Thursday, May 23, 2024

August 2016 Legal Briefs

  • Unclaimed property and safe deposit boxes
  • Rep payee accounts
  • Proposed TRID Rule Changes
  • Your questions: our answers

Unclaimed property and safe deposit boxes

By Pauli D. Loeffler

For the October 2014 OBA Legal Briefs, I wrote about unclaimed property, but due to space restraints, I didn’t go into detail regarding abandoned safe deposit boxes. Since I have received several questions on this subject, a follow up article dealing solely with abandoned safe deposit boxes seemed to be needed.

There are two Oklahoma statutes that come into play with regard to the contents of a safe deposit box and unclaimed property. The first one is Sec. 1310 of the Banking Code (Title 6). While most safe deposit box leases contain provisions for auto-renewal, failure to pay the rent constitutes breach of the contract and terminates the lease. Sec. 1310 provides the procedures to be followed for drilling the box for non-payment of rent, selling the contents and most importantly, escheating the proceeds of sale and/or contents as unclaimed  property.  The bank, as lessor, has first claim for amounts due to it for past due rental fees and the expense of drilling and replacing the lock.  The bank’s lien may be satisfied out of the proceeds of the sale of the property in the box.  The residue (surplus) is held by the bank for the account of the lessee.  The part of that section of law dealing with unclaimed property reads as follows:

If any lessee or his or her heirs, administrator or executor, shall not make demand upon the lessor within five (5) years after the date of the sale, for such surplus, then the surplus shall be presumed abandoned and administered in accordance with the Uniform Unclaimed Property Act. The lessor may, at its option, turn the property over to the State Treasurer prior to the expiration of the five-year abandonment period.

The other statute is found in Oklahoma’s Uniform Unclaimed Property Act, Title 60 O.S. Section 657.3 provides:

All tangible and intangible personal property held in a safe deposit box or other safekeeping repository in this state in the ordinary course of the holder’s business and proceeds resulting from the sale of the property permitted by other law, which remain unclaimed by the owner for more than five (5) years after the lease or rental period on the box or other repository has expired, are presumed abandoned.

Most, if not all, SDB leases automatically renew, but when the last lessee has died, the lease cannot automatically renew. If John Doe dies July 12th, and the renewal date is August 1st, the lease terminates July 31st and that will be the date to use. It is not uncommon that the box rental payment is automatically being drafted from the lessee’s account with the bank, however, once the owner of the account has died, the bank has no authority to continue drafting the account for this or any other automatic draft, so DON’T.  The bank should then follow the provisions of Title 6 O.S. Sec. 1310 if the contents are not claimed by the personal representative of the estate, an access on death deputy if one was named, or by the heirs using the affidavit permitted under either Sec. 906 or the Banking Code or the affidavit under Sec. 393 of the Probate Code.

It sometimes happens that (1) five years have passed since the box rental agreement expired, (2) nothing has been done with the box, (3) the deadline for submitting the annual unclaimed property report, including a description of the contents of the expired box, has arrived (or passed) but, (4) the bank cannot legally drill the box yet because it hasn’t given the customer 30 days’ advance notice by certified mail that it intends to do so. It is crucial that the bank have procedures in place to avoid this situation. Technically, the unclaimed property provision only applies to box contents that are still held five years after the box lease has expired. If the bank drills the box at any time within the five years before abandonment, but does not sell the contents, it must be reported as unclaimed property, but there won’t be a problem.

Next we need to review the Treasurer’s Administrative Rules covering unclaimed contents:

735:80-3-11. Safe deposit boxes or other safekeeping respositories; reporting requirements

(a)    The report of contents of a safe deposit box or other safekeeping repository must include a description of the property and the place where it is held, and any offsets, including rent, drilling costs, or replacement locks, owing to the holder. The safe deposit box contents may be inspected by the State Treasurer.

(b)    Documents or writings of a private nature which have little or no commercial value, including but not limited to documents related to potential life insurance coverage, marriage records, birth records, military records, wills, death and probate records, photographs, letters, diaries, journals, personal or business records, biographical materials found in newspapers or magazines, deeds, abstracts, and other land records, shall be described in sufficient detail to enable the State Treasurer to make a determination regarding the existence of commercial value.

(c)    All coins and cash must be sent intact. No bank check substitutions for cash or coins are permitted.

(d)    A holder must report contents on forms prescribed by the State Treasurer. The prescribed forms can be located on the State Treasurer’s website.

(e)    A copy of the notarized listing of contents must be sent with the report due annually in November. Do not send contents with this report.

(f)    The State Treasurer’s Unclaimed Property Division will notify the holder in writing of its decision to accept or reject each of the reported safe deposit boxes or safekeeping repositories.

(g)    All safe deposit or safekeeping repositories which are accepted shall be sent in their entirety. All contents shall be sent in sealed, tamper-resistant bags.

(h)    A photocopy of the annual report shall be sent with the “accepted” contents at remittance time. A copy of the notarized listing of contents shall also be attached to each owner’s bag of contents.

(i)    The holder is responsible for the safe and complete delivery the contents from a safe deposit box or other safekeeping repository accepted by the State Treasurer.

Another rule of the State Treasurer specifies what the Treasurer’s office is to do with unclaimed property other than cash, once it is sent to the Treasurer’s office as unclaimed property, as follows:

735:80-7-8. Disposition of unclaimed property other than cash

(a)    If OST determines after investigation and after an attempt to dispose of the unclaimed property in accordance with the Act, that the property does not have commercial value, OST may destroy or otherwise dispose of the property at any time. If pursuant to the provisions of the Act the property has been sold at public sale, the original owner of the property, or their heirs, devisees, and assigns, if located subsequent to the sale of property, shall be entitled to the proceeds realized from the sale. The proceeds from the sale of the property are subject to the right of the holder to be reimbursed for the cost of the opening of the safe deposit box and to any valid lien or contract providing for the holder to be reimbursed for unpaid rent or storage charges. The amount reimbursed to the Holder shall not exceed the proceeds from the sale of the property.

(b)    Unclaimed property of intrinsic or historical value, if it is determined that it has no commercial value, may be loaned or donated to other agencies or institutions (such as the Historical Society) if deemed by the Treasurer that the retention of such property would be of public interest. [See: 60 O.S. §667]

(c)    If OST determines it to be in the best interest of the state, the stock or other equity interest in a business association deemed to have a value less than the expense of giving notice and the sale, may be sold immediately upon receipt without notice. If pursuant to the provisions of the Act, the stock or other equity interest in a business association have been sold, the original owner of the securities, or their heirs, devisees, and assigns, if located subsequent to the sale of property, shall be entitled to the net proceeds realized from the sale.

The bank drills the box in accordance with Sec.1310. The box contains old coins, stock certificates, savings bonds, as well as personal correspondence, deeds, receipts, photographs, etc. The coins, savings bonds and possibly the stock have commercial value, so the Oklahoma Treasurer notifies the bank of acceptance, and the bank sends ALL contents of the box to the Treasurer.

What if the bank drills the box, but finds vintage baseball cards, old photographs, a diary, a baseball with Mickey Mantle’s autograph or the like. The Treasurer may accept the all  the contents, and may then choose to send part of them, the photographs and diary,  to the Oklahoma Historical Society. The Oklahoma Historical Society might (a) decide they do have commercial value, as well as possible historical value (and it’s good for experts to recognize this), in which case the property will be sold (like any other property with value, if efforts to notify the true owner are unsuccessful); or (b) the Historical Society decides that the documents have no commercial value but do have historical or intrinsic value, which allows the State Treasurer to give or loan the documents to the Historical Society or some other museum or library that will accept them; or (c) the Historical Society decides that there is no commercial value and no historical or intrinsic value, which leaves the documents in a category of “valueless” and eventually allows the Historical Society and/or State Treasurer to destroy them.

What If the Treasurer rejects the SDB? The bank having held the property for the abandonment period should hold a sale even if it is unlikely the proceeds of the sale will be sufficient to pay delinquent rental or the drilling costs. In holding the public sale, the bank can bid at least small price. In buying the box, the bank is becomes the legal owner and can dispose of the contents as it chooses.

Rep payee accounts

By Pauli D. Loeffler

Charles Cheatham wrote an excellent OBA Legal Briefs article dealing with rep payee accounts and styling in March 2008. The information I am providing is meant to supplement that article, specifically this paragraph:

There are two situations where SSA does not require the underlying beneficiary’s name to be on the account.  One of these involves a representative payee (usually a surviving parent) who is raising a minor who is an SSI beneficiary.  In this case, the funds are permitted to go into a general household account that is not in the minor’s name.  The other situation involves an organizational representative payee (such as a nursing home) that sets up a “collective account” combining funds of multiple payees.  (There are many separate owners of funds in a “collective account,” so it not possible to put all of their names on the account.)

Household account exception. I have had several questions when the beneficiary is NOT a minor child, but the funds are being deposited into a household checking account. The SSA Program Operation Manual (“POM”) covers this at this link:

3. Exception for showing a beneficiary’s ownership of funds

There are exceptions to the general rule that the title of the account or sub account must show the beneficiary’s ownership of the funds. This exception applies if the title meets all of the following conditions:

·       Spouses and parents

·       The payee is the spouse, natural parent or adoptive parent, or stepparent of the beneficiary,

·       The payee and the beneficiary live in the same household, and

·       The payee requests direct deposit to the payee’s personal checking account, and

·       The field office (FO) confirms with the payee that benefits received are for the beneficiary’s current expenses and there will be no accumulation of funds in the account.

This exception applies for any category of title II or title XVI payments. The beneficiary does not need to be receiving benefits as a disabled/blind child or disabled adult child. The age of the “child” is not material. In addition, the exception applies for the child’s benefits whether the representative payee parent is the sole owner of the account or is married and has a joint account with his or her spouse. For more exceptions, see GN 00603.020 (link below) and GN 00603.010.

If the person named as rep payee is someone other than the spouse, parent, or step-parent of the beneficiary, such as a sibling or aunt, even if they live in the same house, this exception will not apply. Further, even if the rep payee named is the spouse, parent, etc., if they do not live in the same household (which might happen if there is a divorce or the rep payee or beneficiary becomes the resident of a nursing home), this exception will not apply.

Organizational rep payee accounts.  The March 2008 article covered account styling where an organization, such as a nursing home, is named rep payee for multiple beneficiaries. What was described is a “collective account.” Until September 2011, these accounts could only contain Social Security or SSI funds, where the organization is the named as the rep payee. Now, however, some nursing facilities use resident trust fund (RTF) accounts as a collective account. These accounts are also known as patient fund accounts. These accounts can contain funds for beneficiaries and recipients who do not have a payee, and for residents who receive other federal benefits. These accounts are acceptable as a collective account, as described in the POM GN 00603.020C.1:

A collective account normally contains only Social Security or SSI funds, for beneficiaries or recipients who have a representative payee. However, some nursing facilities use resident trust fund (RTF) accounts as a collective account. These accounts can contain funds for beneficiaries and recipients who do not have a payee, and for residents who receive other federal benefits. These accounts are acceptable as a collective account, as described in GN 00603.020C.1.

These accounts pool federal benefits for residents:

  • who receive Social Security and SSI benefits and the nursing facility is their representative payee;
  • who directly receive Social Security and SSI benefits (beneficiaries without a representative payee); and
  • who authorize the deposit of other funds, such as pensions and VA payments.

Proposed TRID Rule Changes

By John S. Burnett

Just over three months ago, on April 28, CFPB Director Richard Cordray announced that the Bureau was working on a Notice of Proposed Rulemaking to incorporate “some of the Bureau’s existing informal guidance, whether provided through webinar, compliance guide, or otherwise, into the regulation text and commentary.” Just 92 days later, the Bureau produced a 293-page proposal, announced on July 29.

To get the easy stuff out of the way first, comments on the proposal are due by October 18, 2016. We don’t know when a final rule will be issued. There are number of issues on which the Bureau has requested specific comments on whether a proposed change or an alternative is a better option for attaining the twin goals of improving consumer understanding and facilitating compliance. That will take some analysis of comments before a final rule can be agreed upon.

Some of the proposals would change creditor procedures and require modifications to loan origination systems, so one of the questions posed in the proposal is whether an effective date that is set 120 days from publication of a final rule would provide sufficient time for the industry to adjust. Also unknown (and not even mentioned in the proposal) is whether creditors could adopt the revised rule sooner than whatever effective date the Bureau decides upon.

Major goals of the proposal

Some of the major goals of the proposal are to:

·       Codify in the regulation and/or commentary the informal guidance provided on various issues, and include clarifications and technical amendments.

·       Add tolerance provisions for the “total of payments” on the Closing Disclosure and in two subsections of Regulation Z section 1026.23 (Right of rescission) to restore tolerance provisions in place before the TRID rule.

·       Adjust the partial exemption for housing finance agencies and non-profits in section 1026.3

·       Remove uncertainty concerning applicability of the TRID rules to cooperative units, which are considered real estate in many, but not all, states. The proposal would bring cooperative units under the rule regardless of state law.

·       Provide guidance on sharing the disclosures with parties involved in the mortgage origination process.

Other proposed changes

If you’re thinking that those goals ought to be wrapped up in a lot fewer than 293 pages, you’re right. However, there are a lot more changes in this proposal, some of which can be considered “wins” for creditors, and some of which will present challenges. Here are just a few of the more significant items we’ve picked up in our first run through the proposal:

Escrow cancellation notices and mortgage transfer notices under Regulation Z’s sections 1026.20(e) and 1026.39, which are applicable to all closed-end consumer credit transactions secured by a first lien on real property or a dwelling (other than reverse mortgages) would apply not only to loans for which applications were received on or after October 3, 2015, but also to those for which applications were received before that date. The Bureau would make that change effective on October 1, 2017, if the final rule is issued by April 1, 2017. The current TRID rule was ambiguous on the question of pre-TRID applications; the change would remove the ambiguity and, suggests the Bureau, make compliance easier. Many lenders have already come to that conclusion, and decided to ignore the application date in applying these two requirements.

The commentary to section 1026.17(c)(6) would be modified to clarify how to allocate buyer’s points and similar amounts between the construction and permanent phases of certain construction-permanent transactions that are closed as single transactions but disclosed separately. Such allocations have to be done carefully to avoid violating TILA section 129(r), which prohibits structuring a loan transaction or dividing a loan transaction into separate parts to evade the high-cost mortgage provisions of sections 1026.32 and 1026.35.

Changes to section 1026.19 to clarify the timing requirements for delivering Loan Estimates for applications for construction-only and construction-permanent financing. On this question, the Bureau’s proposal discusses alternative approaches for fulfilling the disclosure requirement and asks for comment on which of the alternatives would better promote consumer understanding and facilitate compliance.

Services the consumer is permitted to shop for would be handled a bit differently. First, it’s proposed that if a charge for a particular service for which the consumer is permitted to shop is payable by the consumer, the creditor would have to specifically identify that service in section C of the Loan Estimate and on the Service Provider List unless, based on the best information reasonably available, the creditor knows that the service is provided as part of a package (or combination of settlement services) offered by a single service provider. Second, if the creditor fails to provide the Service Providers List or if the list fails to comply with the regulation, the services in question would be subject to § 1026.19(e)(3)(i) with a 0% tolerance instead of the current treatment, which puts them in the 10% aggregate tolerance group (0% if the service is provided by an affiliate). Tolerance for non-bona fide charges would be subject to a 0% tolerance even if they otherwise qualify for “unlimited” tolerance.

Property taxes would be specifically listed in § 1026.19(e)(3)(iii) as a charge not subject to tolerance limits (the Bureau said they were not subject to the limits several months ago, but didn’t update the regulation).

Revised Loan Estimates would be explicitly permitted for “informational purposes” (no changed circumstance required).

Loan Estimate amounts placed in the Closing Disclosure’s Calculating Cash to Close table would be amounts from the most recent Loan Estimate provided, whether it was triggered by a changed circumstance or sent for “informational purposes.” This clarification is designed to cut down on consumer confusion when multiple Loan Estimates are provided.

And here’s one you’ve all been hoping for:

A corrected Closing Disclosure issued in lieu of a Loan Estimate in response to a changed circumstance would be effective at resetting affected cost bases for comparison with actual costs, as long as the corrected Closing Disclosure is provided within three business days of learning of the triggering changed circumstance, whether it is issued under 1026.19(f)(2)(i) – changes before consummation not requiring a new waiting period — or under 1026.19(f)(2)(ii) — changes before consummation requiring a new waiting period.

There are a lot more minor tweaks bundled up in the proposal, including some corrections of cross references and other mistakes in the current rule.

A word of caution

It would be mistake to go charging off to make any changes in your procedures based on this analysis or the proposal itself. There’s enough uncertainty involved in the proposal that we can’t depend on all of it to be adopted as presented. There are certainly some parts of the proposal that are likely to be retained in a final rule, but it looks like there will be adequate time after a final rule is unveiled later this year or early in 2017 to get the changes implemented. This is a time for study of the proposal and for submitting comments to help inform the process that will result in a final rule. There will be time enough to act on that rule when it’s delivered.

Your questions: our answers

Q.  A customer of ours has died.  He had a safe deposit box rented from us.  Today, a guy came in who said he is our customer’s brother and he wants us to let him into the safe deposit box to see if there is a life insurance policy in there.  First of all, there is no obituary and we don’t know this guy and have no way of knowing he is really our deceased customer’s brother.  Even if he is, can we allow him into the box?

A.  No. The relevant statute is Section 1308 of the State Banking Code.  Under that section of law, there is a search procedure after death.  The statute authorizes only four categories of individuals to enter the box to conduct the search, however:  the decedent’s spouse, parent, adult descendant (child, grandchild, great grandchild – someone who descended from the bloodlines of the deceased renter, not merely someone related to them) and, finally, a person named as an executor in a copy of a purported will produced by the person.  The brother in the situation you describe does not fall within any of the four categories and would need to be named administrator, or special administrator, of the estate by a court of competent jurisdiction in order to be allowed to look in the box.

Q.  I have questions about a deceased customer that had a loan with us.  Before his death he was making large withdrawals from his 401K account each month and depositing the funds into a joint checking account.  The loan payments were being made from these funds.  Now that the borrower has died, his widow dropped his name from the checking account and she takes the position that since she was not a co-borrower, she does not have to make payments on the loan.  Is she correct?

A.  If the deposit account was in joint tenancy with right of survivorship, the ownership of the account and the funds in it would have passed automatically to the wife, as the surviving joint tenant, upon the death of the husband.  The decedent’s name/ownership would no longer be on the checking account after his death whether or not his widow had it removed. By operation of law and contract, the account would become hers and hers alone, with or without his name still on your books.

If the widow is not an obligor or guarantor on the loans, she is not, as you suspected, obligated to pay on the loans — at least not directly. The loans became a claim upon the decedent’s estate, and the bank should contact an attorney to contact the estate’s personal representative and/or the probate court to enter its claim against the estate and to pursue the bank’s rights against any collateral that served as security for the loan.

Q.  In Oklahoma, is there a minimum age for a person to be an attorney-in-fact under a power of attorney?

A.  In order for an individual to have the legal capacity to enter into a contract, they must be of legal age.  Because of the nature of the duties that an attorney-in-fact would be performing, the person would need to be of legal age to have the capacity to contract.    In Oklahoma, that is 18.  If under the age of 18, the individual must be emancipated by the court in order to have the capacity to enter into a binding contract.  (Yes, the individual can have a deposit account where they are the sole owner under a special provision in the Banking Code, but that doesn’t come into play where they are acting as agent for another individual.)

Q.  We have a customer that only has a savings account.  When they want more money than they actually have on deposit in that account, one of our loan officers who knows this customer creates an overdraft in the savings account in order to provide the cash to the customer.  Is this permissible?

A.  It is totally inadvisable.  Overdraft-related matters have been under tremendous scrutiny by regulators for more than a dozen years and our belief is that the practice you describe would be strongly frowned upon by regulators.  Look at other options, such as some type of line of credit.

Q.  We have some discussion going on at our bank about sole proprietors filing an Assumed Name Certificate with the county the business is in.  I worked at a bank in another state previously and we did require this form to be filed with the courthouse. When I came to work for this bank, I was told that we didn’t need it.   Can you tell me what Oklahoma requires?

A.  Under Oklahoma law, only a partnership doing business under a name that does not include the last names of all partners would be required to file an Assumed Name Certificate with the county where the partnership has its principal place of business.  LLCs and corporations using other than the names under which they are formed file a fictitious name certificate with the Secretary of State (also known as a Trade Name filing).  There is no legal requirement under Oklahoma law that a sole proprietor file for a trade name with the SOS or record an assumed name with the county clerk.   As a way to protect against fraud, however, a bank may require a sole proprietorship to file a Fictitious Name Certificate or Trade Name Certificate with the Secretary of State.