment sufficient to cover

principal, interest, and, if applicable, escrow for a given billing cycle is due and unpaid.

If the borrower makes partial payments accepted by the lender, then the date of delinquency may change since the partial payments made are applied to the most delinquent payment first.

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Limitations on Foreclosure, continued To illustrate, imagine a mortgage requiring payment of $1,500

at the first of each month. Starting January 1, borrower begins making partial payment of $500 which is accepted by lender.

January 1 is the initial delinquency date, and the lender is required to wait 120 days prior to initiating foreclosure proceedings (i.e. until about May 1 to initiate foreclosure).

However, the continued $500 a month payment will likely push the date of delinquency out by at least one month (i.e. to February 1, pushing the date for initiating foreclosure even further back– to about June 1 if delinquency date is February 1).

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Limitations on Foreclosure - Takeaway The updated rule imposes a 120 day delay to pursuing

foreclosure action from the date of delinquency. The date of delinquency may change if borrower is making

partial payments accepted by the lender. Partial payments may impose administrative burdens and cause

complications and difficulty in filing foreclosure.

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2014 Iowa Legislative Update

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Overview The Iowa Legislature’s 2014 Session saw a number of changes

that may impact bank business. The following slides provide an overview of some of the more

substantial changes and the impact they will have on banks.

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Duty to Deliver Financial Statements and Application of Discounts to Bank

and Bank Holding Stock

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Duty to Deliver Annual Financial Statements to Shareholders

Senate File – 2200; Effective 7-1-2014. In 2013, the Iowa Legislature amended the Iowa Business

Corporation Act to require Iowa corporations to provide a copy of its annual financial statement to its shareholders within 120 days of each fiscal year close.

The Act updated the Code to exclude corporations with 100 or fewer shareholders from having to automatically send out its annual financial statement. Corporations with 100 or fewer shareholder are still required to prepare annual financial statements and provide them to any shareholders that request a copy.

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Duty to Deliver Annual Financial Statements to Shareholders,

continued Corporations with more than a 100 shareholders are deemed to have satisfied this shareholder delivery requirement if the corporation is required to file its annual financial statements (consisting of at least a balance sheet and income statement) with a state or federal agency and the following conditions are met 1) the statements are filed with the agency within 120 days after the fiscal year close; 2) the filing is made to comply with state or federal law; and 3) the financial statements are made available to the public at no cost. Typically, call reports filed with federal regulatory agencies will qualify a bank

to meet this exception.

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Removal of Discounts for Appraised Stock

House File – 2130; Effective 7-1-2014. Repealed an Iowa Code provisions that permitted the use of

discounts for minority status and lack of marketability in determining the fair value of shares of banks and bank holding companies in transactions that provide appraisal rights for dissenting shareholders.

This was the law in Iowa prior to 2001 and is the law in most other states.

After this change, the valuation method of bank and bank holding stock is similar to that of other Iowa business corporations.

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Allowable Mortgage Loan Fees

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Loan or Credit Transactions House File – 2324; Effective 7-1-2014. This Act makes changes related to consumer lending transactions

by modifying provisions applicable to residential real estate loan charges and monetary limits specified in the Iowa Consumer Credit Code (Iowa Code chapter 537).

This legislation was spearheaded by the Iowa Bankers Association to better conform Iowa law to federal law due to the recent federal regulatory changes resulting from the Dodd-Frank Wall Street Financial Reform and Consumer Protection Act.

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Loan or Credit Transactions – Allowable Mortgage Loan Fees

Act revises the allowable fees, enumerated in Iowa Code § 535.8, a state-charted bank may charge in connection with financing the purchase or refinance of a single or two family dwelling residential real estate loan.

This Iowa Code provision has been problematic for years as its list of “allowable fees” was not kept current with fees typically associated with modern-day mortgage loans (ex: flood determination fee, tax transcript fee or MERS are fees not enumerated as an “allowable fee” under the code).

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Loan or Credit Transactions – Allowable Mortgage Loan Fees, continued

If a financial institution makes a loan in which the points and fees calculated pursuant to Regulation Z’s Ability to Repay (ATR) rule is at or below the threshold for a “Qualified Mortgage” the lender is permitted to charge any fee, whether or not that fee is an enumerated allowable fee.

This exemption applies in instances where the loan itself is not a Qualified Mortgage, but the points and fees calculation is still under the Qualified Mortgage limits.

If a loan exceeds the points and fees threshold for a Qualified Mortgage, then the fees charged are limited to the enumerated allowable fees listed in Iowa Code § 535.8.

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Qualified Mortgage Points-and-Fees Caps 3 % of the total loan amount for a loan greater than $100k $3k for a loan greater than or equal to $60k but less than $100k 5% of the total loan amount for a loan greater than or equal to $20k but

less than $60k $1k for a loan greater than or equal to $12,500 but less than $20k. 8% of the total loan amount for a loan less than $12,500

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Very few loans originated by state-chartered banks are likely to exceed the Qualified Mortgage points and fees limits.

The change made should simplify compliance and reduce legal risk of charging fees outside of the enumerated state law limits.

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Consumer Credit Transactions

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Loan or Credit Transactions – Home Equity Loans

Iowa Law prior to amendment provided for a limited number of allowable fees to be charged for home equity loans (permitted include charges for title opinions, abstracting, third party document preparation, escrow deposits and notary services, but not permitted include appraisal fees, recording fees, flood determination fees, etc.).

Iowa Code § 537.2501(1) was added permitting home equity loans to charge the same fees as those permitted in a first-lien mortgage to purchase a single/two family residence.

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Loan or Credit Transactions – Home Equity Loans, continued

Allowable fees now also include:Loan origination and/or processing fee (and/or broker fee) not

exceeding 2% of outstanding principal (1% in refinances); Commitment fee and/or closing fee;Credit report fee;Appraisal fees;Attorney opinion fees;Abstract feesCounty Recorder’s fee; Inspection fees;Mortgage guarantee insurance charge;Property survey fee;

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Allowable fees now also include:Termite inspection fee;Cost of a Iowa Finance Authority title guaranty;Bona fide and reasonable settlement or closing fee paid to a third

party.The complete list of permitted fees are enumerated in Iowa

Code § 535.8(2)(a)-(b).

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In instances where the home equity loan is in a first-lien position (i.e. borrower owns his/her home outright), the home equity loan is not covered by the Iowa Consumer Credit Code, as of July 1, 2014.

These loans are also not governed by Iowa Code 535.8 which limits the allowable fees on mortgages to purchase single/two-family residence.

Therefore, fees on these first-lien home equity loans may be assessed per the terms of the contractual agreement between the lender and borrower.

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Loan or Credit Transactions – Application

of the Iowa Consumer Credit CodeThe Act also changes the definition of a consumer loan under

the Iowa Consumer Credit Code.The effect of the change is that the jurisdictional limit of the

Iowa Consumer Credit Code has increased from $25,000 to $53,500 (indexed for inflation and adjusted annual as of January 1).

The increase in the jurisdictional limit will cause a higher number of loans to be subject to the Iowa Consumer Credit Code.

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Loan or Credit Transactions – Application

of the Iowa Consumer Credit Code The only aspect of the Consumer Credit Code that was not

updated to reflect this higher jurisdictional limitation was with regard to charging reasonable attorney fees for loans secured by land. For consumer loans secured by land and exceeding $25K, the lender may

require the customer to pay attorney fees. Consumer Loan is a loan in which 1) the lender is regularly engaged in the

business of making loans; 2) the debtor is a natural person, partnership, or individual; 3) the debt is incurred primarily for a personal, family, or household purpose; 4) the debt is payable in installments or a finance charge is made; the loan amount does not exceed the threshold amount. See Iowa Code § 537.1301(15).

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Loan or Credit Transactions – Updated Definition of a Finance Charge

The Act also updated the definition of a “finance charge” under the Iowa Consumer Credit Code to expressly exclude overdraft fees.

This change was enacted in response to a class action law suit alleging electronic overdrafts as usurious. This provision is applicable to charges assessed on or after July 1, 2014.

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Uniform Power of Attorney Act and Elder Abuse Act

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Uniform Power of Attorney Act

Overview - Iowa adopted the Uniform Power of Attorney Act in Iowa Code Chapter 633B.

16 states (including Iowa) have adopted this Uniform Act.

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Uniform Power of Attorney Act, continued

Statutory Form - The Act provides a statutory form that may be used by individuals to execute a power-of-attorney (POA) without the assistance of an attorney. Although a statutory form is provided under the Act, it is not the only

form for a valid power of attorney. Power of attorney is defined under the Act as a writing granting

authority to an agent to act in place of the principal, whether or not the term “power of attorney” is used.

Valid executed POA must: Be signed by the Principal or in the principal’s conscious presence be signed by

another individual, other than the agent, at the direction of the principal; Be acknowledged before a notary or other individual authorized to take

acknowledgements under the law, other than the agent.

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Validity of Old POAs – Any POA that was executed in compliance with Iowa law as it was at the time of execution, remains valid and enforceable after enactment of this Act.

The Act applies to any power of attorney created before, on, or after July 1, 2014.

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Protect Third Parties - The Act also provides protection to persons who in good faith accept and rely on an acknowledged power of attorney without actual knowledge that the power of attorney is void. This is available even when the bank does not require addition

validation (covered in the next slide).

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Actions after Presentment of a POA - The Act specifies the actions to be taken by a bank after being presented with an acknowledged POA: When presented with an acknowledged power of attorney, a bank has

seven days to either 1) accept it; 2) request reassurance over an aspect of the POA; or 3) if proper, refuse it.

A bank when presented with an acknowledged power of attorney may request 1) an agent’s certification over any factual matter related to the principal, agent, or POA; 2) an English translation for the POA or any portion of the POA if not in English, or 3) an opinion of agent’s counsel as to any matter of law concerning the POA.

The act provides a form for an agent’s certification.

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Refusal - A bank may refuse a POA or require an additional or different POA in place of the POA presented only if one of the following limited circumstances exist: The bank is not otherwise required to engage in a transaction with the

principal (i.e. the individual granting authority to the agent to act on his/her behalf) in the same circumstances;

Engaging in a transaction with the agent or the principal in the same circumstances would be inconsistent with federal law;

The bank has actual knowledge of the termination of the agent’s authority or of the POA before exercise of the power;

A request for certification, translation, or opinion of counsel is refused;

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Other occurrences in which a bank may refuse to accept an acknowledged power of attorney: The bank in good faith believes that the POA is invalid, or the agent

does not have the authority to perform the act requested, or that the POA does not comply with federal or state law or regulations, whether or not a certificate, translation, or opinion of counsel has been requested or provided;

The bank makes, or has actual knowledge of another person who has made, a report to the department of human services alleging a good-faith belief that the principal may be subject to physical or financial abuse, neglect, exploitation, or abandonment by the agent or a person acting for or with the agent.

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Wrongful Rejection - A bank that wrongfully refuses to accept an acknowledged power of attorney, is subject to a court order mandating acceptance of the power of attorney and is liable for damages sustained by the principal and reasonable attorney fees and costs.

Such an action must be brought against the bank within one year of the initial request for acceptance of the power of attorney.

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Since a bank may face potential liability for failure to timely accept a presented power of attorney, it is important to train bank employees regarding the time limits imposed under the statute (i.e. the 7 days to accept the POA or request reassurance of its validity; and the 5 days to accept the POA after reassurances are given)

Bank will also want to communicate to employees in what circumstances is it appropriate to require an agent to provide the bank with an agent’s certification, translation, or opinion of counsel.

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Elder Abuse Act Iowa Code Chapter 235F; Effective 7/1/2014. A new act that implemented severe penalties for financial

exploitation conducted by persons that stand in a position of trust or confidence of a vulnerable elder.

Banks are exempt under the Act. A confidential relationship is required to find a financial institution

stands in a position of trust or confidence. The Act specifically indicates in its definition of a confidential

relationship that it does not include legal, fiduciary, or ordinary commercial or transactional relationship with financial institutions.

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Citations LEGISLATIVE SERVICES AGENCY, 2014 SUMMARY OF

LEGISLATION ENACTED IN THE YEAR 2014 BY THE SECOND REGULAR SESSION OF THE EIGHTY-FIFTH GENERAL ASSEMBLY (Kathleen Hanlon et al., 2014).

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Paul D. Gamez(319) 896-4060

[email protected]

Enforcing Non-Compete / Non-Solicitation Agreements Practical Strategies

Presenter:

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Enforcing Non-Compete / Non-Solicitation Agreements – Practical

StrategiesThe intangible assets of the 500 companies that make up the S&P 500 comprised 17 percent of these companies’ total value in 1975 32 percent in 1985 68 percent in 1995 80 percent in 2005 81 percent in 2009

Seven Reasons Why Trade Secrets are Increasingly Important, David S. Almeling (citing, 5 J. Marshall Rev. Intell. Prop. L. 605, 611 (2006)). The Intellectual Property Marketplace: Past, Present and Future.

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Strategies, continued…

“The average worker stays at each of his or her job for 4.4 years, according to the most recent available data from the Bureau of Labor Statistics”

Job Hopping is the ‘New Normal’ for Millenials: Three Ways to Prevent a Human Resource Nightmare, Forbes, August 14, 2012.

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Strategies, continued…

Components Non - compete

Scope – Time, geographic and other business limits Non – solicitation

This is not a non-compete Solicitation v. contact v. accepting business from

Accompanied by trade secret/confidentiality protections Statutory Contractual

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Strategies Current Case

Agreement Not to Compete with the Company I agree that for 90 days from and after termination of my employment I shall not solicit or accept business from . . . or provide any services

offered by my current employer . . . For any customers who I had business dealings in the year next

preceding the termination of my employment

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Strategies Front End Rationale - What are we trying to

protect? Why is it necessary to protect?

What is truly confidential? Economic Value? Periodic Review

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Strategies Front End Multiple points of contact, etc. Controlling critical information Tracking critical information Key employee retention strategies

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Strategies Front End Documentation Customized? Is the protection narrowly tailored? Precise Language

Non-compete? Non-solicitation? Definitions Used?

Version Control? Securely Stored? Procedures Used to Obtain Consent

When signed? Who controls dissemination? Who was required to sign, etc.? Uniformly signed? Enforced?

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Strategies Current Case

“I have been informed that you have recently taken employment with a competitor . . . This is in direct violation of the confidentiality and non-compete agreement.”

“You should immediately notify all of your former customers that you are no longer with your former employer and that they should direct all future correspondence and e-mail to your former employer.”

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StrategiesBack End Risk Assessment Identify the information at risk

Has the organization historically kept the information reasonably confidential?

Shut off access to information Reach out to critical customers Conduct a technology review All other sources of information

(exit interviews, sales feedback, etc.)

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Strategies Back End Review restrictive covenant Possible responses

Letter to former employee? New employer?

Legal action Necessary? Viable?

Injunctive relief? Irreparable harm Likelihood of success

Liability v. damages Damages v. proof of damages

Causation If an issue exists, address immediately

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Enforcing Non-Compete / Non-Solicitation Agreements

Checklist Following

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Paul D. Gamez

Questions?

Lynn W. Hartman Travis M. Cavanaugh

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This presentation is designed and intended for general information purposes only and is not intended, nor should it be construed or relied on, as legal advice. Please consult your attorney if specific legal information is desired.

Banking and Finance Webinar July 31, 2014. Lynn W. Hartman (319) 896-4083...

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Transcript of Banking and Finance Webinar July 31, 2014. Lynn W. Hartman (319) 896-4083...