Earlier this week, the U.S. Supreme Court held that a creditor who deliberately files a bankruptcy proof of claim for a time-barred claim does not violate the Fair Debt Collection Practices Act (FDCPA). Midland Funding v. Johnson, No. 16-348, 581 U.S. __ (May 15, 2017) (slip op.). The 5-3 decision authored by Justice Stephen Breyer was met with a blistering dissent by Justice Sonia Sotomayor.  While the decision will help unscrupulous debt collectors, it will likely hurt legitimate creditors such as banks.

The FDCPA imposes penalties for “unfair and unconscionable means to collect a debt.” 15 U.S.C. § 1692f. All states have statutes of limitation setting a time limit on bringing certain types of lawsuits.  Once the limitations period has passed, a creditor may not sue to collect the debt.  The debt does, however, in some sense continue to exist.  If the debtor chooses to repay a time-barred debt, the creditor can keep the money.  As a banker, please be sure to send a thank-you note when this happens; you’ll be in no danger of writers’ cramp given the infrequency of the occurrence.

Continue Reading A “Pro-Creditor” Supreme Court Decision That Does No Favor for Banks

A previous blog post addressed lender liability for environmental conditions on property a lender might acquire as a result of foreclosure.  Another issue lenders in Connecticut must consider prior to foreclosing on a property is the Connecticut Transfer Act.  The Transfer Act requires transferors of “establishments” to make specific disclosures to transferees regarding the environmental condition of the property being transferred and also requires one party (usually either the transferor or transferee) to be a certifying party, i.e., the party responsible for all investigation and remediation of the property in accordance with Connecticut’s Remediation Standard Regulations (or “RSRs”).

An establishment includes properties where certain enumerated operations have occurred at any time since May 1, 1967:  dry cleaners, auto body repair, and furniture stripping; as well as any property where greater than 100 kg of hazardous waste was generated in any one month, on or after November 1, 1980; and/or where any hazardous waste, generated at a different location, was recycled, reclaimed, reused, stored, handled, treated, transported or disposed of.

Continue Reading Transfer Act for Lenders

Readers may recall an earlier blog post regarding a bank’s potential liability for damage to private property caused by a tree falling onto a neighbor’s property.  In addition to property damage from obvious unsafe conditions, banks should also consider the potential liability associated with potential, unseen environmental conditions on property it has foreclosed upon.  Under Connecticut and federal law, landowners are typically responsible for the remediation of environmental contamination that exists on their property, regardless of who caused the contamination in the first instance.  However, there are exemptions that protect lenders from liability for environmental conditions so long as certain requirements are met. Continue Reading Protecting Lenders from Environmental Liability for Foreclosed Properties

The United States Court of Appeals for the Second Circuit issued a decision today in the case of OneWest Bank, N.A. v. Robert W. Melina, No. 15-3063 (2d Cir. June 29, 2016) holding that a national bank is a citizen only of the state in which its main office is located, as stated in the bank’s articles of association.

Continue Reading U. S. Court of Appeals 2nd Circuit Decision: National Bank is a Citizen Only of the State in Which its Main Office is Located

You open the paper to discover that a “new business”- NewCo has opened at the same location as a current borrower (OldCo).  Upon further investigation, you drive by the former business location of OldCo and there is different signage.  The loan file shows a history of delinquencies and calls to the borrower remain unanswered.  Or, the borrower does answer but says that the company has gone out of business.….  

What’s next?

For Lenders, this is the time to pull the file and send it to workout, amend risk ratings, undertake a collateral analysis, calculate recoverable balances, etc.  But if there is even the suspicion that the borrower and its business may have conveniently morphed into something a bit different, it is time to act.

Continue Reading Borrower Out of Business? Using the Internet to Identify Successor Liability