Legal Ease is the weekly Q&A from the IBAT Bottom Line. Go to the Legal Ease Archive.
Latest Additions to Legal Ease:
We have a customer who writes payroll checks to his employees, the employee endorses it, then the owner endorses it and brings the checks to the bank to cash. He receives all the cash to give to his employees. This last time it exceeded $10,000. Question #1 Do I have to file a CTR? Question #2 Do I have to include all the payees of the checks on the CTR?
Question #1 – Yes; Question #2 - Yes. FinCEN has an FAQ on the subject of question #1 (see 13b below) and what is known as the “Shrimp Boat Ruling” (also below) on the subject of question #2.
Question 13b: Would a CTR be required if several individual employees endorsed their respective payroll checks (all individual payroll checks are under $10,000 but combined they aggregate to an amount that exceeds $10,000), and made the checks payable to one employee who, in turn, cashed them at a financial institution for the purpose of distributing the proceeds back to the individual employees?
Answer 13b: A CTR would be required in this instance because one person is receiving more than $10,000 in currency.(10/2001)
We understand the relevant facts to be as follows. Customer 1 is a seafood processing company. When it purchases seafood from a shrimpboat captain (or similar seafood supplier boat business), it customarily writes a check for the amount of the purchase price, drawn on Customer 1’s account at the Bank, to the captain. The captain, in turn, endorses the check back to Customer 1, who then sends an employee to the Bank to cash the check. The Bank believes that Customer 1 uses the currency received when the check is cashed to pay the seafood supplier, ultimately, in currency.
Customers 2 and 3 are also seafood processing companies that are customers of the Bank. Customers 2 and 3, like Customer 1, engage in the transactions described above to pay seafood suppliers for seafood.
Question 1-Completion of Section A of CTR
Because Customer 1 purchases seafood from a number of boats, it often cashes several checks, endorsed back to it by the boat captains, on the same day. Some of those checks will be for $10,000 or less; others may exceed $10,000, depending upon the purchase price of the catch in each case. Often the total amount of the multiple checks brought in to the Bank by Customer 1 during a business day to be cashed for this reason exceeds $10,000, thereby requiring the filing of a CTR.
Your first question relates to the manner in which the Bank should complete Section A of the CTR in these circumstances. Section A calls for information about the "Person(s) on whose Behalf Transaction(s) is Conducted." The answer depends upon the amount of each check that Customer 1 is exchanging for currency.
- To the extent that each double-endorsed check is payable to a different person and does not exceed $10,000 (though the checks exceed $10,000 in the aggregate), information about the person that is the original payee of each check (i.e., the shrimpboat captain) is not required and Section A of the CTR should be completed using information about Customer 1.
- If one or more of the batch of checks being cashed during a business day by Customer 1 in this fashion for a particular original payee exceeds $10,000 (or two or more checks payable to the same or related payees exceed $10,000 in the aggregate), the CTR filed for that day with respect to Customer 1 should include a separate Section A for each such payee, completed using information about such payee. If so, the Bank should check the “multiple persons” box (No. 1b) on the first page of the CTR. In addition, a Section A should also be completed using information about Customer 1 for those checks that do not exceed $10,000.
Compliance Tip: Follow-up with your tellers and with those responsible for filing CTR’s to ensure that information necessary to complete Section A for the payee of each check is being collected and reported.
A customer has requested his real estate loan be modified by lowering the interest rate and adjusting the payment amount accordingly. Our bank wants to charge a modification fee. I know modifications by themselves do not trigger new TILA disclosures, and I don’t believe the charging of a modification fee does either. Can you confirm this?
The problem is that in Texas, unless a fee is expressly authorized it is in fact not authorized (see IBAT fee chart). That does not mean that the bank could not pass along any actual costs associated with a modification from a third party, for example, a fee to an attorney to prepare the modification. But for the bank to charge a fee for the preparation of the modification document internally would very likely violate the prohibition on the unauthorized practice of law. The prohibition on charging a fee for preparing a document internally is prohibited because it affects title to real property (see Government Code Chapter 83). To add on to any third party fee is simply not authorized by the Texas Finance Code.
If it was a home equity loan, for certain the lender would have to add any modification fee to all other fees charged at origination to ensure the amount did not violate the 3% fee cap.
On the federal law side, unless it met the definition of a refinance under 1026.20(a) it would not trigger any "subsequent disclosures" and a lender could contract for and charge a modification fee - but again, see the state law issues above.
Note: Reminder from Karen Neeley (IBAT General Counsel, with Cox Smith Attorneys in Austin) that section 303.017 Finance Code effectively prohibits “loan fees” on consumer loans secured by real property other than reasonable expenses and fees paid to third parties!
If a flood hazard determination is good for seven years, do we have to make any kind of flood determination at, for example, a three- or five-year balloon renewal?
The answer is maybe. Although technically rescinded, look at pgs 51-52 of the mandatory purchase guidelines.
"A previous determination may not be reused when making a new loan. If the loan is not new, i.e., if the transaction pertains to increasing, extending, renewing, or purchasing an existing loan, the determination can be reused if:
[*] It is less than 7 years old; and
[*] No new or revised FIRM or FHBM has been issued in the interim; and
[*] It was initially recorded on the SFHDF.
The problem is, if you don't obtain a new determination, how do you ensure that no remapping has occurred? If you have "life of loan" service from a third party and have not been notified of a change, you could rely on that - but do you want to? Additionally, your contract with that third party may address this issue and require you to obtain a new determination to extend your "life of loan" coverage.
If we pay off a tax lien lender and add the amount to our first lien loan, would we be looking at a home equity loan? Additionally, we would need to re-amortize the loan to extend the payments and maturity due to the amount of payoff, so would this be a refinance?
No, it would not have to be treated as a home equity loan. Yes it would need to be handled as a refinance. That's according to Karen Neeley, IBAT General Counsel, with Cox Smith Attorneys in Austin.
Below is 7 TAC 153.41 that provides for the refinance of debt secured by homestead. The prevailing wisdom is that you could refinance the amount due the tax lien lender (remember that is taxes + interest + fees)because it is directly related to a purpose described by Subsection (a)(2), (a)(3), or (a)(5) of Section 50 of the Texas Constitution.
RULE §153.41 Refinance of a Debt Secured by a Homestead: Section 50(e)
A refinance of debt secured by a homestead and described by any subsection under Subsections (a)(1)-(a)(5) of Section 50 of the Texas Constitution that includes the advance of additional funds may not be secured by a valid lien against the homestead unless: (1) the refinance of the debt is an extension of credit described by Subsection (a)(6) or (a)(7) of Section 50 of the Texas Constitution; or (2) the advance of all the additional funds isfor reasonable costs necessary to refinance such debt or for a purpose described by Subsection (a)(2), (a)(3), or (a)(5) of Section 50 of the Texas Constitution.
(1) Reasonableness and necessity of costs relate to the type and amount of the costs.
(2) In a secondary mortgage loan, reasonable costs are those costs which are lawful in light of the governing or applicable law that authorizes the assessment of particular costs. In the context of other mortgage loans, reasonable costs are those costs which are lawful in light of other governing or applicable law.
(3) Reasonable and necessary costs to refinance may include reserves or impounds (escrow trust accounts) for taxes and insurance, if the reserves comply with applicable law. Source Note: The provisions of this§153.41 adopted to be effective January 8, 2004, 29 Tex Reg 84
Sec. 50. HOMESTEAD; PROTECTION FROM FORCED SALE;MORTGAGES, TRUST DEEDS, AND LIENS. (a)The homestead of a family, or of a single adult person, shall be, and is hereby protected from forced sale, for the payment of all debts except for:
(1) the purchase money thereof, or a part of such purchase money;
(2) the taxes due thereon;
(3) an owelty of partition imposed against the entirety of the property by a court order or by a written agreement of the parties to the partition, including a debt of one spouse in favor of the other spouse resulting from a division or an award of a family homestead in a divorce proceeding;
(4) the refinance of a lien against a homestead,including a federal tax lien resulting from the tax debt of both spouses, if the homestead is a family homestead, or from the tax debt of the owner;
Additionally, any refinance would be subject to early disclosure requirements and ATR analysis.