Posts filed under ‘New York State’
Although efforts to repeal and replace the Affordable Care Act are getting all the attention, as New York employers, credit unions have much more immediate concerns. The State is now accepting comments on proposed regulations implementing paid family leave.
Beginning January 1, 2018 the state will start phasing in the new mandate under which employees will be eligible to receive some pay during the time they are away from their job in order to bond with a child, care for a close relative who has a serious health condition, or help care for family of someone who is called to active duty. For example, starting in 2018, an eligible employee would receive 50% of their salary for a maximum of 8 weeks during a 52 week period. When it is fully phased in by 2021, employees could receive up to 12 weeks of paid family leave in an amount equal to 67% of their salary. However, the payment benefits are capped to a percentage of the State’s average weekly wage. To be eligible, an employee must have been with a covered employer full time for 26 weeks or part time for 175 days. Covered employers are those covered by the Workers Compensation Law.
If all goes according to plan, employees will pay for the expanded benefit through payroll deductions analogous to contributions that support the Workers Compensation Fund. I have my doubts, but the time for questioning the wisdom of the proposal is over and the time for getting your HR person focused on compliance has begun.
As with all complicated regulations, the devil is always in the details, particularly when we are dealing with an area of law that interacts with existing federal mandates. Please feel free to reach out to the Association if you spot something that needs clarification. By the way, my kids just got their second consecutive snow day. I understand completely why states like North Carolina and Georgia get crippled by snow storms but something is wrong when upstate New York can’t handle a two-footer. Are we becoming a state of wimps?
To foreclose on property in New York State, a lender must prove that it took physical possession of the mortgage note prior to the foreclosure, or that a valid assignment of the note to the foreclosing party has been made. This is easier said than done. Today’s blog includes citations to relevant case law in this area because for those of you who deal with mortgages, servicing and assignments, this is an area worthy of close scrutiny. So grab another cup of coffee to stay awake, and let’s get started.
First, let’s remember some basics. In order to foreclose on property, the lender or its assignee must possess both the mortgage and the note. The general rule is that once a promissory note is properly assigned, the mortgage transfers with it. Bank of N.Y. v. Silverberg, 86 A.D.3d 274, 280, 926 N.Y.S.2d 532 (2011).
Which brings me to the inspiration for today’s blog, the case of US Bank Trust, NA v. Morales, 54 Misc. 3d 1217(A) (N.Y. Sup. Ct. 2017), which was published in yesterday’s New York Law Journal. In 2006, the homeowners purchased a house in Monroe, NY for $403,000. They took out a 30 year mortgage, which was recorded in Orange County. The original lender, Home Funds Direct, named MERS as its nominee. MERS subsequently assigned the note to US Bank Trust. This assignment was also recorded in Orange County, NY. The homeowners defaulted in June of 2013; a foreclosure was commenced in April of 2016. The homeowners argued that the bank did not have the right to foreclose on the property, because it had not sufficiently demonstrated that it was the holder of both the note and the mortgage. It is widely understood that such standing can be established with either a written assignment of the note or the physical delivery of the note to the foreclosing party prior to the commencement of a foreclosure action, but New York courts continue to grapple with what documentation establishes that such a transfer has been executed.
In this case, US Bank Trust attached an affidavit of an employee of Caliber Home Loans; the affidavit explained that Caliber was servicing the loan on behalf of US Trust and was also acting as its attorney in fact. The servicer employee complied with NYS Regulations by personally reviewing the original note and the assignment of the mortgage. The plot thickens however, because he also explained that Wells Fargo was holding the original note as custodian. This fact was fatal to the bank’s foreclosure action. Even though the servicing agent explained that the original note could be obtained from Wells Fargo, it did not have physical possession of the note prior to commencing the foreclosure. Because Wells Fargo, not Caliber, was in physical possession of the note, the evidence failed to establish that the foreclosing party had standing to bring the foreclosure.
But wait. The plaintiffs argued that note was assigned to them from MERS to US Bank. The court’s response demonstrates just how fact-sensitive these inquiries have become. The note in this case identified Home Funds Direct as the lender and the note holder. According to the court, there was no endorsement to MERS on the note—which would give MERS the authority to assign—nor any information on the allonge indicating that MERS received an assignment of the note. This meant that MERS’ assignment of the note to US Bank Trust was invalid.
As if this isn’t complicated enough, the case law I have referenced in this blog relates specifically to New York’s Second Department. The key point is that the case law in this area remains fluid and highly fact-sensitive. As it stands right now, the better you document mortgage transfers and servicing rights, the better off you will be. This is one area where detailed procedures and an eye on case law is absolutely crucial.
Late Friday afternoon, New York’s Department of Financial Services (DFS) announced that it was placing $1.78 billion Melrose Credit Union into conservatorship and appointing NCUA as Conservator. Melrose is the second state-chartered credit union specializing in making taxi medallion loans to be placed into conservatorship. Montauk Credit Union was taken over by the DFS with NCUA acting as Conservator in 2015. While the ultimate outcome of Melrose’s situation remains uncertain, here are some key points to keep in mind.
Melrose is continuing as a functioning credit union. The regulatory purpose of a conservatorship is to give regulators the authority to take over management of an institution and resolve “immediate problem areas and document[s]. . .prospects for the credit union’s future.” See Examiner’s Guide Section 29-14.
In making the announcement, neither DFS not NCUA would put a timeframe on how long the conservatorship would last. But, according to NCUA’s Examiner’s Guide, NCUA aims to have conservatorships completed within two years whenever possible.
NCUA and DFS now have broad powers to address the issues confronting Melrose. For example, if the best option is a merger, NCUA’s Chartering and Field of Membership Manual stipulates that an emergency merger can be approved without regard to field of membership constraints. NCUA would be primarily concerned that any merger into a continuing credit union, if possible given Melrose’s size, took into consideration the financial strength and management ability of the continuing credit union. We saw this approach play out when Bethpage took over Montauk.
Like Montauk, Melrose is one of the only remaining open charter credit unions in the State. As explained in this 2002 Legal Opinion Letter, credit unions granted such powers prior to a 1929 revision of state law have the authority to permit membership without regard to common bond requirements. When Bethpage acquired Montauk, it acquired Montauk’s open charter.
No doubt the banking industry will seize on Melrose’s troubles as an example of problems with the industry writ large. But Melrose’s problems are nothing more or less than the lightening quick speed with which technology is now making business models obsolete. As recently as 2014, medallions sold for over $1 million. Today, the price has fallen dramatically. The cause of this decline in New York Medallions is a San Francisco based computer company, Uber, which wasn’t even formed until 2009.
New York State’s budget typically does not have a major impact on credit unions. This year is an exception. Among the Governor’s proposals is one authorizing financial institutions to impose transaction holds when they believe that individuals are being victimized by financial exploitation? The bill would have major operational implications for credit unions by giving them substantial new power and responsibility when dealing with suspected financial abuse.
Under the proposal financial institutions would be empowered to impose a transaction hold based on a good faith belief that exploitation of a vulnerable adult; may have occurred, may have been attempted or is being attempted. Interestingly the transaction holds can be placed not only on the vulnerable adults account, but also to accounts of which such person is a beneficiary, including trust and guardian accounts. Within a day of placing a transaction hold, institutions would have to report the transaction hold to Adult Protective Services and to “a law enforcement agency.” A vulnerable adult means an individual who, because of mental and/or physical impairment is potentially unable to manage his or her own resources or protect himself from financial exploitation. The Department of Financial Services would be authorized to develop a certification program, but it does not appear that training would be mandatory.
One of the key questions that I always have when analyzing a proposal like this one is how much protection financial institutions will have? After all a poorly drafted statute, no matter how well intended, could make a credit union subject to litigation for every bad financial decision made by an elderly or disabled individual. The only opinion I will offer about the draft proposal so far is that the liability protections should be strengthened.
The good news is the governor is proposing to shield institutions that impose transaction holds from criminal, civil and administrative liability for all good faith actions, including determinations not to apply a transaction hold on an account. The bad news is this protection only applies where there is a reasonable basis for such a determination. It also does not apply where an employee or financial institution acts recklessly or engages in intentional misconduct in making the determination, or the determination results from a conflict of interest.
As I have explained in previous blogs, the most unequivocal protection from liability that I have seen for credit unions is for the filing of suspicious activity reports. Comparing these protections to what NYS is proposing shows why more work has to be done if the ultimate goal is to create an environment in which institutions are confident that they can protect their vulnerable members without exposing themselves to liability.
This year’s Super Bowl pick
My Bet the Mortgage, Super Bowl pick, which is already recognized as acceptable supplemental capital for complex credit unions is…. Falcons 31 – New England 24. The Falcons use a ball control offense to keep the ball out of Brady’s hands and ultimately score a couple of late touchdowns.
There will be no blog on Monday as I am a celebrant of the new DASB, Day After Super Bowl holiday!
NCUA Details Extended Exam Cycle
In case you missed it, recently NCUA released a letter to credit unions detailing changes to its examination cycle for both federal and federally insured credit unions.
There hasn’t been much good news for state charters recently, let me tell you some. Unless your credit union meets any one of the following criteria you will receive an NCUA evaluation not less than every five years.
- Assets greater than $1 billion;
- Composite NCUA CAMEL code 4 or 5 with assets greater than $50 million; or
- Composite NCUA CAMEL code 3 with assets greater than $250 million
In addition, a working group is being formed to consider ways to further improve the examination process as it relates to state chartered credit unions. Any steps designed to decrease NCUA’s oversight of state charters are welcomed. As readers of this blog will know, yours truly has complained that NCUA has moved so aggressively to oversee the activities of these institutions that it has diminished the value of a state charter.
As for federal credit unions, they will be eligible for extended exam cycles that begin 14 to -20 months after the prior exam completion date. To be eligible for the extended cycle, a federal credit union must have:
- Assets less than $1 billion;
- CAMEL code 1 or 2, in both the composite rating and the management component rating;
- “Well capitalized” under prompt corrective action (PCA) regulations;
- No outstanding documents of resolution (DOR) items related to significant recordkeeping deficiencies; and
- Not operating under a formal or informal enforcement or administrative order, such as a cease and desist order (C&D), letter of understanding and agreement (LUA), preliminary warning letter (PWL), or a PCA directive
New Banking Chairs named
A new session triggers a game of political musical chairs as members jockey to take the helm of key committees. This year is no exception. There are two new faces that credit unions in New York State will be working with more closely over the next two years..
Senator Jessie Hamilton, the newest member of the IDC, representing the 20th Senate District in NYC, has taken the helm of the Senate Banks Committee. He replaces fellow IDC member, Senator Diane Savino, who is moving on be Vice-Chair of the powerful Senate Finance and Code Committees. Savino has been a good friend to credit unions and we wish her the best in her new assignments.
Over on the assembly side, Kenneth P. Zebrowski, was named Chair of the Banks Committee, replacing retired Assemblywomen, Annette Robinson. Zembrowski becomes the first Chairman of the Assembly Banks Committee from outside of the five boroughs in at least twenty years.
Senator Sessions: I’ll enforce Pot Laws
At his senate confirmation to be the US Attorney General, Alabama Senator Jeff Sessions strongly suggested that he would take a stronger stand against states with legal marijuana businesses then has the current justice department. According to this article , when Sessions was asked if he would continue the Obama Administration’s “don’t ask, don’t tell” policy (my characterization) on illegal drugs, the Senator responded “It’s not so much the attorney general’s job to decide what laws to enforce. We should do our job and enforce laws as effectively as we’re able,” said Sessions, adding that “Congress was entitled to change federal law if it so desired.”
Enjoy your day!
Good Morning folks,
I had the opportunity to attend yesterday’s Supreme Court oral arguments in the Expressions Hair Design case. For a lawyer this is kind of the legal equivalent to a trip to Mecca. Although it is impossible to tell from oral arguments what the ultimate outcome of any case will be, it is safe to say that the Supreme Court is not a big fan of New York’s bill drafting technique. Take a look at Section 518 of New York’s General Business Law and see if you share the court’s frustration that the intent of the law is far from clear.
This case involves an argument by merchants who claim that Section 518 violates their First Amendment rights by prohibiting them to explain the true cost of credit to consumers. In contrast, much of the argument was taken up, however, with a discussion of the statute’s meaning rather than the underlying constitutional issues. Three of the Justices’, Alito, Sotomayor and Kagan argued that the statute could be interpreted as mandating a single price for all goods. In fact, Justice Alito mused that this might be an “uninformed” interpretation and that he felt uncomfortable about ruling on the constitutionality of this statue without knowing how the New York’s Court of Appeals would interpret it.
The Truth in Lending Act used to use language identical to Section 518 to ban surcharges as a matter of Federal Law. Section 518 was passed by the legislature amid concerns that this national provision was going to expire. At the same time the legislature never defined what a “surcharge” is. In addition, although the attorney general has opined that the law permits merchants to offer cash discounts, this authority is similarly not to be found in the statute’s language.
This lack of clarity led a frustrated Justice Sotomayor to complain to the state “You’re asking me to take a lot of steps, which is start with the language of the statute, ignore it, and go to a Federal statute and apply its definitions. How many of them, you haven’t quite told me. How you differ, you haven’t quite told me. And –but I’m going to assume the Federal definitions apply, even though none of them are used here”. “So I’m –I’m very confused why you’re starting your answer to Justice Breyer by saying, look at the statute and see what the words of the statute are doing.”
Notwithstanding the fact that my powers of prognostication are not as sharp as they used to be-I would have taken Alabama over Clemson and the Giants over the Packers-I am going to guess based on yesterday’s arguments this case will ultimately be sent to the New York Court of Appeals with a request that it interpret the statue on behalf of the Federal Courts.
The funny thing is that Section 518 is by no means unique. In New York bill hearings are non-existent, committees are pro forma get-togethers, and all the real important stuff is done behind closed doors. This is not a system that lends itself to clarity. I have always been amazed it works as well as it does.
I have New York on my mind this morning, and it is not just because I am suffering from post-traumatic stress disorder after watching the second half of the yesterday’s Packers-Giants game. Is the second half over yet?
Instead, I am thinking about New York because there is a lot going on both regulatory and legislatively that financial institutions should be keeping an eye on.
Time to fill out your exemption claim forms
Once again, with a huge assist from Joan Lannon, in the Associations, compliance department, here is a link to the form that your credit union will to claim an exemption from the requirement to maintain abandon property. Remember you have until February 28, 2017 to apply for the exemption, but it makes no sense to wait.
Elder Abuse Legislation to be a top priority for Cuomo
Today marks the unofficial start of the 2016-2017 legislative sessions. This year the governor is foregoing the tradition of speaking before a joint legislative session in Albany. Instead, he is unveiling his State of the State priorities in regional speeches, the first of which is today. On Friday, he announced he would be proposing comprehensive elder abuse legislation. The specifics have yet to be released, but according to the press release, the governor’s plan would include an Elder Abuse certification program for banks as well as measures to empower banks to place holds on “potentially fraudulent transactions”. Incidentally, I don’t know if the exclusive reference in the press release to banks is an oversight or an indication that credit unions won’t be covered by these measures. I strongly suspect that it is the former.
Rocky start to Legislative Session
A hallmark of the Cuomo administration has been an end to New York’s dysfunctional budget process; most importantly every budget proposed by the governor has been enacted pretty much on time. This run will be put to a test this year. As these legislative preview articles indicate, both the governor and legislature are angry at the lack of progress in negations held late last year and there isn’t quite as much money to spend as there used to be. This could be a very interesting session.
Expressions Hair Design to be argued tomorrow
Expressions Hair Design v. Schneiderman, a case challenging New York’s ban on credit card surcharges above an items headline price, is to be argued before the Supreme Court tomorrow. Both CUNA and NYCUA wrote amicus briefs in support of New York’s law. There will be no blog tomorrow, as yours truly and Michael Lieberman will be headed to D.C to watch the arguments first hand.
As for all you depressed Giant fans, remember, we still have the Knicks. WOW it’s going to be a long winter. Maybe I will start getting ready for fantasy baseball.