Compliance Center: Supreme Court Rules Junior Mortgages Cannot Be Voided in Bankruptcy

The United States Supreme Court ruled that “a debtor in Chapter 7 bankruptcy proceeding may not void a junior mortgage lien when the debt owed on a senior mortgage lien exceeds the current value of the collateral.”

The Supreme Court’s ruling reverses judgments from the 11th Circuit Court of Appeals.  Prior to the Supreme Court’s ruling, debtors used the provision in Section 506(d) of the Bankruptcy Code as a means to extinguish or “strip off” junior mortgage liens entirely when the outstanding debt owed to a senior lien holder exceeded the current value of the collateral.  This left the junior lien holders with an unsecured debt in a Chapter 7 action.

The outcome of this ruling is that liens securing valid claims stay with the property until either foreclosure or the underlying debt is paid off.

Credit unions faced with member bankruptcy issues may wish to consult with their legal counsel.

Compliance Question of the Week

Do we have the right to refuse to cash an “on-us” check (a check drawn on a credit union member’s account) when the check is presented by a non-member?

No. Oregon, Washington, and Idaho law say that the credit union cannot refuse to cash this type of check simply because the non-member doesn’t have a relationship with the credit union.

However, a credit union can deny cashing an on-us check presented by a non-member if the non-member fails to comply with the check cashing requirements, such as a valid ID, thumbprint, applicable endorsement, or fee to cash the item. Additionally, if there are not enough funds in the account to cash the check, or the check looks altered or suspicious, the credit union may refer the non-member back to the check maker or try to verify the check with the maker before cashing the item.

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Legal Briefs

National Credit Union Administration (NCUA) 

The NCUA issued a press release detailing credit unions lending, stating that loan balances rose almost 11 percent since the first quarter of 2014.

The NCUA announced that it will be holding a webinar on remittance transfers on Wednesday, June 17. Credit unions can register for the webinar here.

The NCUA announced that it will host a town hall webinar on Tuesday, July 28. The webinar will focus on the performance of the credit union system, NCUA’s regulatory modernization initiative, regulatory relief efforts, a forthcoming MBL proposed rule, and cybersecurity and interest rate risks.

Consumer Financial Protection Bureau (CFPB)

The CFPB issued a Consumer Advisory Bulletin titled “Planning for diminished capacity and illness”, aimed at helping consumers understand how to prepare for their futures before diminished capacity or illness makes them unable to do so.

The CFPB posted instructions for how lenders can customize the CFPB’s new Home Loan Toolkit to include the lender’s organization’s logo.

The CFPB announced the launch of a new financial well-being initiative targeted towards people with disabilities.

The CFPB announced, through a blog article, that they will be sensitive when enforcing the TILA-RESPA Integrated Disclosure rule at financial institutions when the progress made by the financial institutions has been focused on making good-faith efforts to comply with the rule on time.

The CFPB posted information for consumers regarding misleading reverse mortgage advertisements. The article discusses the potential pitfalls of incorrect reverse mortgage advertisements and what consumers should know.

Office of the Comptroller of the Currency (OCC)

OCC Comptroller of the Currency Thomas Curry delivered prepared remarks before the BITS Emerging Payments Forum. Curry’s remarks focuses on the implications of changing delivery channels and technologies of payments may have on banks as well as the regulatory and supervisory impact.     

Federal Housing Finance Agency (FHFA)

The FHFA announced that the FHLBank of Des Moines and FHLBank of Seattle have officially merged.

Federal Deposit Insurance Corporation (FDIC)

The FDIC released its first quarter 2015 state profile—this report summarizes information on banking and economic conditions for each state.

Federal Reserve Board (FRB)

The FRB updated its Beige Book for June of 2015.

The FRB released its April 2015 Consumer Credit Report.

Financial Crimes Enforcement Network (FinCEN)

FinCEN Directory Calvery addressed the Royal United Services Institute on tackling money laundering. Calvery addressed growing threats, the roles that financial intelligence units play, and tools that are being used to help detect complicated schemes that aim to circumvent anti-money laundering regulations.

Office of Foreign Assets Control (OFAC)

OFAC has updated the SDN list as of June 4, 2015. The last update prior to this was June 1, 2015.

Questions? Contact the Compliance Hotline: 1.800.546.4465,

Posted in Compliance News, NCUA.